FIRST WAVE BIOPHARMA, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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[X]
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31, 2020
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or
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file No. 001-37853
AZURRX BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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46-4993860
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. employer identification number)
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1615 South Congress Avenue, Suite 103
Delray Beach, Florida 33445
(Address of principal executive offices)
(646) 699-7855
(Issuer’s telephone number)
Securities registered pursuant
to Section 12(b) of the Act:
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Title of Each Class
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Trading
Symbol
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Name of Each Exchange on Which
Registered
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Common stock,
par value $0.0001 per share
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AZRX
|
Nasdaq Capital
Market
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Securities registered under Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [
] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X]
No
[ ]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes [X] No
[ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
|
|
Non-accelerated filer
|
[X]
|
Smaller reporting company
|
[X]
|
|
|
|
Emerging growth company
|
[X]
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
[
]
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
The aggregate market value of common stock held by non-affiliates
of the registrant, based on the closing price of a share of the
registrant’s common stock on June 30, 2020, which is the last
business day of the registrant’s most recently completed
second fiscal quarter, as reported by the Nasdaq Capital Market on
such date, was approximately $25.2 million.
There were 74,439,377 shares of the registrant’s common
stock, par value $0.0001 per share (the “
Common
Stock
”), outstanding as
of March 29, 2021.
AZURRX BIOPHARMA, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2020
T
ABL
E
OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K
(“
Annual
Report”
) contains
forward-looking statements that involve substantial risks and
uncertainties. All statements contained in this Annual Report other
than statements of historical facts, including statements regarding
our strategy, future operations, future financial position, future
revenue, projected costs, prospects, plans, objectives of
management and expected market growth, are forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements.
The
words “anticipate”, “believe”,
“estimate”, “expect”, “intend”,
“may”, “plan”, “predict”,
“project”, “target”,
“potential”, “will”, “would”,
“could”, “should”, “continue”
and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
these identifying words. These forward-looking statements include,
among other things, statements about:
●
statements regarding the impact of the COVID-19
pandemic and its effects on our operations, access to capital,
research and development and clinical trials and potential
disruption in the operations and business of third-party vendors,
contract research organizations (“
CROs
”), contract development and manufacturing
organizations (“
CDMOs
”), other service providers, and
collaborators with whom we conduct business;
●
the
availability of capital to satisfy our working capital
requirements;
●
our
current and future capital requirements and our ability to raise
additional funds to satisfy our capital
needs;
●
the
accuracy of our estimates regarding expense, future revenue and
capital requirements;
●
our ability to
continue operating as a going concern;
●
our
plans to develop and commercialize our drug candidates, including
MS1819, and niclosamide;
●
our
ability to initiate and complete our clinical trials and to advance
our principal drug candidates into additional clinical trials,
including pivotal clinical trials, and successfully complete such
clinical trials;
●
regulatory
developments in the U.S. and foreign countries;
●
the
performance of our third-party vendor(s), CROs, CDMOs and other
third-party non-clinical and clinical development collaborators and
regulatory service providers;
●
our
ability to obtain and maintain intellectual property protection for
our core assets;
●
the
size of the potential markets for our drug candidates and our
ability to serve those markets;
●
the
rate and degree of market acceptance of our drug candidates for any
indication once approved;
●
the
success of competing products and drug candidates in development by
others that are or become available for the indications that we are
pursuing;
●
the
loss of key scientific, clinical and nonclinical development,
regulatory, and/or management personnel, internally or from one of
our third-party collaborators; and
●
other risks and uncertainties, including those
listed under Part I, Item 1A., “
Risk
Factors
” of this Annual
Report.
Factors that may cause actual results to differ materially from
current expectations include, among other things, those set forth
in Part I, Item 1A, “
Risk
Factors
,” herein and for
the reasons described elsewhere in this Annual Report on Form 10-K.
Any forward-looking statement in this Annual Report on Form 10-K
reflects our current view with respect to future events and is
subject to these and other risks, uncertainties and assumptions
relating to our operations, results of operations,
industry and future growth. Given
these uncertainties, you should not rely on these forward-looking
statements as predictions of future events. Although we believe
that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by law,
we assume no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes
available in the future.
This Annual Report on Form 10-K also contains estimates,
projections and other information concerning our industry, our
business and the markets for certain drugs and consumer products,
including data regarding the estimated size of those markets, their
projected growth rates and the incidence of certain medical
conditions. Information that is based on estimates, forecasts,
projections or similar methodologies is inherently subject to
uncertainties and actual events or circumstances may differ
materially from events and circumstances reflected in this
information. Unless otherwise expressly stated, we obtained these
industry, business, market and other data from reports, research
surveys, studies and similar data prepared by third parties,
industry, medical and general publications, government data and
similar sources and we have not independently verified the data
from third party sources. In some cases, we do not expressly refer
to the sources from which these data are derived.
In this Annual Report on Form 10-K, unless otherwise stated or as
the context otherwise requires, references to
“
AzurRx
,”
the “
Company
,”
“
we
,”
“
us
,”
“
our
”
and similar references
are to
AzurRx BioPharma, Inc. and its subsidiaries on a consolidated
basis. References to “
AzurRx
BioPharma
” refer to
AzurRx BioPharma, Inc. on an unconsolidated basis. References to
“
AzurRx SAS
” refer to AzurRx SAS, AzurRx
BioPharma’s wholly-owned subsidiary through which we conduct
our European operations.
P
A
R
T
I
ITEM 1.
BUSINESS
Overview
We are engaged in the research and development of targeted,
non-systemic therapies for the treatment of patients with
gastrointestinal (“
GI
”) diseases. Non-systemic therapies are
non-absorbable drugs that act locally, i.e. in the intestinal
lumen, skin or mucosa, without reaching an individual’s
systemic circulation.
We are currently focused on developing our pipeline of
gut-restricted GI clinical drug candidates. Our lead drug candidate
is MS1819, a recombinant lipase for the treatment of exocrine
pancreatic insufficiency (“
EPI
”)
in patients with
cystic
fibrosis (“
CF
”) and chronic pancreatitis
(“
CP
”)
, currently in two
Phase 2 CF clinical trials. In 2021, we plan to launch two
clinical programs using proprietary formulations of niclosamide, a
pro-inflammatory pathway inhibitor; FW-1022, for Severe Acute
Respiratory Syndrome Coronavirus 2 (“
SARS-CoV-2
,” or
“
COVID-19
”)
gastrointestinal infections, and FW-420, for Grade 1 Immune
Checkpoint Inhibitor-Associated Colitis (“
ICI-AC
”)
and diarrhea in oncology patients. Each drug candidate is described
below.
MS1819
MS1819, a recombinant lipase enzyme for the treatment of EPI
associated with CF and CP, is supplied as an oral non-systemic
biologic capsule. MS1819 is derived from
the
Yarrowia
lipolytica
yeast lipase
and breaks up fat molecules in the digestive tract of EPI patients
so that they can be absorbed as nutrients. Unlike the standard of
care, the MS1819 lipase does not contain any animal
products
.
EPI is a condition characterized by deficiency of
exocrine pancreatic enzymes, primarily lipase, resulting
in a patient’s inability to digest food properly, or
maldigestion. The deficiency of these enzymes can be responsible
for greasy diarrhea, fecal urge, abdominal pain and weight loss. We
believe that there are two principal therapeutic indications for
EPI compensation by MS1819: (i) children and adults affected by CF,
and (ii) adult patients with CP. There are more than 30,000
patients with EPI caused by CF according to the Cystic Fibrosis
Foundation and there are approximately 90,000 patients in the U.S.
with EPI caused by CP according to the National Pancreas
Foundation. Patients are currently treated with porcine pancreatic
enzyme replacement (“
PERT
”) pills.
We have determined to initially pursue the indication for adults in
CF.
Completed Phase 2 OPTION Bridging Dose Monotherapy
Study
In
October 2018, the U.S. Food and Drug Administration
(“
FDA
”) cleared
our Investigational New Drug (“
IND
”)
application for MS1819 in patients
with EPI due to CF. In connection with the FDA’s clearance of
the IND, we initiated a multi-center Phase 2
bridging dose safety study
in the fourth
quarter of 2018 in the U.S. and Europe (the “
OPTION Bridging Dose Study
”). We
targeted enrollment of 30 to 35 patients and dosed the first
patients in February 2019. In June 2019, we reached its enrollment
target for the study and in September 2019, we announced positive
results from the OPTION Bridging Dose Study.
Results
showed that the primary efficacy endpoint of
coefficient of fat absorption (
“CFA
”)
was comparable to the CFA in a
prior Phase 2a study in patients with CP, while using the same
dosage of MS1819. The dosage used in the OPTION Bridging Dose Study
was 2.2 grams per day, which was determined in agreement with the
FDA as a bridging dose from the highest safe dose used in the Phase
2a CP dose escalation study. Although the OPTION Bridging Dose
Study was not powered for statistical significance, we believe the
data demonstrated meaningful efficacy results, with approximately
50% of the patients showing
CFA
high enough to reach non-inferiority with standard PERTs.
Additionally, the coefficient of nitrogen absorption
(“
CNA
”) was
comparable between the MS1819 and PERT arms, 93% vs. 97%,
respectively, in the OPTION Bridging Dose Study. This important
finding confirms that protease supplementation is not likely to be
required with MS1819 treatment. A total of 32 patients, ages 18 or
older, completed the OPTION Bridging Dose Study.
Ongoing Phase 2b OPTION 2 Monotherapy Trial
In October 2019, the Cystic Fibrosis Foundation Data Safety
Monitoring Board (the “
CFF DSMB
”) completed its review of our final results
of the OPTION
Bridging Dose
Study. It found no safety concerns for MS1819, and
supported our plan to proceed to a higher 4.4 gram dose of MS1819
with enteric
(delayed release)
capsules in multi-center dose escalation Phase 2b
clinical trial (the “
OPTION 2
Trial
”). In December
2019, we submitted the clinical trial protocol for the OPTION 2
Trial to the existing
IND
at
the
FDA
. The clinical trial
protocol was reviewed by the FDA with no comments. In April 2020,
we received approval to conduct the OPTION 2 Trial in Therapeutics
Development Network clinical sites in the U.S. as well as
Institutional Review Board (“
IRB
”) approval to commence the OPTION 2
Trial
.
The OPTION 2 Trial was designed to investigate the safety,
tolerability and efficacy of MS1819 (2.2 gram and 4.4 gram doses in
enteric capsules) in a head-to-head manner versus the current
standard of care, PERT pills. The OPTION 2 Trial was an open-label,
crossover study, conducted in 15 sites in the U.S. and
Europe. Enrollment included a total of 30 CF patients 18
years or older. MS1819 was administered in enteric capsules to
provide gastric protection and test for optimal delivery of enzyme
to the duodenum. Patients were initially randomized into two
cohorts: to either the MS1819 arm, where they received a 2.2 gram
daily oral dose of MS1819 for three weeks; or to the PERT arm,
where they received their pre-study dose of PERT pills for three
weeks. After three weeks, stools were collected for analysis of
CFA. Patients were then crossed over for another three weeks
of the alternative treatment. After three weeks of cross-over
therapy, stools were again collected for analysis of CFA. A
parallel group of patients were randomized and studied in the same
fashion, using a 4.4 gram daily dose of MS1819. All patients
were followed for an additional two weeks after completing both
crossover treatments for post study safety
observation. Patients were assessed using descriptive methods
for efficacy, comparing CFA between MS1819 and PERT arms, and for
safety.
In
November 2020, we announced that we would submit protocol amendment
request to the FDA for the OPTION 2 Trial to add a study arm
utilizing immediate release MS1819 capsules. In January 2021, we
announced that we had initiated the additional study arm. This
extension phase tested patients 18 years or older, who had already
completed the cross-over phase, with immediate release capsules at
higher 4.4 and 6.6 gram doses relative to the 2.2 gram capsules
previously used in the OPTION Bridging Dose Study. The purpose of
the additional study arm was to allow us to compare data from the
existing crossover arm using enteric (delayed release) capsules
with data from the new extension arm, to help us identify the
optimal dose and delivery method for MS1819.
In
March 2021, we announced topline data results from the OPTION 2
Trial. The data demonstrated MS1819 to be safe and well-tolerated.
In addition, we believe the data from the OPTION 2 Trial also
demonstrates meaningful drug activity, as was also the case with
our OPTION Bridging Dose Study and a prior Phase 2a study in
patients with CP, and also with the interim data in our ongoing
Combination Trial (as defined and discussed in further detail
below). However, patients in the OPTION 2 Trial did not
consistently meet the primary efficacy endpoint. Some patients were
able to achieve CFA at levels beyond what is required to
demonstrate non-inferiority with PERT therapies, but the majority
did not. As such, we did not meet our primary endpoint for the
trial.
We
believe that the underlying cause of the MS1819’s uneven
efficacy performance in the OPTION 2 Trial lies with the enteric
capsule formulation. While we believe the enteric coating protects
the capsule from breaking down in the stomach acid, the trial data
suggests it may dissolve too slowly in the small intestine to
release the lipase enzyme in time to aid with proper digestion and
nutrient absorption.
As a
result, we have announced plans to develop a new formulation for
MS1819, employing a capsule filled with acid-resistant granules, or
microbeads, similar to what is used in CREON®, ZENPEP®
and other PERT therapies. These beads will be placed into immediate
release capsules that are intended to dissolve in the stomach,
dispersing the beads, which should then pass through to the small
intestine and break down, releasing the lipase enzyme so that it
thoroughly mixes with food as it is being digested.
We are
accelerating discussions with contract manufacturers to develop
this new formulation. We believe we have sufficient capital on hand
to fund this development and initiate a further Phase 2 study to
evaluate the new formulation’s efficacy, without
substantially delaying our development efforts in other
areas.
Ongoing Phase 2 Combination Therapy Trial
In
addition to the CF monotherapy studies, we launched a Phase 2
multi-center clinical trial (the “
Combination Trial
”) in Europe
(Hungary and Turkey) to investigate the safety, tolerability and
efficacy of escalating doses of MS1819, in combination with PERT,
in order to increase CFA levels and relieve abdominal symptoms in
CF patients who suffer from severe EPI but continue to experience
clinical symptoms of fat malabsorption despite taking the maximum
daily dose of PERTs.
Ideally,
a stable daily dose of PERT will enable CF patients to eat a normal
to high-fat diet and minimize unpleasant gastrointestinal symptoms.
In practice, however, approximately 25-30% of CF patients do not
achieve normal absorption of fat with PERTs. Achieving an optimal
nutritional status, including normal fat absorption levels, in CF
patients is important for maintaining better pulmonary function,
physical performance and prolonging survival. Furthermore, a
decline of body mass index around the age of 18 years predicts a
substantial drop in lung function. We believe a combination therapy
of PERT and MS1819 has the potential to: (i) correct macronutrient
and micronutrient maldigestion; (ii) eliminate abdominal symptoms
attributable to maldigestion; and (iii) sustain optimal nutritional
status on a normal diet in CF patients with severe
EPI.
The
Combination Trial enrolled 18 patients, 12 years of age or older,
with severe EPI, with CFA levels less than 80%. Patients enrolled
in the study receive escalating doses of 700mg, 1200mg, and 2240mg
of MS1819 once daily for 15 days per dosing level, in addition to
their standard PERT dose. Baseline CFA is established by measuring
CFA levels while on standard of care therapy only, before beginning
combination therapy. The primary efficacy endpoint of the trial is
improvement in CFA; secondary endpoints of the study are
improvements in the stool weight, stool consistency, number of
bowel movements, the incidence of steatorrhea, and increase of body
weight.
We
dosed the first patients in the Combination Trial in Hungary in
October 2019.
We announced positive interim data on the first five patients in
the Combination Trial in August 2020. The primary efficacy endpoint
was met, with CFAs greater than 80% for all patients across all
visits. For secondary efficacy endpoints, we observed that stool
weight decreased, the number of stools per day decreased,
steatorrhea improved, and body weight increased. Additionally, no
serious adverse events were reported.
In October 2020, we
opened a total of five clinical sites in Turkey and dosed the first
patients in November 2020.
In
March 2021, we announced that we completed enrollment of 18
patients and expect to report top-line data in the second quarter
of 2021.
Niclosamide
Niclosamide,
a pro-inflammatory pathway
inhibitor,
is a prescription small molecule drug that has
been safely used on millions of patients. Niclosamide is listed as
an essential medicine by the World Health Organization
(WHO). In the U.S., niclosamide was approved by the
FDA in 1982 for the treatment of intestinal tapeworm infections.
Niclosamide’s activity as an antihelminthic result from
direct action in the intestinal lumen where it disrupts parasite
oxidative metabolism, killing parasites. Niclosamide has been
commercially available worldwide for more than 50 years as 500mg
tablets intended for use in pediatric and adult populations, at a
dose rate of 2g per adult or child over six years of age. No safety
issues have ever been identified. In addition to its antihelminthic
activity, niclosamide has novel anti-inflammatory and
anti-viral properties.
We
believe
niclosamide, and more specifically the patented and proprietary
micronized niclosamide formulation developed by First Wave, has the
potential to be an ideal therapeutic to treat multiple GI
indications due to the following favorable properties: (i) it has a
reduced particle size (D(90) between 5 and 9 µM) as compared
to regular non-micronized niclosamide (approximately D(90) ≥
60
µM
) with greater surface
to solvent ratio, (ii) low oral bio-availability with minimal
systemic absorption / exposure, (iii) improved dissolution with
broader distribution allowing for higher local GI concentrations
(up to approximately 200 times based on preclinical study results),
and (iv) it exhibits anti-inflammatory effects while avoiding
steroid-related complications and adverse
events.
FW-1022: COVID-19 GI infections
We are developing FW-1022, a small molecule medicinal product
containing micronized niclosamide in an oral immediate release
tablet formulation as treatment for SARS-CoV-2 intestinal infection
in patients presenting with gastrointestinal symptoms of COVID-19
disease. The formulation to be used has been milled (micronized) to
allow superior dissolution in the gut fluids. This in turn allows
local niclosamide concentrations to reach anti-viral levels. Thus,
FW-1022 has the potential to benefit COVID patients by decreasing
viral load in the GI tract, treating infection symptoms and
preventing transmission of the virus through fecal spread. Evidence
of niclosamide’s antiviral properties is sufficient to expect
a clinical pharmacodynamic response against viral replication and
clinical benefit, justifying the proposed clinical study in
COVID-19 patients and favorable benefit-risk
assessment.
An
IND for FW-1022 micronized niclosamide
for COVID-19 GI infections was cleared by the FDA in September
2020.
We are currently preparing to initiate
a two-part, two-arm, placebo-controlled Phase 2
clinical trial examining the safety and efficacy of niclosamide in
patients with COVID-19 GI infections.
FW-420: Immune Checkpoint Inhibitor Colitis (ICI-AC)
Immune checkpoint inhibitors (“
ICIs
”) are monoclonal antibodies that target
down-regulators of the anti-cancer immune response and have
revolutionized the treatment of a variety of malignancies. The
global market for ICIs in in 2019 was estimated to be over $22
billion and growing rapidly. Approximately 44% of patients
with advanced cancer tumors, or about 260,000 patients, are
eligible to receive ICIs
However, many immune-related adverse events, especially diarrhea
and colitis, limit the use of ICIs. While Grade 1 colitis (less
than four stools per day) is treated symptomatically as
outpatients, about 30% or more of patients with Grade 1 colitis
progress to Grade 2 or worse. Those patients must be taken off of
the ICI being used for their cancer, risking relapse. Also, they
receive aggressive immunosuppressive therapies, further aggravating
their underlying cancer.
The incidence of immune-mediated colitis
(“
IMC
”)
ranges from 1% to 25% depending on the type of ICI and whether they
are without interruption used in combination. Approximately 30% of
ICI patients develop diarrhea, which can progress to colitis. The
onset of diarrhea in ICI-AC patients occurs within six to seven
weeks and progressively worsens, and the progression to colitis is
rapid and unpredictable. For example, in patients taking ipilimumab
(Yervoy), between 25% and 30% of patients developed diarrhea and
approximately 8% to 12% developed colitis. Moreover, the trend is
towards the use of combination ICI therapies (e.g. Yervoy and
Opdivo) which may lead to a concomitant increase in both diarrhea
and colitis.
Administration of corticosteroids, or treatment with certain
immunosuppressive biologics, while withholding ICI therapy are
recommended for Grade 2 or more severe colitis. The impact of
this colitis complication and treatment may reduce the goal of
progression free cancer survival. An oral, non-absorbed treatment,
such as niclosamide, for Grade 1 colitis (diarrhea) may prevent
progression to Grade 2 disease. There currently is no approved
treatment for Grade 1 colitis.
FW-420 is a niclosamide based small molecule anti-inflammatory
inhibitor therapy which we intend to use for the treatment of
immune checkpoint inhibitor-associated colitis and diarrhea in
metastatic cancer patients. FW-420 will be supplied in two
formulations, as an oral immediate-release tablet and as a topical
rectal enema foam. The standard care for treating inflammatory
bowel diseases (IBD) such as ulcerative colitis and Crohn’s
Disease is corticosteroids and 5-ASAs, which can cause problems
when used for check point inhibitor patients due to their
immunosuppressant effects. FW-420 has the potential to safely
treat Grade 1 ICI colitis and diarrhea and prevent its progression
to more serious and potentially fatal later stages. The overall
goal of early niclosamide treatment is to enable oncology patients
to remain without interruption on, or spend minimal time off of,
their ICI treatment programs.
The primary objective of our planned Phase 1b/2a trial of
niclosamide is to monitor patients receiving ICI treatment, and to
intervene with niclosamide treatment at the first signs of
diarrhea. The primary objective is to compare niclosamide oral,
versus niclosamide oral plus rectal, versus standard of care, and
to prevent Grade 1 colitis progressing to Grade 2 or worse. We
anticipate the trial will need about 100 patients to provide a
signal of efficacy.
We plan to initiate the Phase 1b/2a clinical trial in the first
half of 2021.
Recent Developments
License Agreement with First Wave Bio, Inc.
On December 31, 2020, we entered into a License Agreement (the
“
First Wave License
Agreement
”) with First
Wave Bio, Inc. (“
First Wave
”). Pursuant to the First Wave License
Agreement, First Wave granted us a worldwide, exclusive right to
develop, manufacture, and commercialize First Wave’s
proprietary immediate release and enema formulations of niclosamide
for the fields of treating ICI-AC and COVID-19 in humans (the
“
Niclosamide
Product
”). The
Niclosamide Product uses First Wave’s proprietary
formulations of niclosamide, a pro-inflammatory pathway inhibitor.
We plan to commence in 2021 both a Phase 2 trial of the Niclosamide
Product for COVID-19 in GI and a Phase 1b/2a trial for
ICI-AC.
In consideration of the license and other rights granted by First
Wave, we paid First Wave a $9.0 million upfront cash payment and
are obligated to make an additional payment of $1.25 million due on
June 30, 2021. In addition, we are obligated to pay potential
milestone payments to First Wave totaling up to $37.0 million for
each indication, based upon the achievement of specified
development and regulatory milestones. Under the First Wave License
Agreement we are obligated to pay First Wave royalties as a
mid-single digit percentage of net sales of the Product, subject to
specified reductions.
In addition, on January 8, 2021, pursuant to the First Wave License
Agreement we entered into a securities purchase agreement with
First Wave (the “
First Wave Purchase
Agreement
”) pursuant to
which we issued to First Wave, on that same day, 3,290.1960 shares
of Series C 9.00% Convertible Junior Preferred Stock, par value
$0.0001 (the “
Series C Preferred
Stock
”), initially
convertible into an aggregate of 3,290,196 shares of Common Stock,
at an initial stated value of $750.00 per share and a conversion
price of $0.75 per share, which was the equivalent of $3.0 million
based upon the volume weighted average price of our Common Stock
for the five-day period immediately preceding the date of the First
Wave License Agreement, or $0.9118 per share. The First Wave
Purchase Agreement contains demand and piggyback registration
rights with respect to the Common Stock issuable upon conversion,
which have not been requested by First Wave.
Pursuant to the First Wave Purchase Agreement, the
shares of Series C Preferred Stock issued to First Wave were not
convertible prior to us obtaining the approval of our stockholders
to amend our certificate of incorporation to increase the number of
authorized shares of Common Stock above 150,000,000 and to comply
with the applicable stockholder approval rules and regulations of
the Nasdaq Stock Market (the “
Stockholder
Approval
”). Upon
receiving Stockholder Approval on February 24, 2021, we issued an
aggregate of 3,329,138 shares of Common Stock to First Wave upon
conversion of the shares of Series C Preferred Stock, which
included 38,942 shares of Common Stock for accrued dividends of
approximately $29,000.
Registered Direct Offering and Private Placement
On December 31, 2020, we entered into a securities purchase
agreement (the “
Series C Purchase
Agreement
”), pursuant to
which we agreed to sell in a registered direct offering 5,333.333
shares of Series C Preferred Stock, at a price of $750 per share,
initially convertible into an aggregate of 5,333,334 shares of
Common Stock, at an initial stated value of $750.00 per share and a
conversion price of $0.75 per share (the “
Registered Direct
Offering
”). The
Registered Direct Offering closed on January 6,
2021.
Concurrently with the Registered Direct Offering, in a private
placement offering pursuant to the Series C Purchase Agreement (the
“
Private
Placement
”), we agreed to
sell an additional 5,333.3333 shares of Series C Preferred Stock at
the same price as the Series C Preferred Stock offered in the
Registered Direct Offering and convertible on the same terms and
warrants (the “
Investor
Warrants
”) to purchase up
to an aggregate of 10,666,668 shares of Common Stock, with an
exercise price of $0.80 per share and an expiration term of five
and one-half years from the date of issuance.
In connection with the Private Placement, we entered into a
registration rights agreement, dated as of December 31, 2020,
pursuant to which we filed a registration statement on Form S-1
(File No. 333-252087) to register the shares of Common Stock
issuable upon the conversion of the Series C Preferred Stock sold
in the Private Placement and the exercise of the Investor Warrants.
The registration statement was declared effective by the SEC on
January 21, 2021.
The aggregate gross proceeds from the Registered Direct Offering
and the Private Placement, excluding the net proceeds, if any, from
the exercise of the Investor Warrants, was approximately $8.0
million.
The net proceeds to us from the Registered Direct Offering and the
Private Placement, after deducting the placement agent’s fees
and expenses and estimated offering expenses, was approximately
$6.8 million. We used the net proceeds to fund the payment of cash
consideration to First Wave under the First Wave License Agreement,
and for other general corporate purposes.
We paid the placement agent a cash fee equal to 8.0% and a
management fee equal to 1.0% of the aggregate gross proceeds
received by us in the Registered Direct Offering and the Private
Placement, or approximately $700,000. We also agreed to issue to
the placement agent or its designees warrants (the
“
December 2020 Placement Agent
Warrants
”) exercisable
for up to 746,667 shares of Common Stock, which is equal to 7.0% of
the amount determined by dividing the gross proceeds of the
Registered Direct Offering and Private Placement by the offering
price per share of Common Stock, or $0.75. The December 2020
Placement Agent Warrants have substantially the same terms as the
Investor Warrants, except they are exercisable at $0.9375 per
share, or 125% of the effective purchase price per share of the
Series C Preferred Stock issued. We also reimbursed the placement
agent $35,000 for non-accountable expenses, up to $125,000 for
legal fees and expenses and other out-of-pocket expenses and
$12,900 for clearing fees.
On February 24, 2021, our stockholders approved certain proposals
related to the Registered Direct Offering and the Private Placement
and all outstanding shares of Series C Preferred Stock were
converted to Common Stock.
Amendment to Charter and Approved Reverse Stock Split
On February 24, 2021, at our Special Meeting of Stockholders
(“
Special
Meeting
”), our
stockholders approved
an amendment to our Amended and
Restated Certificate of Incorporation (the “
Charter
”) to increase the number
of authorized shares of Common Stock by 100,000,000 shares to
250,000,000 shares, and to authorize our Board of Directors (the
“
Board
”) to
effect a reverse stock split of both the issued and outstanding and
authorized shares of Common Stock, at a specific ratio, ranging
from one-for-five (1:5) to one-for-ten (1:10), any time prior to
the one-year anniversary date of the Special Meeting, with the
exact ratio to be determined by the Board.
We filed a Certificate of Amendment to our Charter with the
Secretary of State of the State of Delaware on February 24, 2021,
to increase the number of authorized shares of Common Stock to
250,000,000 shares.
March 2021 Common Stock and Warrant Offering
On March 7, 2021, we entered into a securities purchase agreement
(the “
March 2021 Purchase
Agreement
”) with single
institutional investor, pursuant to which we agreed to sell, in a
registered direct offering (the “
March 2021
Offering
”) priced at the
market under Nasdaq rules, (i) 5,800,000 shares of Common Stock,
(ii) pre-funded warrants (the “
March 2021 Pre-Funded
Warrants
”) to purchase up
to 2,058,548 shares of Common Stock, with an exercise price of
$0.01 per share and no expiration term and (iii) warrants (the
“
March 2021
Warrants
”) to purchase an
aggregate of 3,929,274 shares of Common Stock with an exercise
price of $1.21 per share and an expiration term of five years from
the date of issuance. The aggregate price per of the March 2021
Offering share was $1.2725.
The aggregate gross proceeds from the March 2021 Offering, which
closed on March 10, 2021 (the “
March 2021
Closing
Date
”), excluding the net
proceeds, if any, from the exercise of the March 2021 Warrants was
approximately $10.0 million.
The net proceeds to us from the March 2021 Offering, after
deducting the placement agent’s fees and expenses and
estimated offering expenses, was approximately $9.1 million. We
intend to use the net proceeds to initiate its two niclosamide
clinical programs in the first half of 2021, a Phase 2 clinical
trial for COVID-19 GI infections and a Phase 1b/2a trial for
ICI-AC, respectively, and for other general corporate
purposes.
We paid the placement agent a cash fee equal to 8.0% of the
aggregate gross proceeds received by us in the March 2021 Offering,
or approximately $800,000. We also agreed to issue to the placement
agent or its designees warrants (the “
March 2021 Placement Agent
Warrants
”) exercisable
for up to 550,099 shares of Common Stock, which is equal to 7.0% of
the aggregate number of shares of Common Stock placed in the March
2021 Offering. The March 2021 Placement Agent Warrants have
substantially the same terms as the March 2021Warrants, except they
are exercisable at $1.5906 per share, or 125% of the effective
purchase price per share of Common Stock issued in the March 2021
Offering. We also reimbursed the placement agent $35,000 for
non-accountable expenses, up to $50,000 for legal fees and expenses
and other out-of-pocket expenses and approximately $16,000 for
clearing fees.
In the March 2021 Purchase Agreement, we have agreed not to issue,
enter into any agreement to issue or announce the issuance or
proposed issuance of, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of
Common Stock or file any registration statement or prospectus, or
any amendment or supplement thereto for 50 days after the March
2021 Closing Date. In addition, we have agreed not to effect or
enter into an agreement to effect any issuance of Common Stock or
any securities convertible into or exercisable or exchangeable for
shares of Common Stock involving a variable rate transaction (as
defined in the March 2021 Purchase Agreement) until the one-year
anniversary of the date of the March 2021 Purchase Agreement,
subject to certain exceptions.
Series B Most Favored Nations (MFN) Exchanges
Under the Certificate of Designations for the Series B Convertible
Preferred Stock (the “
Series B Certificate of
Designations
”), in the
event we effect any issuance of Common Stock or Common Stock
equivalents for cash consideration, or a combination of units
thereof (a “
Subsequent
Financing
”), each holder
of the Series B Convertible Preferred Stock, par value $0.0001 per
share (the “
Series B Preferred
Stock
”), has the right to
exchange the stated value, plus accrued and unpaid dividends (the
“
Exchange
Amount
”), of the Series B
Preferred Stock for any securities issued in the Subsequent
Financing, in lieu of any cash subscription payments therefor (the
“
Exchange
Right
”).
On
December 31, 2020, we entered into the Series C Purchase Agreement
as part of the Registered Direct Offering and Private Placement,
and the holders of our Series B Preferred Stock became entitled to
exercise their Exchange Right to exchange into the Series C
Preferred Stock and related Investor Warrants. As of March 29,
2021, holders of approximately 1,266.92 shares of Series B
Preferred Stock with an aggregate Exchange Amount of approximately
$9.8 million had previously elected to exercise their Series B
Exchange Rights into Series C Preferred Stock, convertible into an
aggregate of 13,087,843 shares of Common Stock (which conversion we
elected to make in full on February 24, 2021, upon receipt of
certain stockholder approvals), and additional Investor Warrants
exercisable for up to an aggregate of 13,087,843 shares of Common
Stock.
As a result, as of March 29, 2021, we may be required to issue up
to 13,028.698 additional shares of Series C Preferred Stock that
are currently convertible up to 13,028,698 underlying shares of
Common Stock, together with Investor Warrants to purchase up to an
additional 13,028,698 shares of Common Stock, to any holders of
Series B Preferred Stock who elect to exercise their Exchange
Right. Any shares of Series C Preferred Stock to be issued pursuant
to the Exchange Right would, upon issuance, be immediately
converted into underlying shares of Common Stock.
Exercises of Warrants
From January 1, 2021 through March 29, 2021, we received gross
proceeds of approximately $4.6 million from the exercise of
warrants to purchase an aggregate of 6,640,588 shares of Common
Stock, with exercise prices ranging from $0.001 to $1.42 per share.
As of March 29, 2021, we had 44,930,105 shares of Common Stock
issuable upon exercise of outstanding warrants, with a weighted
average exercise price of $1.02 per share.
Corporate History
We were incorporated on January 30, 2014 in the State of
Delaware.
In May 2014, we
entered into a stock purchase agreement with Protea Biosciences
Group, Inc. (“
Protea
Group
”) and its
wholly-owned subsidiary, Protea Biosciences, Inc.
(“
Protea Sub
” and, together with Protea Group,
“
Protea
”), to acquire 100% of the outstanding
capital stock of AzurRx
SAS
(formerly ProteaBio Europe SAS), a wholly-owned subsidiary of
Protea Sub. In June 2014, we completed the acquisition in exchange
for the payment of $600,000 and the issuance of shares of our
Series A Convertible Preferred Stock (“
Series A
Preferred
”) convertible
into 33% of our outstanding Common Stock and agreed to make certain
milestone and royalty payments to Protea in connection with MS1819.
In October 2016, we completed an initial public offering
(“
IPO
”), which allowed us to list our shares of
Common Stock on the Nasdaq Capital Market.
Product Programs
Our
current therapeutic product pipeline consists of three
clinical-stage programs, each of which are described
below.
MS1819
MS1819
is the active pharmaceutical ingredient (“
API
”), derived
from
Yarrowia
lipolytica
, an aerobic yeast naturally found in various
foods such as cheese and olive oil that is widely used as a
biocatalyst in several industrial processes. MS1819 is an
acid-resistant secreted lipase naturally produced
by
Yarrowia
lipolytica
, known as LIP2, that we are developing
through recombinant DNA technology for the treatment of EPI
associated with CF and CP. Lipases are enzymes that help with the
digestion of lipids and fat.
We
previously held the exclusive right to commercialize MS1819 in the
U.S. and Canada, South America (excluding Brazil), Asia (excluding
China and Japan), Australia, New Zealand and Israel pursuant to a
sublicense from Laboratories Mayoly Spindler SAS
(“
Mayoly
”)
under the JDLA (as defined below), which also granted us joint
commercialization rights for Brazil, Italy, China and Japan. In
March 2019, we purchased all rights, title and interest in and to
MS1819 from Mayoly pursuant to the Mayoly APA (as defined
below)
,
provided
,
however
, Mayoly retained exclusive commercial rights in
France and Russia.
Background
The
pancreas is both an endocrine gland that produces several important
hormones, including insulin, glucagon, and pancreatic polypeptide,
as well as a digestive organ that secretes pancreatic juice
containing digestive enzymes that assist the absorption of
nutrients and digestion in the small intestine.
The
targeted indication of MS1819 is the compensation of EPI, which is
observed when the exocrine functions of the pancreas are below 10%
of normal. The symptomatology of EPI is essentially due to the
deficiency of pancreatic lipase, an enzyme that hydrolyses
triglycerides into monoglycerides and free fatty acids. The
pancreatic lipase enzymatic activity is hardly compensated by
extra-pancreatic mechanisms, because gastric lipase has nearly no
lipolytic activity in the pH range of the intestine. On the other
hand, when they are impaired, the pancreatic amylase and protease
(enzymes that break up carbohydrates (starches) and proteins,
respectively) activities can be compensated by the salivary
amylase, the intestinal glycosidase, the gastric pepsin, and the
intestinal peptidases, all of which are components of the gastric
juice secreted by the stomach walls. Lipid maldigestion due to
lipase deficiency is responsible for weight loss, steatorrhea
featured by greasy diarrhea, and fat-soluble vitamin deficiencies
(i.e. A, D, E and K vitamins).
CP, the
most common cause of EPI, is a long-standing inflammation of the
pancreas that alters its normal structure and functions. In the
U.S., its prevalence rate is of 42 cases per 100,000 inhabitants,
resulting in approximately 132,000 cases. Approximately 60% of
patients affected with CP display EPI, resulting in approximately
90,000 patients requiring substitution therapy in the U.S. In
Western societies, CP is caused by chronic alcoholic consumption in
approximately 55-80% of cases. Other relatively frequent etiologies
include the genetic form of the disease that is inherited as an
autosomal dominant condition with variable penetrance, pancreatic
trauma and idiopathic causes.
CF,
another dominant etiology of EPI, is a severe genetic disease
associated with chronic morbidity and life-span decrease of most
affected individuals. In most Caucasian populations, CF prevalence
is of 7-8 cases per 100,000 inhabitants, but is less common in
other populations, resulting in more than 30,000 affected
individuals in the U.S. and more than 70,000 affected individuals
worldwide. CF is inherited as monogenic autosomal recessive disease
due to the defect at a single gene locus that encodes the Cystic
Fibrosis Transmembrane Regulator protein, or CFTR, a regulated
chloride channel. Mutation of both alleles of this chloride channel
gene results in the production of thick mucus, which causes a
multisystem disease of the upper and lower respiratory tracts,
digestive system, and the reproductive tract. The progressive
destruction of the pancreas results in EPI that is responsible for
malnutrition and contributes to significant morbidity and
mortality. About 80-90% of patients with CF develop EPI, resulting
in approximately 25,000-27,000 patients in the U.S. that require
substitution therapy.
Current
treatments for EPI stemming from CP and CF rely on porcine (pig
derived) pancreatic enzyme replacement therapies (PERTs), which
have been on the market since the late 1800s. PERTs are typically
comprised of three digestive enzymes; lipases, proteases, and
amylases. The PERT market is well established with estimated sales
of approximately $1.4 billion in 2019 in the U.S. and has been
growing for the past five years at a compound annual growth rate of
approximately 20%. In spite of their long-term use, however, PERTs
suffer from poor stability, formulation problems, possible
transmission of conventional and non-conventional infectious agents
due to their animal origins, and possible adverse events at high
doses in patients with CF and limited effectiveness
.
History of the Program
In 1998, Mayoly, a European pharmaceutical company focusing
primarily on gastroenterology disorders, launched a program for the
discovery and characterization of novel lipases of non-animal
origin that could be used in replacement therapy for EPI. The
program was conducted in collaboration with INRA TRANSFERT, a
subsidiary of the French academic laboratory, Institut National de
la Recherche Agronomique, or National Institute for Agricultural
Research (“
INRA
”). In 2000, Mayoly and INRA discovered that
the yeast
Yarrowia
lipolytica
secreted a
lipase named LIP2. During the ensuing years, Mayoly investigated
the
in
vitro
enzymatic activities
of LIP2 in collaboration with the Laboratory of Enzymology at
Interfaces and Physiology of Lipolysis, a French public-funded
research laboratory at the French National Scientific Research
Centre laboratory (
"CNRS"
), which focuses on the physiology and molecular
aspects of lipid digestion.
Pre-Clinical Program
The efficacy of MS1819 has been investigated in normal minipigs,
which are generally considered as a relevant model for digestive
drug development when considering their physiological similarities
with humans and their omnivore diet. Experimental pancreatitis was
induced by pancreatic duct ligation, resulting in severe EPI with
baseline CFA around 60% post-ligature. CFA is a measurement
obtained by quantifying the amount of fat ingested orally over a
defined time period and subtracting the amount eliminated in the
stool to ascertain the amount of fat absorbed by the
body. Pigs were treated with either MS1819 or enteric-coated
PERTs, both administered as a single-daily dose.
At doses ranging from 10.5 to 211 mg, MS1819 increased the CFA by
+25 to +29% in comparison to baseline (p<0.05 at all doses),
whereas the 2.5 mg dose had milder activity. Similar efficacy was
observed in pigs receiving 100,000 U lipase of enteric-coated
porcine pancreatic extract. These findings demonstrate
the
in
vivo
activity of MS1819 in
a relevant
in vivo
model at a level similar to the PERTs at
dosages of 10.5mg or greater.
To date, two non-clinical toxicology studies have been conducted.
Both show that MS1819 lipase is clinically well tolerated at levels
up to 1000mg/kg in rats and 250 mg/kg in minipigs up to 13 weeks.
MS1819 is therefore considered non-toxic in both rodent and
non-rodent species up to a maximum feasible dose of 1,000 mg/kg/day
in the rats over six months of administration.
Clinical Program
We believe that there are two principal therapeutic indications for
EPI compensation by MS1819: (i) children and adults affected by CF,
and (ii) adult patients with CP. We have determined to initially
pursue the indication for adults first in CF.
During 2010 and 2011, a phase 1/2a clinical trial of MS1819 was
conducted in conjunction with Mayoly in a single center in France.
The study was an exploratory study mainly designed to investigate
the safety of MS1819 (freeze-dried) and was a randomized, double
blind, placebo controlled, parallel clinical trial in 12 patients
affected with CP or pancreatectomy and severe EPI. The primary
efficacy endpoint of the study was defined as the relative change
in steatorrhea (an established surrogate biomarker of EPI
correction) in comparison to baseline. The study found that MS1819
was well tolerated with no serious adverse events. Only two adverse
events were observed: constipation (two patients out of eight with
MS1819) and hypoglycemia (two patients out of eight with MS1819,
and one patient out of four with placebo). A non-statistically
significant difference of the primary endpoint, possibly due to the
small group size, was found between the two groups both in
intention-to-treat, a group that included three patients who
received the in-patient facility study diet but did not fulfill the
protocol’s inclusion criteria, and per-protocol
analysis. This study was not designed, nor did it aim, to
demonstrate statistically significant changes of CFA or steatorrhea
under MS1819.
We received regulatory approval in Australia and New Zealand in
2016, with the addition of a 2018 regulatory approval in France, to
conduct a Phase 2 multi-center dose escalation study of MS1819 in
CP and pancreatectomy. The primary endpoint of this study was to
evaluate the safety of escalating doses of MS1819 in 11 CP
patients. The secondary endpoint was to investigate the efficacy of
MS1819 in these patients by analysis of the CFA and its change from
baseline. In September 2018, we announced that in pre-planned
analyses, both the study’s primary and secondary endpoints
were reached with a statistically significant (p=0.002) improvement
in the CFA of 21.8%, in a per protocol analysis, with the highest
evaluated dose of 2,240 mg/day of MS1819. Statistical significance
of the trial results is typically based on widely used,
conventional statistical methods that establishes the p-value of
the results. A p-value of 0.05 or less is required to demonstrate
statistical significance. As such, these CFA levels are considered
to be statistically significant.
In
October 2018, the FDA cleared our IND application for MS1819 in
patients with EPI due to CF. I
n
December 2018, we initiated the Phase 2 OPTION
Bridging Dose
Study to investigate MS1819 in CF
patients with EPI and in February 2019, we dosed the first
patients. The Phase 2 OPTION Bridging Dose
Study investigated the safety, tolerability and
efficacy of MS1819 in a head-to-head comparison against the current
PERT standard of care. The OPTION
Bridging Dose
Study employed a six-week non-inferiority CFA
primary efficacy endpoint comparing MS1819 to
PERTs.
In
September 2019, we announced positive results from the OPTION
Bridging Dose Study. Results showed that the primary efficacy
endpoint of CFA was comparable to the CFA in a prior Phase 2 study
in patients with CP, while using the same dosage of MS1819. The
dosage used in the OPTION Bridging Dose Study was 2.2 grams per
day, which was determined in agreement with the FDA as a bridging
dose from the highest safe dose used in the Phase 2 CP dose
escalation study. Although the study was not powered for
statistical significance, the data demonstrated meaningful efficacy
results, with approximately 50% of the patients showing CFAs high
enough to reach non-inferiority with standard PERTs. Additionally,
the CNA was comparable between the MS1819 and PERT arms, 93% vs.
97%, respectively, in the OPTION Bridging Dose Study. This
important finding confirms that protease supplementation is not
likely to be required with MS1819 treatment. A total of 32
patients, ages 18 or older, completed the OPTION Bridging Dose
Study
.
In October 2019, the CFF DSMB completed its review of our final
results of the OPTION
Bridging Dose
Study and found no safety concerns for MS1819 and
supported our plan to proceed to the Phase 2b OPTION 2 Trial. In
December 2019, we submitted the clinical trial protocol to the
existing
IND
at the FDA, which
has been reviewed by the FDA with no comments. In April 2020, we
received approval to conduct the OPTION 2 Trial in Therapeutics
Development Network clinical sites in the U.S. as well as
IRB approval to commence the OPTION 2 Trial
.
The OPTION 2 Trial was designed to investigate the safety,
tolerability and efficacy of MS1819 (2.2 gram and 4.4 gram doses in
enteric capsules) in a head-to-head manner versus the current
standard of care, PERT pills. The OPTION 2 Trial was an open-label,
crossover study, conducted in 15 sites in the U.S. and
Europe. Enrollment included a total of 30 CF patients 18
years or older ed. MS1819 was administered in enteric
capsules to provide gastric protection and test for optimal
delivery of enzyme to the duodenum. Patients will first be
randomized into two cohorts: to either the MS1819 arm, where they
receive a 2.2 gram daily oral dose of MS1819 for three weeks; or to
the PERT arm, where they receive their pre-study dose of PERT pills
for three weeks. After three weeks, stools will be collected for
analysis of CFA. Patients will then be crossed over for
another three weeks of the alternative treatment. After three weeks
of cross-over therapy, stools will again be collected for analysis
of CFA. A parallel group of patients will be randomized and studied
in the same fashion, using a 4.4 gram daily dose of
MS1819. All patients will be followed for an additional two
weeks after completing both crossover treatments for post study
safety observation. Patients will be assessed using
descriptive methods for efficacy, comparing CFA between MS1819 and
PERT arms, and for safety.
In
January 2021, we announced an additional study arm in OPTION 2
Trial using an immediate release MS1819 capsules in order to
identify the optimal dose and delivery method of MS1819. This
extension phase tests patients 18 years or older, who have already
completed the crossover phase, at higher doses relative to the
previously conducted OPTION Bridging Dose Study, this allowing us
to compare data from the existing crossover arm using enteric
(delayed release) capsules with data from the new extension arm,
and ultimately select the optimal delivery method for a pivotal
Phase 3 clinical trial.
We
launched the Phase 2 Combination Trial in Hungary in July 2019 to
investigate MS1819 in combination with PERT, for CF patients who
suffer from severe EPI, but continue to experience clinical
symptoms of fat malabsorption despite taking the maximum daily dose
of PERTs. The Combination Trial is designed to investigate the
safety, tolerability and efficacy of escalating doses of MS1819
(700 mg, 1120 mg and 2240 mg per day, respectively), in conjunction
with a stable dose of PERTs, in order to increase CFA and relieve
abdominal symptoms.
In October 2020,
we opened a total of five clinical sites in Turkey and dosed the
first patients in November 2020. In March 2021, we reached targeted
enrollment of 18 patents. Topline data for the Combination Trial is
currently expected in the second quarter of
2021.
We announced positive interim data on the first five patients in
the Combination Trial in August 2020. The primary efficacy endpoint
was met, with CFAs greater than 80% for all patients across all
visits. For secondary efficacy endpoints, we observed that stool
weight decreased, the number of stools per day decreased,
steatorrhea improved, and body weight increased. Additionally, no
serious adverse events were reported.
We
believe a combination therapy of PERT and MS1819 has the potential
to: (i) correct macronutrient and micronutrient maldigestion; (ii)
eliminate abdominal symptoms attributable to maldigestion; and
(iii) sustain optimal nutritional status on a normal diet in CF
patients with severe EPI.
Niclosamide
Niclosamide,
a pro-inflammatory pathway
inhibitor,
is a prescription small molecule drug that has
been safely used on millions of patients. Niclosamide is listed as
an essential medicine by the World Health Organization
(WHO). In the U.S., niclosamide was approved by the
FDA in 1982 for the treatment of intestinal tapeworm infections.
Niclosamide’s activity as an antihelminthic result from
direct action in the intestinal lumen where it disrupts parasite
oxidative metabolism, killing parasites. Niclosamide has been
commercially available worldwide for more than 50 years as 500mg
tablets intended for use in pediatric and adult populations, at a
dose rate of 2g per adult or child over six years of age. No safety
issues have ever been identified. In addition to its antihelminthic
activity, niclosamide has novel anti-inflammatory and
anti-viral properties.
We
believe niclosamide, and more specifically the patented and
proprietary micronized niclosamide formulation developed by First
Wave, has the potential to be an ideal therapeutic to treat
multiple GI indications due to the following favorable properties:
(i) it has a reduced particle size ((D(90) between 5 and 9 µM)
as compared to regular non-micronized niclosamide (approximately
D(90) ≥ 60
µM
) with
greater surface to solvent ratio, (ii) low oral bio-availability
with minimal systemic absorption / exposure, (iii) improved
dissolution with broader distribution allowing for higher local GI
concentrations (up to approximately 200 times based on preclinical
study results), and (iv) it exhibits anti-inflammatory effects
while avoiding steroid-related complications and adverse
events.
Background
FW-1022: COVID-19 GI infections
The COVID-19 pandemic is a global public health emergency caused by
the SARS-CoV-2 virus. An increasing volume of convergent evidence
indicates that GI infection and fecal-oral transmission of
SARS-CoV-2 are important factors in the clinical presentation,
virology and epidemiology of COVID-19. There is currently no
etiological treatment for COVID-19 GI effects. We believe our
FW-1022 micronized niclosamide formulation will be the only one
being tested in clinical trials for a COVID-19 GI indication. Given
the potentially critical role of COVID GI infections we believe
there is a clear unmet therapeutic need.
Drug repurposing and/or repositioning aimed at identifying new
therapeutic applications for existing clinically approved drugs is
a critical strategy to accelerate drug discovery for the COVID-19
pandemic. Multiple companies and laboratories have identified and
validated niclosamide to have potent antiviral activity against
SARS-CoV-2.
A study published in July 2020 in
Antimicrobial Agents and
Chemotherapy
, an American
Society for Microbiology journal (Jeon
et. al
, 2020) examined a small set (n=49) of
FDA-approved drugs that were selected based on either having known
activity against SARS-CoV or being recommended by infectious
disease experts for
activity
against the SARS-CoV-2 virus. Results from this study indicated
that niclosamide was the most potent of all agents tested in a Vero
cell cytopathic assay with an IC50 value of 0.28
µM
. For comparison, in terms of
potency, niclosamide out-performed
reference compounds chloroquine, lopinavir, and
remdesivir with IC50 values of 7.28, 9.12, and 11.41
µM
, respectively. IC50 is a
quantitative measure that indicates how much of a particular
inhibitory substance (e.g.
a
drug) is needed to inhibit,
in vitro
, a given biological process or biological
component by fifty percent. Thus, niclosamide is approximately
25-fold more potent in vitro than
VEKLURY®
(
remdesivir), an antiviral drug
marketed by Gilead Sciences Inc. that received FDA approval in
October 2020 for use in adult and pediatric patients for the
treatment of COVID-19 requiring
hospitalization.
Following oral administration, niclosamide is poorly absorbed,
which results in a majority of the administered dose remaining in
the GI tract. We believe this basic property of niclosamide, when
combined with FW-1022 the micronized niclosamide FW-1022 in the
drug product developed by First Wave to accelerate dissolution,
allows this drug product to achieve pharmacologically effective
concentrations of niclosamide in the GI tract while having almost
no bioavailability, potentially enhancing efficacy and safety. We
believe these properties make our FW-1022 micronized niclosamide
formulation an ideal and differentiated therapeutic for treating
COVID-19 infections and GI symptoms.
There are multiple other late-stage clinical trials evaluating the
standard (non-micronized) formulation of niclosamide in COVID-19.
We believe this further indicates that available data on
niclosamide’s antiviral properties against SARS-CoV-2 is
considered by others to be sufficient to proceed with clinical
testing.
We are developing FW-1022, a medicinal product containing
micronized niclosamide in an immediate release tablet formulation
as treatment for SARS-CoV-2 intestinal infection in patients
presenting with gastrointestinal symptoms of COVID-19 disease.
Evidence of niclosamide’s antiviral properties is sufficient
to expect a clinical pharmacodynamic response against viral
replication and clinical benefit, justifying the proposed clinical
study in COVID-19 patients and favorable benefit -risk
assessment.
FW-420: Immune Checkpoint Inhibitor Colitis (ICI-AC)
Immune checkpoint inhibitors (“
ICIs
”) are monoclonal antibodies that target
down-regulators of the anti-cancer immune response and have gained
increasing popularity and have revolutionized the treatment of a
variety of malignancies. However, many immune-related adverse
events, especially diarrhea and colitis, limit their use. A 2019
study titled, “Immune checkpoint inhibitor-induced colitis: A
comprehensive review,” published in
World Journal of Clinical
Cases
(Sol
et.al
, 2019) estimated the incidence of IMC ranges from
1% to 25% depending on the type of ICI and whether they are used in
combination. A 2017 study titled “Incidence of immune
checkpoint inhibitor-related colitis in solid tumor patients: a
systematic review and meta-analysis” published in
Oncoimmunology
(Wang and Zhao
et.al
, 2017) estimated that approximately 44%, or
260,000 patients with advanced and metastatic tumors were eligible
to receive ICIs. Further, approximately 30% of ICI patients develop
diarrhea, which can progress to colitis. The onset of diarrhea in
ICI-AC patients occurs within six to seven weeks and progressively
worsens, and the progression to colitis is rapid and
unpredictable.
In patients taking Yervoy
®
(ipilimumab) marketed by Bristol Myers Squibb,
between 25% to 30% developed diarrhea and approximately 8% to 12%
developed colitis, as reported in a peer-reviewed article,
“Immune-checkpoint inhibitor-induced diarrhea and colitis in
patients with advanced malignancies: retrospective review at MD
Anderson” published in the
Journal for ImmunoTherapy of
Cancer
(Wang
et.
al,
, 2018). Moreover,
there is a treatment trend towards the use of combination ICI
therapies (for example combining Yervoy
®
and Opdivo
®
), which is believed to lead to a concomitant
increase in both diarrhea and colitis.
We believe there currently is no approved treatment for Grade-1
colitis. The recommended treatment for Grade 2 or more severe
colitis is administration of corticosteroids, or treatment with
certain immunosuppressive biologics, while withholding ICI therapy
(National Cancer Institute, 2020). The impact of this colitis
complication and treatment may reduce the goal of progression free
cancer survival. We believe there is an unmet medical need and an
oral, non-absorbed therapeutic, such as our FW-420 micronized
niclosamide, for Grade-1 colitis (diarrhea) may prevent progression
to Grade-2 disease.
Clinical Development
Recent discoveries in immune cell metabolism have opened up the
possibility of selectively targeting disease-causing immune cells
to treat inflammatory diseases without unwanted side effects such
as broad immunosuppression. Prior to entering into the First
Wave License Agreement, First Wave had developed a suite
of drug candidates, gut-restricted small molecules that target the
metabolism of disease-causing Th17 cells. First
Wave’s first clinical program, FW-424, had
encouraging data from a study Phase 1b/2a study in patients with
mild-to-moderate ulcerative colitis.
In
addition,
First Wave submitted an IND
for FW-1022 micronized niclosamide for COVID-19 GI infections that
was cleared by the FDA in September 2020.
Following the entry into the First Wave License Agreement, we plan
to commence both a Phase 2 trial for COVID-19 GI infections as well
as a Phase 1b/2a trial for ICI-AC.
Agreements and Collaborations
License Agreement with First Wave Bio, Inc.
On December 31, 2020, we entered into the First Wave License
Agreement, pursuant to which First Wave granted us a worldwide,
exclusive right to develop, manufacture, and commercialize First
Wave’s proprietary immediate release and enema formulations
of niclosamide for the fields of treating ICI-AC and COVID-19 in
humans (the “
Niclosamide
Product
”). We plan to
commence in 2021 both a Phase 2 trial of the Niclosamide Product
for COVID-19 in GI and a Phase 1b/2a trial for
ICI-AC.
In consideration of the license and other rights granted by First
Wave, we agreed to pay First Wave a $9.0 million upfront cash
payment due within 10 days and are obligated to make an additional
payment of $1.25 million due on June 30, 2021. In addition, we are
obligated to pay potential milestone payments to First Wave
totaling up to $37.0 million for each indication, based upon the
achievement of specified development and regulatory milestones.
Under the First Wave License Agreement we are obligated to pay
First Wave royalties as a mid-single digit percentage of net sales
of the Niclosamide Product, subject to specified reductions. We are
also obligated to issue to First Wave junior convertible preferred
stock, initially convertible into $3.0 million worth of common
stock, par value $0.0001 per share (the “
Common
Stock
”), based upon the
volume weighted average price of the Common Stock for the five-day
period immediately preceding the date of the License Agreement, or
$0.9118 per share. The preferred stock will convert automatically
into Common Stock upon the stockholder
approval.
In addition, on January 8, 2021, pursuant to the First Wave
License Agreement we entered into a securities purchase agreement
with First Wave (the “
First Wave Purchase
Agreement
”) pursuant to
which we issued to First Wave 3,290.1960 shares of Series C
Preferred Stock, initially convertible into an aggregate of
3,290,196 shares of Common Stock, at an initial stated value of
$750.00 per share and a conversion price of $0.75 per share, which
was the equivalent of $3.0 million at $0.9118 per share. The First
Wave Purchase Agreement contains demand and piggyback registration
rights with respect to the Common Stock issuable upon
conversion.
We are now solely responsible, and has agreed to use commercially
reasonable efforts, for all development, regulatory and commercial
activities related to the Niclosamide Products in the ICI-AC and
COVID-19 fields. We may sublicense its rights under the First Wave
License Agreement and, if it does so, will be obligated to pay
milestone payments and royalties to First Wave based on the
sublicensee’s development and commercialization of the
licensed Niclosamide Products.
Protea Stock Purchase Agreement and Asset Sale and Purchase
Agreement
In May 2014, we entered into a stock purchase agreement (the
“
Protea SPA
”) with Protea to acquire 100% of the
outstanding capital stock of ProteaBio Europe SAS (the
“
Protea
Acquisition
”). In June
2014, we completed the Protea Acquisition in exchange for the
payment to Protea of $600,000 and the issuance of shares of our
Series A Preferred convertible into 33% of our outstanding Common
Stock. Pursuant to the Protea SPA, Protea Sub
assigned (i) to Protea Europe all of its rights,
assets, know-how and intellectual property rights in connection
with program PR1101 and those granted under that certain Joint
Research and Development Agreement (the “
JDLA
”), by and among Protea Sub, Protea Europe
and Mayoly, dated March 22, 2010; and (ii) to us all amounts,
together with any right of reimbursement, due to Protea Sub in
connection with outstanding stockholder loans.
Pursuant to the Protea SPA, we were obligated to pay certain other
contingent consideration upon the satisfaction of certain events,
including (a) a one-time milestone payment of $2.0 million due
within ten days of receipt of the first approval by the FDA of a
New Drug Application (“
NDA
”) or Biological License Application
(“
BLA
”) for a Business Product (as such term is
defined in the Protea SPA); (b) royalty payments equal to 2.5% of
net sales of Business Product up to $100.0 million and 1.5% of net
sales of Business Product in excess of $100.0 million; and (c) 10%
of the transaction value (as defined in the Protea SPA) received in
connection with a sale or transfer of the pharmaceutical
development business of Protea Europe.
In December 2018, we entered into a purchase agreement (the
“
Protea
Purchase Agreement
”)
with Protea Biosciences Group, Inc. and Protea, its wholly owned
subsidiary, pursuant to which we agreed to purchase the rights to
any milestone payments, royalty payments, and transaction value
consideration due from us to Protea now or in the future, arising
from the Protea SPA (the “
Purchased
Assets
”).
In accordance with the terms of the
Protea Purchase Agreement,
we purchased the
Purchased Assets
from Protea for an
aggregate purchase price of approximately $1.6 million. We paid
approximately $0.3 million of the purchase price in cash, and the
remaining approximately $1.3 million was paid by the issuance of
shares of Common Stock, at a price of $1.77 per share, resulting in
the issuance of 734,463 shares of Common Stock to
Protea.
Mayoly JDLA and Subsequent Asset Purchase Agreement
In March 2010, Protea and AzurRx SAS entered into the JDLA with
Mayoly pursuant to which Mayoly sublicensed certain of its
exclusive rights to a genetically engineered yeast strain cell line
on which our MS1819 is based that derive from a Usage and
Cross-Licensing Agreement dated February 2, 2006
between Mayoly and INRA, in charge of
patent management acting for and on behalf of CNRS and
INRA.
In January 2014, Protea entered into an amended and restated
JDLA with Mayoly (the “
Mayoly
Agreement
”), pursuant to
which Protea acquired the exclusive right to Mayoly patents
and technology, with the right to sublicense, develop, manufacture
and commercialize human pharmaceuticals based on the MS1819 lipase
within the following territories: U.S. and Canada, South America
(excluding Brazil), Asia (excluding China and Japan), Australia,
New Zealand and Israel. The JDLA further provided Mayoly the
exclusive right to Protea’s patents and technology, with
the right to sublicense, develop, manufacture and commercialize
human pharmaceuticals based on the MS1819 lipase within the
following territories: Mexico, Europe (excluding Italy, Portugal
and Spain) and any other country not granted to us alone, or
jointly with Mayoly. Prior to the execution of the Mayoly APA,
rights to the following territories were held jointly with Mayoly:
Brazil, Italy, Portugal, Spain, China and Japan. In addition, the
Mayoly Agreement
required
Protea to pay 70% of all development costs and required each of the
parties to use reasonable efforts to:
●
devote
sufficient personnel and facilities required for the performance of
its assigned tasks;
●
make
available appropriately qualified personnel to supervise, analyze
and report on the results obtained in the furtherance of the
development program; and
●
deploy
such scientific, technical, financial and other resources as is
necessary to conduct the development program.
Asset Purchase Agreement with Mayoly
In March 2019, the Company
and Mayoly entered into an Asset
Purchase Agreement and associated Assignment Agreement and
Delegation and Set-off Agreement (together, the “
Mayoly
APA
”),
pursuant to which we purchased all remaining
rights, title and interest in and to MS1819. Upon execution of the
Mayoly APA, the JDLA previously executed by AzurRx SAS and Mayoly
was assigned to us. In addition, the Company
executed a
Patent License Agreement with Mayoly pursuant to which
we granted to Mayoly an exclusive, royalty-bearing
right to revenue received from commercialization of MS1819 within
France and Russia. We have exclusive rights to MS1819 in all other
global territories.
In accordance with the Mayoly APA and related transaction
documents, we provided to Mayoly the following
consideration:
(i)
we assumed certain of Mayoly’s liabilities with respect to
MS1819;
(ii)
we assumed all amounts currently owed to AzurRx SAS by Mayoly under
the JDLA;
(iii)
we agreed to pay, within 30 days after the execution of the Mayoly
APA, all amounts incurred by Mayoly for the maintenance of patents
related to MS1819 from January 1, 2019 through the date of the
Mayoly APA;
(iv)
we
made an initial payment to Mayoly of
€800,000, which amount was paid by the issuance of 400,481
shares of Common Stock at a price of $2.29 per share (the
“
Closing Payment
Shares
”);
and
(v)
we agreed to pay to Mayoly an additional €1,500,000, payable
in a mix of cash and shares of Common Stock as follows (the
“
Milestone
Payments
”): (i) on
December 31, 2019, a cash payment of €400,000 and 200,240
shares of Common Stock (the “
2019 Escrow
Shares
”) and (ii) on
December 31, 2020, a cash payment of €350,000 and 175,210
shares of Common Stock (the “
2020 Escrow
Shares
” and, together
with the 2019 Escrow Shares, the “
Escrow
Shares
”).
The Closing Payment Shares and the Escrow Shares were all issued
upon execution of the Mayoly APA;
provided
,
however
, per the terms of the Mayoly APA, the Escrow
Shares will be held in escrow until the applicable milestone
payment date, at which time the respective Escrow Shares will be
vested and released to Mayoly (See Note 14
)
.
TransChem Sublicense
In August 2017, we entered into the TransChem Sublicense Agreement
pursuant to which TransChem granted to us an exclusive license to
certain patents (the
“TransChem Licensed
Patents”
) relating to H.
pylori 5’methylthioadenosine nucleosidase inhibitors. The
Sublicense Agreement and the licenses granted therein may be
terminated by us for any reason and without further liability on 60
days’ notice. Unless terminated earlier, the Sublicense
Agreement will expire upon the expiration of the last Licensed
Patents. Upon execution, we paid an upfront fee to TransChem and
agreed to reimburse TransChem for certain expenses previously
incurred in connection with the preparation, filing, and
maintenance of the Licensed Patents. We also agreed to pay
TransChem certain future periodic sublicense maintenance fees,
which fees may be credited against future royalties. We may also be
required to pay TransChem additional payments and royalties in the
event certain performance-based milestones and commercial sales
involving the Licensed Patents are achieved. The TransChem Licensed
Patents allowed us to develop compounds for treating
gastrointestinal, lung and other infections that are specific to
individual bacterial species.
H. pylori
bacterial infections are a major cause of chronic
gastritis, peptic ulcer disease, gastric cancer and other
diseases.
In March 2020, we provided TransChem with sixty (60) days prior
written notice of its intent to terminate the TransChem Sublicense
Agreement.
Intellectual Property
Our goal is to obtain, maintain and enforce patent protection for
our drug candidates, formulations, processes, methods and any other
proprietary technologies, preserve our trade secrets, and operate
without infringing on the proprietary rights of other parties, both
in the United States and in other countries. Our policy is to
actively seek to obtain, where appropriate, the broadest
intellectual property protection possible for our current drug
candidates and any future drug candidates, proprietary information
and proprietary technology through a combination of contractual
arrangements and patents, both in the United States and abroad.
However, patent protection may not afford us with complete
protection against competitors who seek to circumvent our
patents.
We also depend upon the skills, knowledge, experience and know-how
of our management and research and development personnel, as well
as that of our advisors, consultants and other contractors. To help
protect our proprietary know-how, which is not patentable, and for
inventions for which patents may be difficult to enforce, we
currently rely and will in the future rely on trade secret
protection and confidentiality agreements to protect our interests.
To this end, we require all of our employees, consultants, advisors
and other contractors to enter into confidentiality agreements that
prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our
business.
MS1819
The MS1819 program is protected by the following issued patents
that we have licensed under the Mayoly Agreement
:
●
PCT/FR2006/001352 patent family (including the
patent EP2035556 and patent US8,334,130 and US8,834,867)
“Method for producing lipase, transformed
Yarrowia lipolytica
cell capable of producing said lipase
and their uses” describes a method for producing
Yarrowia
lipolytica
acid-resistant
recombinant lipase utilizing a culture medium without any products
of animal origin or non-characterized mixtures such as tryptone,
peptone or lactoserum, in addition to its uses. The European
patents expire June 15, 2026, U.S. patent 8,334,130 expires
September 11, 2028, and U.S. patent 8,834,867 expires September 15,
2026.
In
addition, a provisional application was filed in 2020 directed to
our proprietary formulation of MS1819. Any patent application
claiming priority to this provisional application upon issuance
will have an expected expiration in 2041.
Niclosamide
Our
FW-420 and FW-1022 niclosamide programs are protected by patent
filings licensed under the
First
Wave
License Agreement that include the
following:
●
US10,912,746;
US10,905,666;US10,292,951; US10,772,854; US10,744,103;
US10,799,468; US10,849,867; and U.S. Patent Application Publication
US20200276140 as well as corresponding worldwide patent filings all
entitled “Methods and Compositions for Treating Conditions
Associated with an Abnormal Inflammatory Process.” The
expiration date of the issued patents is September 1,
2036
;
●
A
series of provisional and yet unpublished applications all filed in
2020, including U.S. Application Serial No. 16/835,307, directed to
the use of niclosamide for the treatment of COVID-19
gastrointestinal infections, which has been allowed and upon
issuance will have an expiration date in 2040
.
Manufacturing
We
currently outsource all manufacturing, and we intend to use our
collaborators and contract development and manufacturing
organizations (CDMOs) for the foreseeable future. However, certain
members of our team have broad experience in manufacturing, which
we believe may provide a competitive advantage.
MS1819
MS1819
API is obtained by fermentation in bioreactors using our engineered
and proprietary
Yarrowia
lipolytica
strain. The proprietary yeast cell line from
which the API is derived is kept at a storage facility maintained
by Charles River. MS1819 drug substance is currently manufactured
at a contract facility located in Capua, Italy owned by Olon SpA.
MS1819 drug product is currently manufactured at a contract
facilities located in Reims, France and Craigavon, United Kingdom
owned by Delpharm and Almac Pharma Services. We believe there are
multiple alternative contract manufacturers capable of producing
the product we need for clinical trials. We are in the process of
establishing alternative manufacturers and manufacturing sites for
the product; however, there is no guarantee that the processes are
easily reproducible and transferrable.
In December 2020, we entered into a master service
agreement with Asymchem to initiate the transfer of the
manufacturing process for both drug substance and drug
product.
Niclosamide
Niclosamide
API is obtained by chemical synthesis and is currently manufactured
by Olon SpA at a facility in Murcia, Spain. Niclosamide drug
product is currently manufactured at a contract facility located in
Milan, Italy owned by Monteresearch. We believe there are multiple
alternative contract manufacturers capable of producing the product
we need for clinical trials; however, there is no guarantee that
the processes are easily reproducible and
transferrable.
Competition
The
pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Many companies
of all sizes, including major pharmaceutical companies and
specialized biotechnology companies, are engaged in the development
and commercialization of therapeutic agents designed for the
treatment of the same diseases and disorders that we target. Many
of our competitors have substantially greater financial and other
resources, larger research and development staff and more
experience in the regulatory approval process. Moreover, potential
competitors have or may have patents or other rights that conflict
with patents covering our technologies.
MS1819
With
respect to MS1819, we will compete with PERTs (pancrelipase), a
well-established market that is currently dominated by a few large
pharmaceutical companies, including CREON® marketed by AbbVie
Inc., ZENPEP® sold to Nestlé S.A. by Allergan plc. in
January 2020, PANCREAZE® marketed by
VIVUS, Inc. and PERTZYE®
marketed by Chiesi Farmaceutici S.p.A. There are currently six
PERT products that have been approved by the FDA for sale in the
U.S. We believe our ability to compete in this market, if we are
successful in developing and obtaining regulatory approval to
market MS1819, will depend on our ability (or that of a future
corporate partner) to convince patients, their physicians,
healthcare payors and the medical community of the benefits of
using a non-animal-based product to treat EPI, as well as by
addressing other shortcomings associated with PERTs, including a
large pill burden.
Niclosamide
With
respect to FW-1022, micronized niclosamide for COVID-19 GI
infections, if approved, we will compete with currently approved
antivirals, including VEKLURY® (remdesivir) marketed by Gilead
Sciences, Inc. and vaccines, including those marketed by Pfizer
Inc. and BioNTech SE, Moderna, Inc. Johnson & Johnson and
AstraZeneca plc. There are also several therapeutic and vaccine
candidates in various stages of development that may obtain
regulatory approval for the treatment or prevention of COVID-19
infections. Additionally, there are currently ongoing clinical
studies using niclosamide by ANA Therapeutics (acquired by NeuroBo
Pharmaceuticals, Inc.), Daewoong Pharmaceuticals Co Ltd, and Union
Therapeutics A/S, among others at various stages of development. We
believe our approach to target COVID-19 GI infections is
differentiated. We believe our ability to compete in this market,
if we are successful in developing and obtaining regulatory
approval to market FW-1022, will depend on our ability (or that of
future corporate partners) to convince patients, their physicians,
healthcare agencies and payors and the medical community of the
benefits of using a GI restricted FW-1022 to treat COVID-19
infections with GI symptoms.
With
respect to FW-420, micronized niclosamide for ICI-AC, we will
compete with both oral and intravenous administered steroids as
well as hospital-based infusions of biologics, including infliximab
and vedolizumab. We believe our ability to compete in this market,
if we are successful in developing and obtaining regulatory
approval to market FW-420, will depend on our ability (or that of
future corporate partners) to convince patients, their physicians,
healthcare agencies and payors and the medical community of the
benefits of using a non-steroidal, non-biologic therapeutic option
for the treatment of ICI-AC.
Government Regulation and Product Approval
Government
authorities in the United States, at the federal, state and local
level, and other countries extensively regulate, among other
things, the research, development, testing, manufacture, quality
control, approval, labeling, packaging, storage, record-keeping,
promotion, advertising, distribution, post-approval monitoring and
reporting, marketing and export and import of products such as
those we are developing. To date, our internal research and
development efforts have been conducted in France. We expect to
continue to perform substantially all of our basic research
activities in France in order to leverage our human capital
expertise as well as to avail ourselves of tax credits (CIR)
awarded by the French government to research companies that perform
research activities in France. We expect to continue to conduct
early stage development work in France, with late stage development
work, including Phase 2b and Phase 3 clinical trials for MS1819 in
both the United States and Europe, as North America is our
principal target market for MS1819 and any other drug candidates
that we may successfully develop.
U.S. Government Regulation
In the
United States, the FDA regulates drugs under the Federal Food,
Drug, and Cosmetic Act, or FDCA, and its implementing regulations,
and biologics under the FDCA and the Public Health Service Act, or
PHSA, and its implementing regulations. FDA approval is required
before any new unapproved drug or dosage form, including a new use
of a previously approved drug, can be marketed in the United
States. Drugs and biologics are also subject to other federal,
state and local statutes and regulations. If we fail to comply with
applicable FDA or other requirements at any time during the drug
development process, clinical testing, the approval process or
after approval, we may become subject to administrative or judicial
sanctions. These sanctions could include the FDA's refusal to
approve pending applications, license suspension or
revocation, withdrawal of an approval, warning letters, product
recalls, product seizures, placement on Import Alerts, debarment of
personnel, employees or officers, total or partial suspension of
production or distribution, injunctions, fines, civil penalties or
criminal prosecution.
The process required by the FDA before drug candidates may be
marketed in the United States generally involves the
following:
●
completion
of extensive preclinical laboratory tests, preclinical animal
studies, and toxicity data, all performed in accordance with the
good laboratory practices, or GLP, regulations;
●
submission
to the FDA of an IND, which must become effective before human
clinical studies may begin;
●
approval
by an independent IRB or ethics committee representing each
clinical site before each clinical study may be
initiated;
●
performance
of adequate and well-controlled human clinical studies to establish
the safety and efficacy, or in the case of a biologic, the safety,
purity and potency, of the drug candidate for each proposed
indication;
●
preparation
of and submission to the FDA of a new drug application, or NDA, or
biologics license application, or BLA, after completion of all
pivotal clinical studies;
●
review
of the product application by an FDA advisory committee, where
appropriate and if applicable;
●
a
determination by the FDA within 60 days of its receipt of an NDA or
BLA to file the application for review;
●
satisfactory completion of an FDA pre-approval inspection of the
manufacturing facilities where the drug candidate is produced to
assess compliance with cGMP; and
●
FDA
review and approval of an NDA or BLA prior to any commercial
marketing or sale of the drug or biologic in the United
States.
An IND
is a request for authorization from the FDA to administer an
investigational new drug product to humans. The central focus of an
IND submission is on the general investigational plan and the
protocol(s) for human studies. The IND also includes results of
animal and in vitro studies assessing the toxicology,
pharmacokinetics, pharmacology and pharmacodynamic characteristics
of the product; chemistry, manufacturing and controls information;
and any available human data or literature to support the use of
the investigational new drug. An IND must become effective before
human clinical studies may begin. An IND will automatically become
effective 30 days after receipt by the FDA, unless before that
time the FDA raises concerns or questions related to the proposed
clinical studies. In such a case, the IND may be placed on clinical
hold and the IND sponsor and the FDA must resolve any outstanding
concerns or questions before clinical studies can begin.
Accordingly, submission of an IND may or may not result in the FDA
allowing clinical studies to commence
.
Clinical Studies
Clinical
studies involve the administration of the investigational new drug
to human subjects under the supervision of qualified investigators
in accordance with GCPs, which include the requirement that all
research subjects provide their informed consent for their
participation in any clinical study. Clinical studies are conducted
under protocols detailing, among other things, the objectives of
the study, and the parameters to be used in monitoring safety and
the efficacy criteria to be evaluated. A protocol for each clinical
study and any subsequent protocol amendments must be submitted to
the FDA as part of the IND. Additionally, approval must also be
obtained from each clinical study site's IRB before the studies may
be initiated, and the IRB must monitor the study until completed.
There are also requirements governing the reporting of ongoing
clinical studies and clinical study results to public registries,
such as ClinicalTrials.gov.
The clinical investigation of a drug or biologic is generally
divided into three or four phases. Although the phases are usually
conducted sequentially, they may overlap or be
combined.
●
Phase 1
. The drug or biologic is initially
introduced into healthy human subjects or patients with the target
disease or condition. These studies are designed to evaluate the
safety, dosage tolerance, metabolism and pharmacologic actions of
the investigational new drug in humans, the side effects associated
with increasing doses, and if possible, to gain early evidence on
effectiveness.
●
Phase 2
. The drug or biologic is administered to a
limited patient population to evaluate dosage tolerance and optimal
dosage, identify possible adverse side effects and safety risks and
preliminarily evaluate efficacy.
●
Phase 3
. The drug or biologic is administered to an
expanded patient population, generally at geographically dispersed
clinical study sites to generate enough data to statistically
evaluate dosage, clinical effectiveness and safety, to establish
the overall benefit-risk relationship of the investigational
product and to provide an adequate basis for product
approval.
●
Phase 4
. In some cases, the FDA may condition
approval of an NDA or BLA for a drug candidate on the sponsor's
agreement to conduct additional clinical studies after approval. In
other cases, a sponsor may commit to conducting or voluntarily
conduct additional clinical studies after approval to gain more
information about the drug. Such post-approval studies are
typically referred to as Phase 4 clinical
studies.
A confirmatory or pivotal study is a clinical study that adequately
meets regulatory agency requirements for the evaluation of a drug
candidate's efficacy and safety such that it can be used to justify
the approval of the product. Generally, pivotal studies are
Phase 3 studies, but the FDA may accept results from
Phase 2 studies if the study design provides a well-controlled
and reliable assessment of clinical benefit, particularly in
situations where there is an unmet medical need and the results are
sufficiently robust. In such cases, FDA may require post-market
studies for safety and efficacy to be conducted for the drug
candidate. The FDA may withdraw the approval if the results
indicate that the approved drug is not safe or
effective.
The FDA, the IRB or the clinical study sponsor may suspend or
terminate a clinical study at any time on various grounds,
including a finding that the research subjects are being exposed to
an unacceptable health risk. Additionally, some clinical studies
are overseen by an independent group of qualified experts organized
by the clinical study sponsor, known as a data safety monitoring
board or committee. This group provides authorization for whether
or not a study may move forward at designated check points based on
access to certain data from the study. We may also suspend or
terminate a clinical study based on evolving business objectives
and/or competitive climate.
Submission of an NDA or BLA to the FDA
Assuming successful completion of all required testing in
accordance with all applicable regulatory requirements, detailed
investigational new drug product information is submitted to the
FDA in the form of an NDA or BLA requesting approval to market the
product for one or more indications. Under federal law, the
submission of most NDAs and BLAs is subject to a substantial
application user fee. Applications for orphan drug products are
exempted from the NDA and BLA application user
fees.
An NDA or BLA must include all relevant data available from
pertinent preclinical and clinical studies, including negative or
ambiguous results as well as positive findings, together with
detailed information relating to the product's chemistry,
manufacturing, controls and proposed labeling, among other things.
Data can come from company-sponsored clinical studies intended to
test the safety and effectiveness of a use of a product, or from a
number of alternative sources, including studies initiated by
investigators. To support marketing approval, the data submitted
must be sufficient in quality and quantity to establish the safety
and effectiveness of the investigational product to the
satisfaction of the FDA.
Once an NDA or BLA has been submitted, the FDA's goal is to review
the application within ten months after it accepts the application
for filing, or, if the application relates to an unmet medical need
in a serious or life-threatening indication, six months after the
FDA accepts the application for filing. The review process is often
significantly extended by FDA requests for additional information
or clarification.
Before approving an NDA or BLA, the FDA typically will inspect the
facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the
manufacturing processes and facilities are in compliance with cGMP
requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before
approving an NDA or BLA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP.
The FDA is required to refer an application for an investigational
drug or biologic to an advisory committee or explain why such
referral was not made. An advisory committee is a panel of
independent experts, including clinicians and other scientific
experts, that reviews, evaluates and provides a recommendation as
to whether the investigational product application should be
approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions and typically
follows such recommendations.
The FDA's Decision on an NDA or BLA
After
the FDA evaluates the NDA or BLA and conducts inspections of
manufacturing facilities, it may issue an approval letter or a
Complete Response Letter. An approval letter authorizes commercial
marketing of the drug or biologic with specific prescribing
information for specific indications. A Complete Response Letter
indicates that the review cycle of the application is complete, and
the application is not ready for approval. A Complete Response
Letter may require additional clinical data and/or an additional
pivotal Phase 3 clinical study(ies), and/or other significant,
expensive and time-consuming requirements related to clinical
studies, preclinical studies or manufacturing. Even if such
additional information is submitted, the FDA may ultimately decide
that the NDA or BLA does not satisfy the criteria for approval. The
FDA could also approve the NDA or BLA with a REMS to mitigate
risks, which could include medication guides, physician
communication plans or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk
minimization tools. The FDA also may condition approval on, among
other things, changes to proposed labeling, development of adequate
controls and specifications or a commitment to conduct one or more
post-market studies or clinical studies. Such post-market testing
may include Phase 4 clinical studies and surveillance to
further assess and monitor the product's safety and effectiveness
after commercialization. The FDA may have the authority to withdraw
its approval if post-market testing fails to verify the approved
drug's clinical benefit, if the applicant does not perform the
required testing with due diligence, or if the any other evidence
demonstrates the approved drug is not safe or effective, among
other reasons. Also, new government requirements, including those
resulting from new legislation, may be established, or the FDA's
policies may change, which could delay or prevent regulatory
approval of our products under development.
Expedited Review and Accelerated Approval
Programs
The FDA
has various programs, including fast track designation,
breakthrough therapy designation, accelerated approval,
regenerative medicine advanced therapy and priority review, that
are intended to expedite the development and approval of new
drugs and biologics that address unmet medical needs in the
treatment of serious or life-threatening diseases and conditions.
To be eligible for a fast track designation, the FDA must
determine, based on the request of a sponsor, that a product is
intended to treat a serious or life-threatening disease or
condition and demonstrates the potential to address an unmet
medical need. The FDA may review sections of the NDA for a
fast-track product on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for
the submission of the sections of the NDA, the FDA agrees to accept
sections of the NDA and determines that the schedule is acceptable,
and the sponsor pays any required user fees upon submission of the
first section of the NDA.
The FDA
may give a priority review designation to drugs that offer major
advances in treatment or provide a treatment where no adequate
therapy exists. A priority review means that the goal for the FDA
to review an application is six months, rather than the standard
review of ten months under current. These six and ten-month review
periods are measured from the "filing" date rather than the receipt
date for NDAs for new molecular entities, which typically adds
approximately two months to the timeline for review and decision
from the date of submission. Most products that are eligible for
fast-track designation are also likely to be considered appropriate
to receive a priority review.
In
addition, products studied for their safety and effectiveness in
treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may be
eligible for accelerated approval and may be approved on the basis
of adequate and well-controlled clinical studies establishing that
the product has an effect on a surrogate endpoint that is
reasonably likely to predict clinical benefit, or on a clinical
endpoint that can be measured earlier than irreversible morbidity
or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit,
taking into account the severity, rarity or prevalence of the
condition and the availability or lack of alternative treatments.
As a condition of approval, the FDA may require a sponsor of a drug
receiving accelerated approval to perform post-marketing studies to
verify and describe the predicted effect on irreversible morbidity
or mortality or other clinical endpoint, and the drug may be
subject to accelerated withdrawal procedures.
Moreover,
under the provisions of the FDA Safety and Innovation Act passed in
July 2012, a sponsor can request designation of a drug candidate as
a "breakthrough therapy." A breakthrough therapy is defined as a
drug or biologic that is intended, alone or in combination with one
or more other drugs or biologics, to treat a serious or
life-threatening disease or condition, and preliminary clinical
evidence indicates that the product may demonstrate substantial
improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects
observed early in clinical development. Drugs designated as
breakthrough therapies are also eligible for the other expedited
review and approval programs, including accelerated approval,
priority review, regenerative medicine advanced therapy, and
fast-track designation. The FDA must take certain actions, such as
holding timely meetings and providing advice, intended to expedite
the development and review of an application for approval of a
breakthrough therapy.
In
addition, the 21st Century Cures Act in 2016 made the
Regenerative Medicine Advanced Therapy, or RMAT, designation
available for investigational drugs that are intended to treat,
modify, reverse, or cure a serious condition, with preliminary
clinical evidence indicating that the drug has the potential for
addressing unmet medical needs for such condition. The RMAT
designation is available for cell therapy, therapeutic tissue
engineering products, human cell and tissue products, and
combination products that use such therapies or products. The
advantages of RMAT designation include those of breakthrough and
fast track designations, such as early interactions with FDA and
rolling review of applications, and the drug candidate with the
RMAT designation may be eligible for accelerated approval. Requests
for RMAT designations should be made with the IND application (if
preliminary clinical evidence is available), but no later than the
end-of-phase-2 meeting.
Even if
a product qualifies for one or more of these programs, the FDA may
later decide that the product no longer meets the conditions for
qualification or decide that the time period for FDA review or
approval will not be shortened.
Post-Approval Requirements
Drugs
and biologics marketed pursuant to FDA approvals are subject to
pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and
promotion and reporting of adverse experiences with the product.
After approval, most changes to the approved product, such as
adding new indications or other labeling claims are subject to
prior FDA review and approval. There also are continuing, annual
user fee requirements.
Manufacturers
are subject to periodic unannounced inspections by the FDA and
state agencies for compliance with cGMP requirements. Changes to
the manufacturing process are strictly regulated and, depending on
the significance of the change, may require prior FDA approval
before being implemented. FDA regulations also require
investigation and correction of any deviations from cGMP and impose
reporting and documentation requirements upon us and any
third-party manufacturers that we may decide to use. Accordingly,
manufacturers must continue to expend time, money and effort in the
area of production and quality control to maintain compliance with
cGMP and other aspects of regulatory compliance.
Discovery
of previously unknown problems with a product or the failure to
comply with applicable requirements may result in restrictions on a
product, manufacturer or holder of an approved NDA or BLA,
including withdrawal or recall of the product from the market or
other voluntary, FDA-initiated or judicial action that could delay
or prohibit further marketing. Also, new government requirements,
including those resulting from new legislation, may be established,
or the FDA's policies may change, which could delay or prevent
regulatory approval of our products under
development.
The FDA
may withdraw approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown
problems with a product, including adverse events of unanticipated
severity or frequency, or with manufacturing processes, or failure
to comply with regulatory requirements, may result in revisions to
the approved labeling to add new safety information; imposition of
post-market studies or clinical studies to assess new safety risks;
or imposition of distribution restrictions or other restrictions
under a REMS program. Other potential consequences include, among
other things.
●
restrictions
on the marketing or manufacturing of the product;
●
complete
withdrawal of the product from the market or product
recalls;
●
fines,
warning letters or holds on post-approval clinical
studies;
●
refusal
of the FDA to approve pending NDAs or BLAs or supplements to
approved NDAs or BLAs, or suspension or revocation of product
licenses or approvals;
●
product
seizure or detention, or refusal to permit the import or export of
products; or
●
injunctions
or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and
promotion of products that are placed on the market. Drugs may be
promoted only for the approved indications and in accordance with
the provisions of the approved label. The FDA and other agencies
actively enforce the laws and regulations prohibiting the promotion
of off-label uses, and a company that is found to have improperly
promoted off-label uses may be subject to significant
liability.
Orphan Designation and Exclusivity
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug
or biologic intended to treat a rare disease or condition, defined
as a disease or condition with a patient population of fewer than
200,000 individuals in the United States, or a patient population
greater than 200,000 individuals in the United States and when
there is no reasonable expectation that the cost of developing and
making available the drug or biologic in the United States will be
recovered from sales in the United States for that drug or
biologic. Orphan drug designation must be requested before
submitting a BLA or NDA. After the FDA grants orphan drug
designation, the generic identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the
FDA.
If a
product that has orphan drug designation subsequently receives the
first FDA approval for a particular active ingredient for the
disease for which it has such designation, the product is entitled
to orphan product marketing exclusivity, which means that the FDA
may not approve any other applications, including a full BLA, to
market the same biologic for the same use or indication for seven
years, except in limited circumstances, such as a showing of
clinical superiority to the product with orphan drug exclusivity or
if FDA finds that the holder of the orphan drug exclusivity has not
shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease
or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different
drug or biologic for the same disease or condition, or the same
drug or biologic for a different disease or condition. Among the
other benefits of orphan drug designation are tax credits for
certain research and a waiver of the BLA or NDA application user
fee.
A
designated orphan drug may not receive orphan drug exclusivity if
it is approved for a use that is broader than the indication for
which it received orphan designation. In addition, orphan drug
exclusive marketing rights in the United States may be lost if the
FDA later determines that the request for designation was
materially defective or, as noted above, if the second applicant
demonstrates that its product is clinically superior to the
approved product with orphan exclusivity or the manufacturer of the
approved product is unable to assure sufficient quantities of the
product to meet the needs of patients with the rare disease or
condition.
Biosimilars and Exclusivity
The Affordable Care Act, signed into law in 2010, includes a
subtitle called the Biologics Price Competition and Innovation Act
of 2009, or BPCIA, which created an abbreviated approval pathway
for biological products that are biosimilar to or interchangeable
with an FDA-licensed reference biological product. To date, only a
handful of biosimilars have been licensed under the BPCIA, although
numerous biosimilars have been approved in Europe. The FDA has
issued several guidance documents outlining an approach to review
and approval of biosimilars.
Biosimilarity, which requires that there be no clinically
meaningful differences between the biological product and the
reference product in terms of safety, purity and potency, can be
shown through analytical studies, human PK and PD studies, clinical
immunogenicity assessments, animal studies and a clinical study or
studies. Interchangeability requires that a product is biosimilar
to the reference product and the product must demonstrate that it
can be expected to produce the same clinical results as the
reference product in any given patient and, for products that are
administered multiple times to an individual, the biologic and the
reference biologic may be alternated or switched after one has been
previously administered without increasing safety risks or risks of
diminished efficacy relative to exclusive use of the reference
biologic. However, complexities associated with the larger, and
often more complex, structures of biological products, as well as
the processes by which such products are manufactured, pose
significant hurdles to implementation of the abbreviated approval
pathway that are still being worked out by the
FDA.
Under the BPCIA, an application for a biosimilar product may not be
submitted to the FDA until four years following the date that the
reference product was first licensed by the FDA. In addition, the
approval of a biosimilar product may not be made effective by the
FDA until 12 years from the date on which the reference
product was first licensed. During this 12-year period of
exclusivity, another company may still market a competing version
of the reference product if the FDA approves a full BLA for the
competing product containing that applicant's own preclinical data
and data from adequate and well-controlled clinical studies to
demonstrate the safety, purity and potency of its product. The
BPCIA also created certain exclusivity periods for biosimilars
approved as interchangeable products. At this juncture, it is
unclear whether products deemed "interchangeable" by the FDA will,
in fact, be readily substituted by pharmacies, which are governed
by state pharmacy law.
A biological product can also obtain pediatric market exclusivity
in the United States. Pediatric exclusivity, if granted, adds six
months to existing exclusivity periods and patent terms. This
six-month exclusivity, which runs from the end of other exclusivity
protection or patent term, may be granted based on the voluntary
completion of a pediatric study in accordance with an FDA-issued
"Written Request" for such a study.
The BPCIA is complex and continues to be interpreted and
implemented by the FDA. In addition, recent government proposals
have sought to reduce the 12-year reference product exclusivity
period. Other aspects of the BPCIA, some of which may impact the
BPCIA exclusivity provisions, have also been the subject of recent
litigation. As a result, the ultimate impact, implementation, and
impact of the BPCIA is subject to significant
uncertainty.
Hatch-Waxman Amendments and Exclusivity
Section 505 of the FDCA describes three types of marketing
applications that may be submitted to the FDA to request marketing
authorization for a new drug. A Section 505(b)(1) NDA is an
application that contains full reports of investigations of safety
and efficacy. A 505(b)(2) NDA is an application that contains full
reports of investigations of safety and efficacy but where at least
some of the information required for approval comes from
investigations that were not conducted by or for the applicant and
for which the applicant has not obtained a right of reference or
use from the person by or for whom the investigations were
conducted. This regulatory pathway enables the applicant to rely,
in part, on the FDA's prior findings of safety and efficacy for an
existing product, or published literature, in support of its
application. Section 505(j) establishes an abbreviated
approval process for a generic version of approved drug products
through the submission of an ANDA. An ANDA provides for marketing
of a generic drug product that has the same active ingredients,
dosage form, strength, route of administration, labeling,
performance characteristics and intended use, among other things,
to a previously approved product. ANDAs are termed "abbreviated"
because they are generally not required to include preclinical
(animal) and clinical (human) data to establish safety and
efficacy. Instead, generic applicants must scientifically
demonstrate that their product is bioequivalent to, or performs in
the same manner as, the innovator drug through in vitro, in vivo or
other testing. The generic version must deliver the same amount of
active ingredients into a subject's bloodstream in the same amount
of time as the innovator drug and can often be substituted by
pharmacists under prescriptions written for the reference listed
drug. In seeking approval for a drug through an NDA, applicants are
required to list with the FDA each patent with claims that cover
the applicant's drug or a method of using the drug. Upon approval
of a drug, each of the patents listed in the application for the
drug is then published in the Orange Book. Drugs listed in the
Orange Book can, in turn, be cited by potential competitors in
support of approval of an ANDA or 505(b)(2) NDA.
Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must
certify to the FDA that (1) no patent information on the drug
product that is the subject of the application has been submitted
to the FDA; (2) such patent has expired; (3) the date on
which such patent expires; or (4) such patent is invalid or
will not be infringed upon by the manufacture, use or sale of the
drug product for which the application is submitted.
Generally, the ANDA or 505(b)(2) NDA cannot be approved until all
listed patents have expired, except where the ANDA or 505(b)(2) NDA
applicant challenges a listed patent through the last type of
certification, also known as a paragraph IV certification. If
the applicant does not challenge the listed patents, or indicates
that it is not seeking approval of a patented method of use, the
ANDA or 505(b)(2) NDA application will not be approved until all of
the listed patents claiming the referenced product have
expired.
If the ANDA or 505(b)(2) NDA applicant has provided a
Paragraph IV certification to the FDA, the applicant must send
notice of the Paragraph IV certification to the NDA and patent
holders once the application has been accepted for filing by the
FDA. The NDA and patent holders may then initiate a patent
infringement lawsuit in response to the notice of the
paragraph IV certification. If the paragraph IV
certification is challenged by an NDA holder or the patent owner(s)
asserts a patent challenge to the paragraph IV certification,
the FDA may not approve that application until the earlier of
30 months from the receipt of the notice of the
paragraph IV certification, the expiration of the patent, when
the infringement case concerning each such patent was favorably
decided in the applicant's favor or settled, or such shorter or
longer period as may be ordered by a court. This prohibition is
generally referred to as the 30-month stay. In instances where an
ANDA or 505(b)(2) NDA applicant files a paragraph IV
certification, the NDA holder or patent owner(s) regularly take
action to trigger the 30-month stay, recognizing that the related
patent litigation may take many months or years to
resolve.
The FDA also cannot approve an ANDA or 505(b)(2) application until
all applicable non-patent exclusivities listed in the Orange Book
for the branded reference drug have expired. For example, a
pharmaceutical manufacturer may obtain five years of non-patent
exclusivity upon NDA approval of a new chemical entity, or NCE,
which is a drug containing an active moiety that has not been
approved by FDA in any other NDA. An "active moiety" is defined as
the molecule responsible for the drug substance's physiological or
pharmacologic action. During that five-year exclusivity period, the
FDA cannot accept for filing (and therefore cannot approve) any
ANDA seeking approval of a generic version of that drug or any
505(b)(2) NDA that relies on the FDA's approval of the drug,
provided that that the FDA may accept an ANDA four years into the
NCE exclusivity period if the ANDA applicant also files a
Paragraph IV certification.
A drug, including one approved under Section 505(b)(2), may
obtain a three-year period of exclusivity for a particular
condition of approval, or change to a marketed product, such as a
new formulation for a previously approved product, if one or more
new clinical studies (other than bioavailability or bioequivalence
studies) was essential to the approval of the application and was
conducted/sponsored by the applicant. Should this occur, the FDA
would be precluded from approving any ANDA or 505(b)(2) application
for the protected modification until after that three-year
exclusivity period has run. However, unlike NCE exclusivity, the
FDA can accept an application and begin the review process during
the exclusivity period.
Other Healthcare Laws and Compliance
Requirements
Pharmaceutical companies are subject to additional healthcare
regulation and enforcement by the federal government and by
authorities in the states and foreign jurisdictions in which they
conduct their business. Such laws include, without limitation,
state and federal anti-kickback, fraud and abuse, false claims,
privacy and security and physician sunshine laws and regulations.
If their operations are found to be in violation of any of such
laws or any other governmental regulations that apply, they may be
subject to penalties, including, without limitation, civil and
criminal penalties, damages, fines, the curtailment or
restructuring of operations, exclusion from participation in
federal and state healthcare programs and individual
imprisonment.
Coverage and Reimbursement
Sales of any product depend, in part, on the extent to which such
product will be covered by third-party payors, such as federal,
state and foreign government healthcare programs, commercial
insurance and managed healthcare organizations and the level of
reimbursement for such product by third-party payors. Decisions
regarding the extent of coverage and amount of reimbursement to be
provided are made on a plan-by-plan basis. These third-party payors
are increasingly reducing reimbursements for medical products,
drugs and services. In addition, the U.S. government, state
legislatures and foreign governments have continued implementing
cost-containment programs, including price controls, restrictions
on coverage and reimbursement and requirements for substitution of
generic products. Adoption of price controls and cost-containment
measures, and adoption of more restrictive policies in
jurisdictions with existing controls and measures, could further
limit sales of any product. Decreases in third-party reimbursement
for any product or a decision by a third-party payor not to cover a
product could reduce physician usage and patient demand for the
product and also have a material adverse effect on sales. Even
after FDA approves a product, failure to have the product covered
by third-party payors may have material adverse effect on sales.
Federal and state governments continue to promulgate new policies
and regulations; such policies and regulations may have material
adverse effect on sales. These laws and regulations may restrict,
prohibit, or preventing us from implementing a wide range of
pricing, discounting, marketing, promotion, sales commission,
incentive programs, and other business activities. No uniform
policy of coverage and reimbursement among third-party payors
exists in the United States. Such payors often rely upon Medicare
coverage policy establishing their coverage and reimbursement
policies. However, each payor makes independent and separate
decisions regarding the extent of coverage and amount of
reimbursement to be provided.
Healthcare Reform
In March 2010, former President Obama signed the Affordable Care
Act, which substantially changed the way healthcare is financed by
both governmental and private insurers in the United States, and
significantly affected the pharmaceutical industry. The Affordable
Care Act contains a number of provisions, including those governing
enrollments in federal healthcare programs, reimbursement
adjustments and fraud and abuse changes. Additionally, the
Affordable Care Act increases the minimum level of Medicaid rebates
payable by manufacturers of brand name drugs from 15.1% to 23.1%;
requires collection of rebates for drugs paid by Medicaid managed
care organizations; requires manufacturers to participate in a
coverage gap discount program, under which they must agree to offer
50% point-of-sale discounts off negotiated prices of applicable
brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer's outpatient drugs to
be covered under Medicare Part D; and imposes a non-deductible
annual fee on pharmaceutical manufacturers or importers who sell
"branded prescription drugs" to specified federal government
programs.
Since its enactment, there have been judicial and Congressional
challenges to certain aspects of the Affordable Care Act, and we
expect there will be additional challenges and amendments to the
Affordable Care Act in the future. Other legislative changes have
been proposed and adopted since the Affordable Care Act was
enacted, including aggregate reductions of Medicare payments to
providers of 2% per fiscal year and reduced payments to several
types of Medicare providers. Moreover, there has recently been
heightened governmental scrutiny over the manner in which
manufacturers set prices for their marketed products, which has
resulted in several Congressional inquiries and proposed bills
designed to, among other things, bring more transparency to product
pricing, review the relationship between pricing and manufacturer
patient programs, and reform government program reimbursement
methodologies for drug products. Individual states in the United
States have also become increasingly active in implementing
regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost
disclosure and transparency measures, and, in some cases, proposing
to encourage importation from other countries and bulk
purchasing.
Foreign Corrupt Practices Act
Our business activities may be subject to the Foreign Corrupt
Practices Act, or FCPA, and similar anti-bribery or anti-corruption
laws, regulations or rules of other countries in which we operate.
The FCPA generally prohibits offering, promising, giving, or
authorizing others to give anything of value, either directly or
indirectly, to a non-U.S. government official in order to influence
official action, or otherwise obtain or retain business. The FCPA
also requires public companies to make and keep books and records
that accurately and fairly reflect the transactions of the
corporation and to devise and maintain an adequate system of
internal accounting controls. Our business is heavily regulated and
therefore involves significant interaction with public officials,
including officials of non-U.S. governments. Additionally, in many
other countries, the health care providers who prescribe
pharmaceuticals are employed by their government, and the
purchasers of pharmaceuticals are government entities; therefore,
our dealings with these prescribers and purchasers are subject to
regulation under the FCPA. There is no certainty that all of our
employees, agents, suppliers, manufacturers, contractors, or
collaborators, or those of our affiliates, will comply with all
applicable laws and regulations, particularly given the high level
of complexity of these laws. Violations of these laws and
regulations could result in fines, criminal sanctions against us,
our officers, or our employees, the closing down of facilities,
including those of our suppliers and manufacturers, requirements to
obtain export licenses, cessation of business activities in
sanctioned countries, implementation of compliance programs, and
prohibitions on the conduct of our business. Any such violations
could include prohibitions on our ability to offer our products in
one or more countries as well as difficulties in manufacturing or
continuing to develop our products, and could materially damage our
reputation, our brand, our international expansion efforts, our
ability to attract and retain employees, and our business,
prospects, operating results, and financial condition.
European Union Drug Development
In the European Union, our drug candidates may also be subject to
extensive regulatory requirements. As in the United States,
medicinal products can only be marketed if a marketing
authorization from the competent regulatory agencies has been
obtained.
Similar to the United States, the various phases of preclinical and
clinical research in the European Union are subject to significant
regulatory controls. Clinical trials of medicinal products in the
European Union must be conducted in accordance with European Union,
national regulations and international standards for good clinical
practice, or GCP.
Clinical trials are currently governed by EU Clinical Trials
Directive 2001/20/EC that set out common rules for the control and
authorization of clinical trials in the European
Union.
To improve the current system, Regulation (EU) No 536/2014 on
clinical trials on medicinal products for human use was adopted in
2014. The Regulation aims at harmonizing and streamlining the
clinical trials authorization process, simplifying adverse event
reporting procedures, improving the supervision of clinical trials,
and increasing their transparency, notably via a clinical trial
information system set up by the EMA. The new Regulation expressly
provides that it will not be applied before six months after the
publication of a notice delivered by the European Commission on the
European Union clinical trial portal and database. As such notice
requires a successful (partial) audit of the database and as that
database is still under development, there is no scheduled
application date yet. Pursuant to the transitory provisions of the
new regulation, the Clinical Trials Directive 2001/20/EC will still
apply for three years after the implementation of the European
Union clinical trial portal and database. Thus, the sponsor
has the possibility to choose between the requirements of the
directive and the regulation for a period of three years from the
entry into force of the regulation.
European Union Drug Review and Approval
In the EEA (which is comprised of the 28 Member States of the
European Union plus Norway, Iceland and Liechtenstein), medicinal
products can only be commercialized after obtaining a Marketing
Authorization, or MA. MAs may be granted either centrally
(Community MA) or nationally (National MA).
The Community MA is issued centrally by the European Commission
through the Centralized Procedure, based on the opinion of the CHMP
of the EMA and is valid throughout the entire territory of the EEA.
The Centralized Procedure is mandatory for certain types of
products such as orphan medicinal products and medicinal products
containing a new active substance indicated for the treatment of
neurodegenerative disorders. The Centralized Procedure is optional
for products containing a new active substance not yet authorized
in the EEA, or for products that constitute a significant
therapeutic, scientific or technical innovation or which are in the
interest of public health in the European Union.
National MAs are issued nationally by the competent authorities of
the Member States of the EEA and only cover their respective
territory. National MAs are available for products not falling
within the mandatory scope of the Centralized Procedure. We do not
foresee that any of our current drug candidates will be suitable
for a National MA as they fall within the mandatory criteria for
the Centralized Procedure. Therefore, our drug candidates will be
approved through Community MAs.
Under the above-described procedures, before granting the MA, the
EMA or the competent authorities of the Member States of the EEA
make an assessment of the risk-benefit balance of the product on
the basis of scientific criteria concerning its quality, safety and
efficacy.
The paediatric use marketing authorisation, or PUMA, is a dedicated
marketing authorization for medicinal products indicated
exclusively for use in the pediatric population, with, if
necessary, an age-appropriate formulation. Pursuant to Regulation
(EC) No. 1901/2006 (The “
Paediatric
Regulation
”), all PUMA
applications for marketing authorization for new medicines must
include to be valid, in addition to the particulars and documents
referred to in Directive 2001/83/EC, the results of all studies
performed and details of all information collected in compliance
with a pediatric investigation plan agreed between regulatory
authorities and the applicant, unless the medicine is exempt
because of a deferral or waiver of the EMA.
Before the EMA is able to begin its assessment of a Community MA
application, it will validate that the applicant has complied with
the agreed pediatric investigation plan. The applicant and the EMA
may, where such a step is adequately justified, agree to modify a
pediatric investigation plan to assist validation. Modifications
are not always possible; may take longer to agree than the period
of validation permits; and may still require the applicant to
withdraw its marketing authorization application and to conduct
additional non-clinical and clinical studies. Products that are
granted a MA on the basis of the pediatric clinical trials
conducted in accordance with the Pediatric Investigation Plan, or
PIP, are eligible for a six-month extension of the protection under
a supplementary protection certificate (if any is in effect at the
time of approval) or, in the case of orphan medicinal products, a
two-year extension of the orphan market exclusivity. This pediatric
reward is subject to specific conditions and is not automatically
available when data in compliance with the PIP are developed and
submitted.
Orphan Drugs
In the European Union, Regulation (EC) No 141/2000 of the European
Parliament and of the Council of December 16, 1999 on orphan
medicinal products, as amended, states that a drug shall be
designated as an orphan drug if its sponsor can establish that the
three following cumulative conditions are met:
●
the
product is intended for the diagnosis, prevention or treatment of a
life-threatening or chronically debilitating
condition;
●
the
prevalence of the conditions is not more than five in ten thousand
persons in the European Union when the application is made, or that
it is intended for the diagnosis, prevention or treatment of a
life-threatening, seriously debilitating or serious and chronic
condition in the European Union and that without incentives it is
unlikely that the marketing of the drug in the European Union would
generate sufficient return to justify the necessary investment;
and
●
that
there is no satisfactory method of diagnosis, prevention or
treatment of the condition in question that has been authorized in
the European Union or, if such method exists, that the drug will be
of significant benefit to those affected by that
condition.
Pursuant to Regulation (EC) No. 847/2000 of April 27,
2000 laying down the provisions for implementation of the criteria
for designation of a medicinal product as an orphan medicinal
product and definitions of the concepts "similar medicinal product"
and "clinical superiority", an application for the designation of a
drug as an orphan drug must be submitted at any stage of
development of the drug before filing of a MA
application.
The European Union offers incentives to encourage the development
of designated orphan medicines (protocol assistance, fee
reductions, etc.) and provides opportunities for market
exclusivity. Pursuant to abovementioned Regulation (EC)
No. 141/2000, products receiving orphan designation in the
European Union can obtain market exclusivity for a certain number
of years in the European Union following the marketing
approval.
If a Community MA in respect of an orphan drug is granted,
regulatory authorities will not, for a period of usually
ten years, accept another application for a MA, or grant a MA
or accept an application to extend an existing MA, for the same
therapeutic indication, in respect of a similar drug. This period
may however be reduced to six years if, at the end of the fifth
year, it is established, in respect of the drug concerned, that the
above-mentioned criteria for orphan drug designation are no longer
met, in other words, when it is shown on the basis of available
evidence that the product is sufficiently profitable not to justify
maintenance of market exclusivity.
Pursuant to Regulation No. 1901/2006, for orphan medicinal
products, instead of an extension of the supplementary protection
certificate, the ten-year period of orphan market exclusivity
should be extended to 12 years if the requirement for data on
use in the pediatric population is fully met (i.e. when the
request contains the results of all studies carried out under the
approved PIP and when the declaration attesting the conformity of
the request to this PIP is included in the MA).
Notwithstanding the foregoing, a MA may be granted, for the same
therapeutic indication, to a similar drug if:
●
the
holder of the MA for the original orphan drug has given its consent
to the second applicant;
●
the
holder of the MA for the original orphan drug is unable to supply
sufficient quantities of the drug; or
●
the
second applicant can establish in the application that the second
drug, although similar to the orphan drug already authorized, is
safer, more effective or otherwise clinically
superior.
The abovementioned Regulation (EC) No. 141/2000 provides for
other incentives regarding orphan medicinal
products.
Post-Approval Controls
The holder of a MA must comply with EU requirements applicable to
manufacturing, marketing, promotion and sale of medicinal products.
In particular, the holder of the MA must establish and maintain a
pharmacovigilance system and appoint an individual qualified person
for pharmacovigilance, or QPPV, who is responsible for oversight of
that system and who will reside and operate in the EU. Key
obligations include safety expedited reporting of suspected serious
adverse reactions and submission of periodic safety update reports,
or PSURs.
All new MAs must include a risk management plan, or RMP, to submit
to the EMA, describing the risk management system that the company
will put in place and documenting measures to prevent or minimize
the risks associated with the product. The regulatory authorities
may also impose specific obligations as a condition of the MA. Such
risk-minimization measures or post-authorization obligations may
include additional safety monitoring, more frequent submission of
PSURs, or the conduct of additional clinical trials or
post-authorization safety studies. RMPs and PSURs are routinely
available to third parties requesting access, subject to limited
redactions. All advertising and promotional activities for the
product must be consistent with the approved summary of product
characteristics, and therefore all off-label promotion is
prohibited. Direct-to-consumer advertising of prescription
medicines is also prohibited in the European Union. Although
general requirements for advertising and promotion of medicinal
products are established under EU directives, the details are
governed by regulations in each EU Member State and can differ from
one country to another.
Reimbursement
The European Union provides options for its Member States to
restrict the range of medicinal products for which their national
health insurance systems provide reimbursement and to control the
prices of medicinal products for human use. A Member State may
approve a specific price for the medicinal product, or it may
instead adopt a system of direct or indirect controls on the
profitability of the company placing the medicinal product on the
market. For example, in France, effective market access will be
supported by agreements with hospitals and products may be
reimbursed by the Social Security Fund. The price of medicines
covered by national health insurance is negotiated with the
Economic Committee for Health Products, or CEPS. There can be no
assurance that any country that has price controls or reimbursement
limitations for pharmaceutical products will allow favorable
reimbursement and pricing arrangements for any of our drug
candidates. Historically, products launched in the European Union
do not follow price structures of the United States and generally
prices tend to be significantly lower.
Other European Regulatory Matters
French Regulatory Framework for Clinical Development
In France, Directive No. 2001/20/EC has been implemented in
French national law, establishing a system of prior authorization
and requiring a prior favorable opinion from an ethics
committee.
Parties to a clinical trial agreement, or CTA, must use a CTA
template (“unique agreement” or convention unique) to
organize the conduct of interventional clinical trials with
commercial purpose, as well as specific template exhibits to
this agreement. Once concluded, the CTA is communicated for
information by the sponsor to the French national board of
physicians (Ordre national des médecins) without
delay.
The processing of personal data collected during clinical trials
has to comply with the Regulation (EU) 2016/679 of the
European Parliament and of the Council of April 27, 2016 and
Law No 2018-493 of June 20, 2018 on the protection of personal
data, implementing the Regulation (EU) 2016/679
requirements. Regarding automatic processing operations for the
purpose of research or clinical studies, formalities have to be
completed before the French data protection authority,
the Commission Nationale de l'Informatique et des
Libertés, or CNIL, so as to obtain the authorization to
process personal data. However, there are simplified
standards.
Law No. 2011-2012 of December 29, 2011, or Loi Bertrand,
aimed at strengthening the health safety of medicinal and health
products, as amended (and its implementing decrees), introduced
into French law provisions regarding transparency of fees received
by some healthcare professionals from health product industries,
i.e. companies manufacturing or marketing health products
(Article L.1453-1 of the French Public Health Code). These
provisions have been recently extended and redefined by Decree
No. 2016-1939 of December 28, 2016, which clarified
French "Sunshine" regulations. The decree notably provides that
companies manufacturing or marketing health care products
(medicinal products, medical devices, etc.) in France shall
publicly disclose (mainly on a specific public website available
at: https://www.entreprises-transparence.sante.gouv.fr) the
advantages and fees paid to healthcare professionals amounting to
€10 or above, as well as the agreements concluded with the
latter, along with detailed information about each agreement (the
precise subject matter of the agreement, the date of signature of
the agreement, its end date, the total amount paid to the
healthcare professional, etc.). Another declaration must also be
filed to the competent healthcare professional body. Law
No. 2011-2012 also reinforced the French anti-gift rules and
Order No. 2017-49 of January 19, 2017 amended the law and
expanded the scope of the general prohibition of payments from
pharmaceutical and device manufacturers to healthcare professionals
to broadly cover any company manufacturing or marketing health
products, regardless of whether or not payment for the products is
reimbursed under the French social security system (new
Articles L. 1453-3 et seq. of the French Public Health
Code). It also changed the procedure related to the prior
submission to the national or departmental board of the relevant
healthcare professional body. Moreover, the penalties incurred for
non-compliance with the requirements of the Anti-Gift Law will be
doubled to a fine of up to €750,000. The changes of the
anti-gift rules will only enter into force after the publication of
implementing measures.
Employees
As of December 31, 2020, we had 12 full-time employees, of
whom two were employed by AzurRx SAS and located in France and ten
were employed by us and located in our offices in the United
States.
Available Information
As a public company, we are required to file our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, proxy statements on Schedule 14A and other information
(including any amendments) with the Securities and Exchange
Commission (the “
SEC
”). The SEC maintains an Internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC. You can find our SEC filings at the SEC’s website
at
www.sec.gov
.
Our Internet address is
www.azurrx.com
.
Information contained on our website is not part of this Annual
Report. Our SEC filings (including any amendments) will be made
available free of charge on
www.azurrx.com
,
as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
IT
E
M
1A.
RISK
FACTORS
We are subject to various risks that could have a negative effect
on us and our financial condition. These risks could cause actual
operating results to differ from those expressed in certain
“forward looking statements” contained in this Annual
Report as well as in other communications.
Summary of Risk Factors
●
We have never generated any product revenues.
●
We expect to incur significant losses for the foreseeable future
and may never achieve or maintain profitability.
●
We will need substantial additional funding, and certain terms
included in our financing transactions may restrict our ability to
raise such capital at the times and in the manner we may
require.
●
To date, most of our development activities have been focused on
our MS1819 product candidate, which is still under clinical
development, and if MS1819 does not receive regulatory approval or
is not successfully commercialized, our business will be
harmed.
●
The COVID-19 outbreak and global pandemic could adversely impact
our business, including our clinical trials.
●
We will require additional capital to fund our operations, and if
we fail to obtain necessary financing, we may not be able to
complete the development and commercialization of our product
candidates.
●
Clinical trials are very expensive, time-consuming, difficult to
design and implement and involve an uncertain outcome.
●
We face significant competition from other biotechnology and
pharmaceutical companies, and our operating results will suffer if
we fail to compete effectively.
●
We do not have our own manufacturing capabilities and will rely on
third parties to produce clinical and commercial supplies of our
product candidates.
●
We intend to rely on third parties to conduct, supervise and
monitor our clinical trials, and if those third parties perform in
an unsatisfactory manner, it may harm our business.
●
If we are unable to obtain and maintain patent protection for our
technology and products or if the scope of the patent protection
obtained is not sufficiently broad, we may not be able to compete
effectively in our markets.
●
We are an emerging growth company within the meaning of the
Securities Act and have taken advantage of certain exemptions from
disclosure requirements available to emerging growth companies;
this could make our securities less attractive to investors and may
make it more difficult to compare our performance with other public
companies.
●
We do not currently intend to pay dividends on our Common Stock in
the foreseeable future, and consequently, any gains from an
investment in our Common Stock will likely depend on appreciation
in the price of our Common Stock.
Risks Related to Our Business and Industry
We are a clinical stage biopharmaceutical company and have a
limited operating history upon which to base an investment
decision.
We are
a clinical stage biopharmaceutical company. Since inception, we
have engaged primarily in research and development activities of
our lead drug candidate, MS1819 and our other drug candidates. We
have not generated any revenue from product sales and have incurred
significant net losses. We have not demonstrated our ability to
perform the functions necessary for the successful
commercialization of any drug candidates. The successful
commercialization of any of our products will require us to perform
a variety of functions, including:
●
continuing
to undertake pre-clinical development and clinical
trials;
●
participating
in regulatory approval processes;
●
formulating
and manufacturing products; and
●
conducting
sales and marketing activities.
Our
operations to date have been limited to organizing and staffing,
acquiring, developing and securing the proprietary rights for, and
undertaking pre-clinical development and clinical trials of MS1819,
the acquisition of rights to niclosamide and our other drug
candidates. These operations provide a limited basis for our
stockholders and prospective investors to assess our ability to
complete development of or commercialize MS1819, niclosamide or any
other drug candidates and the advisability of investing in our
securities.
We have
incurred significant operating losses and negative cash flows from
operations since inception. As of December 31, 2020, we had
accumulated deficit of approximately $95.4 million and negative
working capital of approximately $7.7 million. Based on our
historical and anticipated rate of cash expenditures, we do not
anticipate our working capital will be sufficient to sustain our
business through the successful commercialization of our drug
candidates. Therefore, we are dependent on obtaining, and are
continuing to pursue, the necessary funding from outside sources,
including obtaining additional funding from the sale of securities
in order to continue our operations. We are actively working to
obtain additional funding. We cannot make any assurances that
additional financings will be available to us and, if available,
completed on a timely basis, on acceptable terms or at all. If we
are unable to complete an equity and/or debt offering, or otherwise
obtain sufficient financing when and if needed, it would negatively
impact our business and operations, which would likely cause the
price of our Common Stock to decline or ultimately force us to
cease our operations.
Our product candidates are at an early stage of development and may
not be successfully developed or commercialized.
We have
no products approved for sale. MS1819, our lead drug candidate, and
niclosamide , which we recently acquired, are in the early stages
of clinical development and our other drug candidates are still in
preclinical phase. Our drug candidates will require substantial
further capital expenditures, development, testing, and regulatory
clearances prior to commercialization. The development and
regulatory approval process take several years, and it is not
likely that any such products, even if successfully developed and
approved by the FDA or any comparable foreign regulatory authority,
would be commercially available until at least 2022 or beyond. Of
the large number of drugs in development, only a small percentage
successfully completes the regulatory approval process and is
commercialized. Accordingly, even if we are able to obtain the
requisite financing to fund our development programs, we cannot
assure you that our drug candidates will be successfully developed
or commercialized. Our failure to develop, manufacture or receive
regulatory approval for or successfully commercialize any of our
drug candidates, could result in the failure of our business and a
loss of all of your investment in our company.
Any product candidates we advance into and through clinical
development are subject to extensive regulation, which can be
costly and time consuming, cause unanticipated delays or prevent
the receipt of the required approvals to commercialize our product
candidates.
The
clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our drug candidates are subject to extensive
regulation by the FDA in the United States and by comparable health
authorities in foreign markets, including Health Canada’s
Therapeutic Products Directorate, or the TPD, and the European
Medicines Agency, or the EMA. In the United States, we are not
permitted to market our drug candidates until we receive approval
of an NDA (New Drug Application) or BLA (Biologic License
Application) from the FDA. The process of obtaining such approval
is expensive, often takes many years and can vary substantially
based upon the type, complexity and novelty of the products
involved. In addition to the significant clinical testing
requirements, our ability to obtain marketing approval for these
drug candidates depends on obtaining the final results of required
non-clinical testing, including characterization of the
manufactured components of our drug candidates and validation of
our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities are
insufficient to justify approval. Approval policies or regulations
may change, and the FDA has substantial discretion in the
pharmaceutical approval process, including the ability to delay,
limit or deny approval of a product candidate for many reasons.
Despite the time and expense invested in clinical development of
drug candidates, regulatory approval is never
guaranteed.
The
FDA, the TPD and/or the EMA can delay, limit or deny approval of a
product candidate for many reasons, including, but not limited
to:
●
disagreement
with the design or implementation of our clinical
trials;
●
failure
to demonstrate to their satisfaction that a product candidate is
safe and effective for any indication;
●
failure
to accept clinical data from trials which are conducted outside
their jurisdiction;
●
the
results of clinical trials may not meet the level of statistical
significance required for approval;
●
we may
be unable to demonstrate that a product candidate’s clinical
and other benefits outweigh its safety risks;
●
such
agencies may disagree with our interpretation of data from
preclinical studies or clinical trials;
●
failure
to approve the manufacturing processes or facilities of third-party
manufacturers with which we or our collaborators contract for
clinical and commercial supplies; or
●
changes
in the approval policies or regulations of such agencies may
significantly change in a manner rendering our clinical data
insufficient for approval.
Any
delay in obtaining, or inability to obtain, applicable regulatory
approvals would prevent us from commercializing our drug
candidates.
If we encounter difficulties enrolling patients in our clinical
trials, our clinical development activities could be delayed or
otherwise adversely affected.
We may
experience difficulties in patient enrollment in our clinical
trials for a variety of reasons. The timely completion of
clinical trials in accordance with their protocols depends, among
other things, on our ability to enroll a sufficient number of
patients who remain in the trial until its conclusion. The
enrollment of patients depends on many factors,
including:
●
the
patient eligibility criteria defined in the protocol;
●
the
size of the patient population;
●
the
proximity and availability of clinical trial sites for prospective
patients;
●
the
design of the trial;
●
our
ability to recruit clinical trial investigators with the
appropriate competencies and experience;
●
our
ability to obtain and maintain patient consents; and
●
the
risk that patients enrolled in clinical trials will drop out of the
trials before completion.
Our
clinical trials will compete with other clinical trials for drug
candidates that are in the same therapeutic areas as our drug
candidates. This competition will reduce the number and types
of patients and qualified clinical investigators available to us,
because some patients who might have opted to enroll in our trials
may instead opt to enroll in a trial being conducted by one of our
competitors or clinical trial sites may not allow us to conduct our
clinical trial at such site if competing trials are already being
conducted there. Since the number of qualified clinical
investigators is limited, we expect to conduct some of our clinical
trials at the same clinical trial sites that some of our
competitors use, which will reduce the number of patients who are
available for our clinical trials in such clinical trial
site. We may also encounter difficulties finding a clinical
trial site at which to conduct our trials.
Delays
in patient enrollment may result in increased costs or may affect
the timing or outcome of our planned clinical trials, which could
prevent completion of these clinical trials and adversely affect
our ability to advance the development of our drug
candidates.
Because the results of preclinical studies and early clinical
trials are not necessarily predictive of future results, any
product candidate we advance into clinical trials may not have
favorable results in later clinical trials, if any, or receive
regulatory approval.
Pharmaceutical
development has inherent risk. We will be required to demonstrate
through well-controlled clinical trials that our drug candidates
are effective with a favorable benefit-risk profile for use in
their target indications before we can seek regulatory approvals
for their commercial sale. Our lead drug candidate, MS1819, has
only completed two Phase 2 clinical trials in two separate
indications (one Phase 2 in CF patients and one Phase 2 in CP
patients). Niclosamide has completed a Phase 1b/2a study,
conducted by First Wave, in patients with mild-to-moderate
ulcerative colitis but has not completed a study in an indication
that we intend on pursuing (ICI-AC and COVID-19 GI). Success in
pre-clinical studies or early clinical trials does not mean that
later clinical trials will be successful, as drug candidates in
later-stage clinical trials may fail to demonstrate sufficient
safety or efficacy despite having progressed through initial
clinical testing. We also may need to conduct additional clinical
trials that are not currently anticipated. Companies frequently
suffer significant setbacks in advanced clinical trials, even after
earlier clinical trials have shown promising results.
Any product candidate we advance into and through clinical trials
may cause unacceptable adverse events or have other properties that
may delay or prevent their regulatory approval or commercialization
or limit their commercial potential.
Unacceptable
adverse events caused by MS1819, niclosamide and our other drug
candidates in clinical trials could cause us or regulatory
authorities to interrupt, delay or halt clinical trials and could
result in the denial of regulatory approval by the FDA or other
regulatory authorities for any or all targeted indications and
markets. This, in turn, could prevent us from commercializing the
affected product candidate and generating revenues from its
sale. We have not yet completed testing of any of our drug
candidates for the treatment of the indications for which we intend
to seek product approval in humans, and we currently do not know
the extent of adverse events, if any, that will be observed in
patients who receive any of our drug candidates. If any of our
drug candidates cause unacceptable adverse events in clinical
trials, we may not be able to obtain regulatory approval or
commercialize such product or, if such product candidate is
approved for marketing, future adverse events could cause us to
withdraw such product from the market.
Delays in the commencement or completion of our clinical trials
could result in increased costs and delay our ability to pursue
regulatory approval and commercialization of our product
candidates.
Although
we commenced the ongoing Combination Trial in 2019 and the OPTION 2
Trial in 2020, the commencement and completion of clinical trials
can be delayed for a variety of reasons, including delays
in:
●
obtaining
regulatory clearance to commence a clinical trial;
●
identifying,
recruiting and training suitable clinical
investigators;
●
reaching
agreement on acceptable terms with prospective clinical research
organizations (“CROs”) and trial sites, the terms of
which can be subject to extensive negotiation, may be subject to
modification from time to time and may vary significantly among
different CROs and trial sites;
●
obtaining
sufficient quantities of investigational product
(“
IP
”) for our
drug candidates for use in clinical trials;
●
obtaining
Institutional Review Board (“
IRB
”) or ethics committee
approval to conduct a clinical trial at a prospective
site;
●
identifying, recruiting and enrolling patients to
participate in a clinical trial, including delays and/or
interruptions resulting
from geo-political actions, disease or public health epidemics,
such as the coronavirus, or natural disasters
;
●
retaining
patients who have initiated a clinical trial but may withdraw due
to adverse events from the therapy, insufficient efficacy, changing
clinical protocols, fatigue with the clinical trial process, or
personal issues;
●
retaining
patients who may not follow the clinical trial protocols due to
factors including the coronavirus epidemic; and
●
availability
of funds.
Any
delays in the commencement of our clinical trials will delay our
ability to pursue regulatory approval for our drug candidates. In
addition, many of the factors that cause, or lead to, a delay in
the commencement of clinical trials may also ultimately lead to the
denial of regulatory approval of a product candidate.
If we encounter difficulties enrolling patients in our clinical
trials, our clinical development activities could be delayed or
otherwise adversely affected.
The
timely completion of clinical trials in accordance with their
protocols depends, among other things, on our ability to enroll a
sufficient number of patients who remain in the trial until its
conclusion. We may experience difficulties in patient enrollment in
our clinical trials for a variety of reasons, including the size
and nature of the patient population and the patient eligibility
criteria defined in the protocol, competition from competing
companies, and natural disasters or public health epidemics, such
as the coronavirus impacting the U.S., Europe and
elsewhere.
Our
clinical trials will likely compete with other clinical trials for
drug candidates that are in the same therapeutic areas as our drug
candidates, and this competition will reduce the number and types
of patients available to us, because some patients who might have
opted to enroll in our trials may instead opt to enroll in a trial
being conducted by one of our competitors. Because the number of
qualified clinical investigators and clinical trial sites is
limited, we expect to conduct some of our clinical trials at the
same clinical trial sites that some of our competitors may use,
which will reduce the number of patients who are available for our
clinical trials at such clinical trial sites. Even if we are able
to enroll a sufficient number of patients in our clinical trials,
delays in patient enrollment may result in increased costs or may
affect the timing or outcome of the planned clinical trials, which
could delay or prevent completion of these trials and adversely
affect our ability to advance the development of MS1819,
niclosamide and our other drug candidates.
A pandemic, epidemic, or outbreak of an infectious disease, such as
COVID-19, or coronavirus, may materially and adversely affect our
business and our financial results.
The
spread of COVID-19 has affected segments of the global economy and
may affect our operations, including the potential interruption of
our clinical trial activities and our supply chain. Beginning in
March 2020, the majority of our workforce began working from home.
Disruptions caused by the continued spread of COVID-19, including
the effects of stay-at-home orders and work-from-home policies,
have impacted productivity and may result in further periods of
business disruption, including delays in our clinical trials or
delays or disruptions in our supply chain. In addition, there could
be a potential effect of COVID-19 to the business at FDA or other
health authorities, which could result in delays of reviews and
approvals, including with respect to our drug
candidates.
The
continued spread of COVID-19 globally could adversely affect our
clinical trial operations in the United States and Europe and other
jurisdictions where we may decide to conduct clinical trials,
including our ability to recruit and retain patients and principal
investigators and site staff who, as healthcare providers, may have
heightened exposure to COVID-19 if an outbreak occurs in their
geography. We have already experienced certain delays of our
clinical trials and may experience further delays as the pandemic
continues. Disruptions in national or international shipments and
deliveries could impede our ability to distribute product to trial
sites in a timely manner. Any of the foregoing factors could delay
our ability to conduct clinical trials or release clinical trial
results. COVID-19 may also affect employees of third-party CROs
located in affected geographies that we rely upon to carry out our
clinical trials, which could result in inefficiencies due to
reductions in staff and disruptions to work
environments.
The
spread of COVID-19, or another infectious disease, could also
negatively affect the operations at our third-party manufacturers,
which could result in delays or disruptions in the supply of our
drug candidates. In addition, we have taken temporary precautionary
measures intended to help minimize the risk of the virus to our
employees, including temporarily requiring all employees to work
remotely, suspending all non-essential travel worldwide for our
employees, and discouraging employee attendance at industry events
and in-person work-related meetings, which could negatively affect
our business.
We have
implemented business continuity plans designed to address and
mitigate the impact of the ongoing COVID-19 pandemic on our
employees and our business. We continue to operate normally with
the exception of enabling all of our employees to work productively
at home and abiding by travel restrictions issued by federal, state
and local governments. Our current plans to return to the
office remain fluid as federal, state and local guidelines, rules
and regulations continue to evolve.
We
cannot presently predict the scope and severity of any potential
business shutdowns or disruptions. If we or any of the third
parties with whom we engage, however, were to experience shutdowns
or other business disruptions, our ability to conduct our business
in the manner and on the timelines presently planned could be
materially and negatively affected, which could have a material
adverse impact on our business and our results of operation and
financial condition.
In
addition, the global spread of COVID-19 has created significant
volatility and uncertainty in global financial markets and may
materially affect us economically and such conditions continue to
persist. While the potential economic impact brought by, and the
duration of, COVID-19 may be difficult to assess or predict, a
widespread pandemic could result in significant disruption of
global financial markets, reducing our ability to access capital,
which could in the future negatively affect our liquidity. A
recession or market correction resulting from the spread of
COVID-19 could materially affect our business and the value of our
Common Stock.
We may be required to suspend, repeat or terminate our clinical
trials if they are not conducted in accordance with regulatory
requirements, the results are negative or inconclusive or the
trials are not well designed.
Regulatory
agencies, IRBs or data safety monitoring boards may at any time
recommend the temporary or permanent discontinuation of our
clinical trials or request that we cease using investigators in the
clinical trials if they believe that the clinical trials are not
being conducted in accordance with applicable regulatory
requirements, or that they present an unacceptable safety risk to
participants. Clinical trials must be conducted in accordance
with current cGCPs or other applicable foreign government
guidelines governing the design, safety monitoring, quality
assurance and ethical considerations associated with clinical
studies. Clinical trials are subject to oversight by the FDA,
other foreign governmental agencies and IRBs at the study sites
where the clinical trials are conducted. In addition, clinical
trials must be conducted with drug candidates produced in
accordance with applicable cGMPs, which are the FDA’s
regulations governing the design, monitoring and control of
manufacturing processes and facilities. Clinical trials may be
suspended by the FDA, other foreign governmental agencies, or us
for various reasons, including:
●
deficiencies
in the conduct of the clinical trials, including failure to conduct
the clinical trial in accordance with regulatory requirements or
clinical protocols;
●
deficiencies
in the clinical trial operations or trial sites;
●
the
product candidate may have unforeseen adverse side
effects;
●
deficiencies
in the trial design necessary to demonstrate efficacy;
●
fatalities
or other adverse events arising during a clinical trial due to
medical problems that may not be related to clinical trial
treatments;
●
the
product candidate may not appear to be more effective than current
therapies; or
●
the
quality or stability of the product candidate may fall below
acceptable standards.
If we
elect or are forced to suspend or terminate a clinical trial for
MS1819, niclosamide or of any other drug candidates, the commercial
prospects for that product candidate will be harmed and our ability
to generate product revenue from that product candidate may be
delayed or eliminated. Furthermore, any of these events could
prevent us or our partners from achieving or maintaining market
acceptance of the affected product candidate and could
substantially increase the costs of commercializing our drug
candidates, and impair our ability to generate revenue from the
commercialization of these drug candidates either by us or by our
collaboration partners.
The approval processes of regulatory authorities are lengthy, time
consuming, expensive and inherently unpredictable. If we are unable
to obtain approval for our product candidates from applicable
regulatory authorities, we will not be able to market and sell
those product candidates in those countries or regions and our
business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign
authorities is unpredictable, but typically takes many years
following the commencement of clinical trials and depends upon
numerous factors, including the substantial discretion of the
regulatory authorities. We have not submitted an NDA or similar
filing or obtained regulatory approval for any drug candidate in
any jurisdiction and it is possible that none of our existing drug
candidates or any drug candidates we may seek to develop in the
future will ever obtain regulatory approval.
MS1819,
niclosamide and our other drug candidates could fail to receive
regulatory approval for many reasons, including any one or more of
the following:
●
the FDA
or comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
●
we may
be unable to demonstrate to the satisfaction of the FDA or
comparable foreign regulatory authorities that a product candidate
is safe and effective for its proposed indication;
●
the
results of clinical trials may not meet the level of statistical
significance required by the FDA or comparable foreign regulatory
authorities for approval;
●
we may
be unable to demonstrate that a product candidate’s clinical
and other benefits outweigh its safety risks;
●
the FDA
or comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials;
●
the
data collected from clinical trials of our drug candidates may not
be sufficient to support the submission of an NDA, BLA or other
submission or to obtain regulatory approval in the United States or
elsewhere;
●
the FDA
or comparable foreign regulatory authorities may fail to hold to
previous agreements or commitments;
●
the FDA
or comparable foreign regulatory authorities may fail to approve
the manufacturing processes or facilities of third-party
manufacturers with which we contract for clinical and commercial
supplies;
●
the FDA
or comparable foreign regulatory authorities may fail to approve
our drug candidates;
●
invest
significant additional cash in each of the above activities;
and;
●
the
approval policies or regulations of the FDA or comparable foreign
regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
The
time and expense of the approval process, as well as the
unpredictability of clinical trial results and other contributing
factors, may result in our failure to obtain regulatory approval to
market, in one or more jurisdictions, MS1819, niclosamide or future
drug candidates, which would significantly harm our business,
results of operations and prospects.
We intend to rely on third-party collaborators to market and sell
our products. Our third-party collaborators may not have the
resources to pursue approvals, which in turn could severely limit
our potential markets and ability to generate revenue.
In
order to market and sell our products in any jurisdiction, we or
our third-party collaborators must obtain separate marketing
approvals in that jurisdiction and comply with its regulatory
requirements. The approval procedure can vary drastically among
countries, and each jurisdiction may impose different testing and
other requirements to obtain and maintain marketing approval.
Further, the time required to obtain those approvals may differ
substantially among jurisdictions. Approval by the FDA or an
equivalent foreign authority does not ensure approval by regulatory
authorities in any other countries or jurisdictions. As a result,
the ability to market and sell a product candidate in more than one
jurisdiction can involve significant additional time, expense and
effort to undertake separate approval processes, and could subject
us and our collaborators to the numerous and varying post-approval
requirements of each jurisdiction governing commercial sales,
manufacturing, pricing and distribution of MS1819, niclosamide and
our other drug candidates. We or any third parties with whom we may
collaborate may not have the resources to pursue those approvals,
and we or they may not be able to obtain any approvals that are
pursued. The failure to obtain marketing approval for MS1819,
niclosamide and our other drug candidates in foreign jurisdictions
could severely limit their potential markets and our ability to
generate revenue.
In
addition, even if we were to obtain regulatory approval in one or
more jurisdictions, regulatory authorities may approve MS1819,
niclosamide and our other drug candidates for fewer or more limited
indications than we request, may not approve the prices we may
propose to charge for our products, may grant approval contingent
on the performance of costly post-marketing clinical trials, or may
approve a product candidate with labeling that does not include the
claims necessary or desirable for the successful commercialization
of that product candidate. Any of the foregoing circumstances could
materially harm the commercial prospects for MS1819, niclosamide
and our other drug candidates.
Our product candidates may cause undesirable side effects or have
other properties that could delay or prevent their regulatory
approval, limit the commercial profile of the approved labeling, or
result in significant negative consequences following marketing
approval, if any.
Results
of current and future clinical trials of MS1819, niclosamide and
our other drug candidates could reveal a high and/or unacceptable
severity and frequency of these or other side effects. In such an
event, our trials could be suspended or terminated, and the FDA or
comparable foreign regulatory authorities could order us to cease
further development of, or deny approval of, our drug candidates
for any or all targeted indications. Further, any observed
drug-related side effects could affect patient recruitment or the
ability of enrolled patients to complete the trial or result in
potential product liability claims. Any of these occurrences could
materially harm our business, financial condition and
prospects.
Additionally,
if MS1819, niclosamide and our other drug candidates receive
marketing approval, and we or others later identify undesirable
side effects caused by our products, a number of potentially
significant negative consequences could result,
including:
●
regulatory
authorities may withdraw approvals of such product;
●
regulatory
authorities may require additional warnings in the product’s
labeling;
●
we may
be required to create a medication guide for distribution to
patients that outlines the risks of such side effects;
●
we
could be sued and held liable for harm caused to patients;
and;
●
our
reputation may suffer.
Any of
these events could prevent us from achieving or maintaining market
acceptance of the particular product, if approved, and could
significantly harm our business, results of operations and
prospects
If we are unable to execute our sales and marketing strategy for
our products and are unable to gain market acceptance, we may be
unable to generate sufficient revenue to sustain our
business.
We are
a clinical-stage biopharmaceutical company and have yet to begin to
generate revenue from MS1819, niclosamide or any of our other drug
candidates. Our drug candidates are in an early stage of clinical
development, and, if we obtain marketing approval for any of
products in the future, which we anticipate would not occur for
several years, if at all.
Although
we believe that MS1819 and niclosamide represent promising
commercial opportunities, we may never gain significant market
acceptance and therefore may never generate substantial revenue or
profits for us. We will need to establish a market for MS1819,
niclosamide and our other drug candidates and build that market
through physician education, awareness programs and the publication
of clinical data. Gaining acceptance in medical communities
requires, among other things, publication in leading peer-reviewed
journals of results from our studies. The process of publication in
leading medical journals is subject to a peer review process and
peer reviewers may not consider the results of our studies
sufficiently novel or worthy of publication. Failure to have our
studies published in peer-reviewed journals could limit the
adoption of MS1819, niclosamide or our other drug candidates. Our
ability to successfully market our drug candidates that we may
develop will depend on numerous factors, including:
●
the FDA
or comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
●
the
inability to demonstrate that the clinical and other benefits of a
product candidate outweigh any safety or other perceived
risks;
●
conducting
clinical utility studies of our drug candidates to demonstrate
economic usefulness to providers and payers;
●
whether
our current or future partners, support our offerings;
●
the
success of the sales force and marketing effort;
●
whether
healthcare providers believe our drug candidates provide clinical
utility; and
●
whether
private health insurers, government health programs and other
third-party payers will cover our drug candidates.
We currently have no commercial organization. If we are unable to
establish satisfactory sales and marketing capabilities or secure a
sales and marketing partner, we may not successfully commercialize
any of our product candidates.
We have no commercial infrastructure. In order to commercialize
products that are approved for marketing, we must either establish
our own sales and marketing infrastructure or collaborate with
third parties that have such commercial
infrastructure.
We may not be able to enter into collaboration agreements on terms
acceptable to us or at all. In addition, even if we enter into such
relationships, we may have limited or no control over the sales,
marketing and distribution activities of these third parties. Our
future revenues may depend heavily on the success of the efforts of
these third parties. If we elect to establish a sales and marketing
infrastructure, we may not realize a positive return on this
investment. In addition, we will have to compete with established
and well-funded pharmaceutical and biotechnology companies to
recruit, hire, train and retain sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our drug
candidates without strategic partners or licensees
include:
●
our
inability to recruit and retain adequate numbers of effective sales
and marketing personnel;
●
the
inability of sales personnel to obtain access to or persuade
adequate numbers of physicians to prescribe our future
products;
●
the
lack of complementary products to be offered by sales personnel,
which may put us at a competitive disadvantage relative to
companies with more extensive product lines; and
●
unforeseen
costs and expenses associated with creating an independent sales
and marketing organization.
If we
are not successful in recruiting sales and marketing personnel or
in building a sales and marketing infrastructure, or if we do not
successfully enter into appropriate collaboration arrangements, we
will have difficulty successfully commercializing our drug
candidates and any we may develop or acquire, which would adversely
affect our business, operating results and financial condition.
Outside the United States, we may commercialize our drug candidates
by entering into collaboration agreements with pharmaceutical
partners. We may not be able to enter into such agreements on terms
acceptable to us or at all. In addition, even if we enter into such
relationships, we may have limited or no control over the sales,
marketing and distribution activities of these third parties. Our
future revenues may depend heavily on the success of the efforts of
these third parties.
Because we license some of our product candidates from third
parties, including First Wave, any dispute with our licensors or
non-performance by us or by our licensors may adversely affect our
ability to develop and commercialize the applicable product
candidates.
Some of
our drug candidates, including MS1819 and niclosamide, including
related intellectual property rights, were licensed from third
parties. Under the terms of our license agreements, the licensors
generally have the right to terminate such agreements in the event
of a material breach by us. Our licenses require us to make annual,
milestone or other payments prior to commercialization of any
product and royalties on net sales following commercialization and
our ability to make these payments depends on our ability to
generate cash in the future. These agreements generally require us
to use diligent and reasonable efforts to develop and commercialize
the product candidate.
If
there is any conflict, dispute, disagreement or issue of
non-performance between us and our licensing partner regarding our
rights or obligations under the license or other agreements,
including any conflict, dispute or disagreement arising from our
failure to satisfy payment obligations under such agreement, our
ability to develop and commercialize the affected product candidate
may be adversely affected. Any loss of our rights under our license
agreements could delay or completely terminate our product
development efforts for the affected product
candidate.
We may form or seek strategic alliances or enter into additional
licensing arrangements in the future, and we may not realize the
benefits of such alliances or licensing arrangements.
From
time to time, we may form or seek strategic alliances, create joint
ventures or collaborations or enter into additional licensing
arrangements with third parties that we believe will complement or
augment our development and commercialization efforts with respect
to MS1819, niclosamide and our other drug candidates and any future
drug candidates that we may develop. Any of these
relationships may require us to incur non-recurring and other
charges, increase our near and long-term expenditures, issue
securities that dilute our existing stockholders or disrupt our
management and business. These relationships also may result
in a delay in the development of MS1819, niclosamide and our other
drug candidates if we become dependent upon the other party and
such other party does not prioritize the development of our drug
candidates relative to its other development activities. In
addition, we face significant competition in seeking appropriate
strategic partners and the negotiation process is time-consuming
and complex. Moreover, we may not be successful in our efforts
to establish a strategic partnership or other alternative
arrangements for our drug candidates because they may be deemed to
be at too early of a stage of development for collaborative effort
and third parties may not view our drug candidates as having the
requisite potential to demonstrate safety and efficacy. If we
license products or businesses, we may not be able to realize the
benefit of such transactions if we are unable to successfully
integrate them with our existing operations and company
culture. We cannot be certain that, following a strategic
transaction or license, we will achieve the revenue or specific net
income that justifies such transaction. We rely completely on third
parties to manufacture our preclinical and clinical pharmaceutical
supplies and expect to continue to rely on third parties to produce
commercial supplies of our drug candidates, and our dependence on
third party suppliers could adversely impact our
business.
We rely completely on third parties to manufacture our preclinical
and clinical pharmaceutical supplies and expect to continue to rely
on third parties to produce commercial supplies of any approved
product candidate, and our dependence on third party suppliers
could adversely impact our business.
We rely
on third parties to manufacture our drug candidates, including
MS1819 and niclosamide. The proprietary yeast cell line from which
the MS1819 API is derived is kept at a storage facility maintained
by Charles River. MS1819 drug substance is currently manufactured
at a contract facility located in Capua, Italy owned by Olon SpA,
and MS1819 drug product is currently manufactured at contract
facilities located in Reims, France and Craigavon, United Kingdom
owned by Delpharm and Almac Pharma Services, respectively.
Niclosamide API is obtained by chemical synthesis and is currently
manufactured by Olon SpA at a facility in Murcia, Spain. The drug
substance manufacturing for niclosamide is currently conducted at a
contract facility located in Milan, Italy owned by Monteresearch.
We believe there are multiple alternative contract manufacturers
capable of producing the MS1819 product we need for clinical
trials. We are in the process of establishing alternative
manufacturers and manufacturing sites for the product; however,
there is no guarantee that the processes are easily reproducible
and transferrable.
In December 2020,
we entered into a master service agreement with Asymchem to
initiate the transfer of the manufacturing process for both drug
substance and drug product
.
We are
completely dependent on these third parties for product supply and
our MS1819 and niclosamide development programs would be adversely
affected by a significant interruption in our ability to receive
such materials. We have not yet entered into long-term
manufacturing or supply agreements with any third parties.
Furthermore, our third-party suppliers will be required to maintain
compliance with cGMPs and will be subject to inspections by the FDA
or comparable regulatory authorities in other jurisdictions to
confirm such compliance. In the event that the FDA or such other
authorities determine that our third-party suppliers have not
complied with cGMP, our clinical trials could be terminated or
subjected to a clinical hold until such time as we are able to
obtain appropriate replacement material. Any delay,
interruption or other issues that arise in the manufacture,
packaging, or storage of our products as a result of a failure of
the facilities or operations of our third-party suppliers to pass
any regulatory agency inspection could significantly impair our
ability to develop and commercialize our products.
We do
not expect to have the resources or capacity to commercially
manufacture any of our proposed products, if approved, and will
likely continue to be dependent upon third party manufacturers. Our
dependence on third parties to manufacture and supply us with
clinical trial materials and any approved products may adversely
affect our ability to develop and commercialize our products on a
timely basis or at all.
We rely on third parties to conduct our clinical trials. If these
third parties do not meet our deadlines or otherwise conduct the
trials as required, our clinical development programs could be
delayed or unsuccessful and we may not be able to obtain regulatory
approval for or commercialize our product candidates when expected
or at all.
We do
not have the ability to conduct all aspects of our preclinical
testing or clinical trials ourselves. We use contract research
organizations (CROs) to conduct our planned clinical trials and
will rely upon such CROs, as well as medical institutions, clinical
investigators and consultants, to conduct our trials in accordance
with our clinical protocols. Our CROs, investigators and other
third parties will play a significant role in the conduct of these
trials and the subsequent collection and analysis of data from the
clinical trials.
There
is no guarantee that any CROs, investigators and other third
parties upon which we rely for administration and conduct of our
clinical trials will devote adequate time and resources to such
trials or perform as contractually required. If any of these third
parties fail to meet expected deadlines, fail to adhere to our
clinical protocols or otherwise perform in a substandard manner,
our clinical trials may be extended, delayed or terminated. If any
of our clinical trial sites terminate for any reason, we may
experience the loss of follow-up information on patients enrolled
in our ongoing clinical trials unless we are able to transfer the
care of those patients to another qualified clinical trial site. In
addition, principal investigators for our clinical trials may serve
as scientific advisors or consultants to us from time to time and
receive cash or equity compensation in connection with such
services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity
of the data generated at the applicable clinical trial site may be
jeopardized.
We will face intense competition and may not be able to compete
successfully.
We
operate in highly competitive segments of the biotechnology and
biopharmaceutical markets. We face competition from many different
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. MS1819, niclosamide and
our other drug candidates, if successfully developed and approved,
will compete with established therapies, as well as new treatments
that may be introduced by our competitors. Many of our competitors
have significantly greater financial, product development,
manufacturing and marketing resources than us. Large pharmaceutical
companies have extensive experience in clinical testing and
obtaining regulatory approval for drugs. We also may compete with
these organizations to recruit management, scientists and clinical
development personnel. Smaller or early-stage companies may also
prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
New developments, including the development of other biological and
pharmaceutical technologies and methods of treating disease, occur
in the pharmaceutical and life sciences industries at a rapid pace.
Developments by competitors may render our drug candidates obsolete
or noncompetitive. We will also face competition from these third
parties in recruiting and retaining qualified personnel,
establishing clinical trial sites and patient registration for
clinical trials and in identifying and in-licensing new drug
candidates. In the case of niclosamide, we may also face
competition from other companies developing different formulation
of niclosamide for the same indications for which we intend to
develop niclosamide, or from off-label uses of niclosamide approved
for other indications.
Our success will depend upon intellectual property, proprietary
technologies and regulatory market exclusivity periods, and we may
be unable to protect our intellectual property.
Our
success will depend, in large part, on obtaining and maintaining
patent protection and trade secret protection for MS1819,
niclosamide and our other drug candidates and their formulations
and uses, as well as successfully defending these patents against
third-party challenges. If we or our licensors fail to
appropriately prosecute and maintain patent protection for our drug
candidates, our ability to develop and commercialize these drug
candidates may be adversely affected and we may not be able to
prevent competitors from making, using and selling competing
products. This failure to properly protect the intellectual
property rights relating to these drug candidates could have a
material adverse effect on our financial condition and results of
operations.
The
patent application process is subject to numerous risks and
uncertainties, and there can be no assurance that we or our
partners will be successful in protecting our drug candidates by
obtaining and defending patents. These risks and uncertainties
include the following:
●
patent
applications may not result in any patents being
issued;
●
patents
that may be issued or in-licensed may be challenged, invalidated,
modified, revoked, circumvented, found to be unenforceable, or
otherwise may not provide any competitive advantage;
●
our
competitors, many of which have substantially greater resources
than we or our partners and many of which have made significant
investments in competing technologies, may seek, or may already
have obtained, patents that will limit, interfere with, or
eliminate our ability to make, use, and sell our potential
products;
●
there
may be significant pressure on the United States government and
other international governmental bodies to limit the scope of
patent protection both inside and outside the United States for
disease treatments that prove successful as a matter of public
policy regarding worldwide health concerns;
●
countries
other than the United States may have patent laws less favorable to
patentees than those upheld by United States courts, allowing
foreign competitors a better opportunity to create, develop, and
market competing products; and
●
we may
be involved in lawsuits to protect or enforce our patents or the
patents of our licensors, which could be expensive, time consuming
and unsuccessful.
In
addition to patents, we and our partners also rely on trade secrets
and proprietary know-how. Although we have taken steps to protect
our trade secrets and unpatented know-how, including entering into
confidentiality agreements with third parties, and confidential
information and inventions agreements with employees, consultants
and advisors, third parties may still obtain this information or
come upon this same or similar information independently. We may
become subject to claims that we or consultants, advisors or
independent contractors that we may engage to assist us in
developing MS1819, niclosamide, and our other drug candidates have
wrongfully or inadvertently disclosed to us or used trade secrets
or other proprietary information of their former employers or their
other clients.
We intend to rely on market exclusivity periods that may not be or
remain available to us.
We
intend to rely on our ability to obtain and maintain a regulatory
period of market exclusivity for any of our biologic drug
candidates, including MS1819 and niclosamide that are successfully
developed and approved for commercialization. Although this period
in the United States is currently 12 years from the date of
marketing approval, reductions to this period have been
proposed. This exclusivity period in Europe is currently 10
years from the date of marketing approval by the EMA. Once any
regulatory period of exclusivity expires, depending on the status
of our patent coverage and the nature of the product, we may not be
able to prevent others from marketing products that are biosimilar
to or interchangeable with our products, which would materially
adversely affect us.
Because
niclosamide is a small molecule it would be subject either to three
or five year exclusivity, depending on the regulatory pathway of
any clinical trials. niclosamide is not entitled to the same
12-year exclusivity as our biologic drug candidates.
If we are unable to establish sales and marketing capabilities or
fail to enter into agreements with third parties to market,
distribute and sell any products we may successfully develop, we
may not be able to effectively market and sell any such products
and generate product revenue.
We do
not currently have the infrastructure for the sales, marketing and
distribution of any of our drug candidates, and must build this
infrastructure or arrange for third parties to perform these
functions in order to commercialize any products that we may
successfully develop. The establishment and development of a sales
force, either by us or jointly with a partner, or the establishment
of a contract sales force to market any products we may develop
will be expensive and time-consuming and could delay any product
launch. If we, or our partners, are unable to establish sales and
marketing capability or any other non-technical capabilities
necessary to commercialize any products we may successfully
develop, we will need to contract with third parties to market and
sell such products. We may not be able to establish arrangements
with third-parties on acceptable terms, if at all.
If any product candidate that we successfully develop does not
achieve broad market acceptance among physicians, patients,
healthcare payors and the medical community, the revenues that it
generates from their sales will be limited.
Even if
MS1819, niclosamide and our other drug candidates receive
regulatory approval, they may not gain market acceptance among
physicians, patients, healthcare payors and the medical community.
Coverage and reimbursement of our drug candidates by third-party
payors, including government payors, generally is also necessary
for commercial success. The degree of market acceptance of any
approved products will depend on a number of factors,
including:
●
the
efficacy and safety as demonstrated in clinical
trials;
●
the
clinical indications for which the product is
approved;
●
acceptance
by physicians, major operators of hospitals and clinics and
patients of the product as a safe and effective
treatment;
●
acceptance
of the product by the target population;
●
the
potential and perceived advantages of drug candidates over
alternative treatments;
●
the
safety of drug candidates seen in a broader patient group,
including its use outside the approved indications;
●
the
cost of treatment in relation to alternative
treatments;
●
the
availability of adequate reimbursement and pricing by third parties
and government authorities;
●
relative
convenience and ease of administration;
●
the
prevalence and severity of adverse events;
●
the
effectiveness of our sales and marketing efforts; and
●
unfavorable
publicity relating to the product.
If any
product candidate is approved but does not achieve an adequate
level of acceptance by physicians, hospitals, healthcare payors and
patients, we may not generate sufficient revenue from these
products and may not become or remain profitable.
The First Wave License Agreement requires us to make significant
developmental milestone and other payments which will require
additional financing and, in the event we do commercialize
niclosamide, we will be required to make royalty payments on net
sales of the product which will decrease the revenues we may
ultimately receive on sales. To the extent that such milestone,
royalty and other payments are not timely made, First Wave, in
certain cases, may terminate the First Wave License
Agreement.
Under
the First Wave License Agreement, we must pay to First Wave
significant milestone payments, and royalties on net sales (as
defined in the First Wave Agreement). In order to make the various
milestone payments that are required, we will need to raise
additional funds. In addition, our royalty obligations will reduce
the economic benefits to us of any future sales of niclosamide if
we do receive regulatory approval and seek to commercialize
niclosamide. To the extent that such milestone payments and
royalties are not timely made, under the First Wave License
Agreement, First Wave has certain termination rights relating to
our license of niclosamide.
We may incur substantial product liability or indemnification
claims relating to the use of our product candidates.
We face
an inherent risk of product liability exposure based on the use of
MS1819, niclosamide and our other drug candidates in human clinical
trials, or, if obtained, following marketing approval and
commercialization. Claims could be brought against us if use or
misuse of one of our drug candidates causes, or merely appears to
have caused, personal injury or death. Although we have and intend
to maintain product liability insurance relating to our clinical
trials, our coverage may not be sufficient to cover claims that may
be made against us and we may be unable to maintain such insurance.
Any claims against us, regardless of their merit, could severely
harm our financial condition, strain our management and other
resources or destroy the prospects for commercialization of the
product which is the subject of any such claim. We are unable to
predict if we will be able to obtain or maintain product liability
insurance for any products that may be approved for marketing.
Additionally, we have entered into various agreements where we
indemnify third parties for certain claims relating to the testing
and use of our drug candidates. These indemnification obligations
may require us to pay significant sums of money for claims that are
covered by these indemnifications.
We
cannot predict all of the possible harms or side effects that may
result from the use of our products and, therefore, the amount of
insurance coverage we currently hold, or that we or our
collaborators may obtain, may not be adequate to protect us from
any claims arising from the use of our products that are beyond the
limit of our insurance coverage. If we cannot protect against
potential liability claims, we or our collaborators may find it
difficult or impossible to commercialize our products, and we may
not be able to renew or increase our insurance coverage on
reasonable terms, if at all. The marketing, sale and use of our
products and our planned future products could lead to the filing
of product liability claims against us if someone alleges that our
products failed to perform as designed. A product liability or
professional liability claim could result in substantial damages
and be costly and time-consuming for us to defend.
Any
product liability or professional liability claim brought against
us, with or without merit, could increase our insurance rates or
prevent us from securing insurance coverage. Additionally, any
product liability lawsuit could damage our reputation, result in
the recall of products, or cause current partners to terminate
existing agreements and potential partners to seek other partners,
any of which could impact our results of operations.
If we use biological and hazardous materials in a manner that
causes injury, we could be liable for damages.
Our
activities may require the controlled use of potentially harmful
biological materials, hazardous materials and chemicals and may in
the future require the use of radioactive compounds. We cannot
eliminate the risk of accidental contamination or injury to
employees or third parties from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for any resulting damages, and any
liability could exceed our resources or any applicable insurance
coverage we may have. Additionally, we are subject on an
ongoing basis to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these
materials and specified waste products. The cost of compliance
with these laws and regulations might be significant and could
negatively affect our operating results. In the event of an
accident or if we otherwise fail to comply with applicable
regulations, we could lose our permits or approvals or be held
liable for damages or penalized with fines.
We have benefited from certain non-reimbursable subsidies from the
French government that if terminated or reduced may restrict our
ability to successfully develop, manufacture and commercialize our
drug candidates.
We have
benefited from certain tax advantages, including, for example, the
research tax credit (Crédit d'Impôt Recherche, the
“
CIR
”). The CIR
is a French tax credit aimed at stimulating research and
development. The CIR can be offset against French corporate income
tax due and the portion in excess (if any) may be refunded at the
end of a three fiscal-year period (or, sooner, for smaller
companies such as ours). The CIR is calculated based on our claimed
amount of eligible research and development expenditures in France.
The French tax authority with the assistance of the Research and
Technology Ministry may audit each research and development program
in respect of which a CIR benefit has been claimed and assess
whether such program qualifies in its view for the CIR benefit. The
French tax authorities may challenge our eligibility to, or our
calculation of certain tax reductions and/or deductions in respect
of our research and development activities and, should the French
tax authorities be successful, we may be liable for additional
corporate income tax, and penalties and interest related thereto,
or we may not obtain the refunds for which we have applied, which
could have a significant impact on our results of operations and
future cash flows. We believe we are eligible to receive the CIR
benefit through at least the end of 2021. If our research and
development operations in France are terminated, we would no longer
be eligible to receive the CIR. Furthermore, if the French
Parliament decides to eliminate, or reduce the scope or the rate
of, the CIR benefit, either of which it could decide to do at any
time, our results of operations could be adversely
affected.
Due to the significant resources required for the development of
our drug candidates, we must prioritize development of certain drug
candidates and/or certain disease indications. We may expend our
limited resources on candidates or indications that do not yield a
successful product and fail to capitalize on drug candidates or
indications that may be more profitable or for which there is a
greater likelihood of success.
We plan
to develop a pipeline of drug candidates to treat GI and other
diseases. Due to the significant resources required for the
development of drug candidates, we must focus our attention and
resources on specific diseases and/or indications and decide which
drug candidates to pursue and the amount of resources to allocate
to each. We are currently focusing our resources on the development
of our lead product candidate, MS1819, for the treatment of EPI
associated with CF and CP.
We have
also recently entered into the First Wave License Agreement with
First Wave pursuant to which we were granted a worldwide, exclusive
right to develop, manufacture, and commercialize First Wave’s
proprietary immediate release and enema formulations of niclosamide
for the fields of treating ICI-AC and COVID-19 gastrointestinal
infections in humans. We are now solely responsible, and have
agreed to use commercially reasonable efforts, for all development,
regulatory and commercial activities related to the Products in the
ICI-AC and COVID-19 fields.
Our
decisions concerning the allocation of research, development,
collaboration, management and financial resources toward particular
drug candidates or therapeutic areas may not lead to the
development of any viable commercial product and may divert
resources away from better opportunities. Similarly, any decision
to delay, terminate or collaborate with third parties in respect of
certain programs or drug candidates may subsequently prove to be
suboptimal and could cause us to miss valuable opportunities. If we
make incorrect determinations regarding the viability or market
potential of any of our programs or drug candidates or misread
trends in the GI, CF, CP, COVID-19 or biotechnology industry, our
business, financial condition and results of operations could be
materially adversely affected. As a result, we may fail to
capitalize on viable commercial products or profitable market
opportunities, be required to forego or delay pursuit of
opportunities with other drug candidates or other diseases and
indications that may later prove to have greater commercial
potential than those we choose to pursue, or relinquish valuable
rights to such drug candidates through collaboration, licensing or
other royalty arrangements in cases in which it would have been
advantageous for us to invest additional resources to retain
development and commercialization rights.
If we fail to attract and retain key management and clinical
development personnel, we may be unable to successfully develop or
commercialize our product candidates.
We are
dependent on our management team and clinical development personnel
and our success will depend on their continued service, as well as
our ability to attract and retain highly qualified personnel. In
particular, the continued development of our senior management team
which now includes James Sapirstein, our President and Chief
Executive Officer, Daniel Schneiderman, our Chief Financial
Officer, and James Pennington, our Chief Medical Officer, is
critical to our success. The market for the services of qualified
personnel in the biotechnology and pharmaceutical industries are
highly competitive. The loss of service of any member of our senior
management team or key personnel could prevent, impair or delay the
implementation of our business plan, the successful conduct and
completion of our planned clinical trials and the commercialization
of any drug candidates that we may successfully develop. We do not
carry key man insurance for any member of our senior management
team.
We use biological materials and may use hazardous materials, and
any claims relating to improper handling, storage or disposal of
these materials could be time consuming or costly.
We may
use hazardous materials, including chemicals and biological agents
and compounds, that could be dangerous to human health and safety
or the environment. Our operations also produce hazardous waste
products. Federal, state and local laws and regulations govern the
use, generation, manufacture, storage, handling and disposal of
these materials and wastes. Compliance with applicable
environmental laws and regulations may be expensive, and current or
future environmental laws and regulations may impair our product
development efforts. In addition, we cannot entirely eliminate the
risk of accidental injury or contamination from these materials or
wastes. We do not carry specific biological or hazardous waste
insurance coverage and our property and casualty, and general
liability insurance policies specifically exclude coverage for
damages and fines arising from biological or hazardous waste
exposure or contamination. Accordingly, in the event of
contamination or injury, we could be held liable for damages or
penalized with fines in an amount exceeding our resources, and our
clinical trials or regulatory approvals could be
suspended.
Although
we maintain workers’ compensation insurance to cover us for
costs and expenses, we may incur due to injuries to our employees
resulting from the use of hazardous materials, this insurance may
not provide adequate coverage against potential liabilities. We do
not maintain insurance for environmental liability or toxic tort
claims that may be asserted against us in connection with our
storage or disposal of biological or hazardous
materials.
In
addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to
comply with these laws and regulations also may result in
substantial fines, penalties or other sanctions.
If we or our partners are sued for infringing intellectual property
rights of third parties, it will be costly and time consuming, and
an unfavorable outcome in that litigation would have a material
adverse effect on our business.
Our
success also depends upon our ability and the ability of any of our
future collaborators to develop, manufacture, market and sell our
drug candidates without infringing the proprietary rights of third
parties. Numerous United States and foreign issued patents and
pending patent applications, which are owned by third parties,
exist in the fields in which we are developing products, some of
which may be directed at claims that overlap with the subject
matter of our intellectual property. Because patent applications
can take many years to issue, there may be currently pending
applications, unknown to us, which may later result in issued
patents that our drug candidates or proprietary technologies may
infringe. Similarly, there may be issued patents relevant to our
drug candidates of which we are not aware.
There
is a substantial amount of litigation involving patent and other
intellectual property rights in the biotechnology and
biopharmaceutical industries generally. If a third-party claims
that we or any of our licensors, suppliers or collaborators
infringe the third party’s intellectual property rights, we
may have to:
●
obtain
licenses, which may not be available on commercially reasonable
terms, if at all;
●
abandon
an infringing product candidate or redesign our products or
processes to avoid infringement;
●
pay
substantial damages, including the possibility of treble damages
and attorneys’ fees, if a court decides that the product or
proprietary technology at issue infringes on or violates the third
party’s rights;
●
pay
substantial royalties, fees and/or grant cross licenses to our
technology; and/or
●
defend
litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our financial and management resources.
Healthcare reform and restrictions on reimbursements may limit our
financial returns.
Our
ability or the ability of our collaborators to commercialize any of
our drug candidates that we successfully develop may depend, in
part, on the extent to which government health administration
authorities, private health insurers and other organizations will
reimburse consumers for the cost of these products. These third
parties are increasingly challenging both the need for and the
price of new drug products. Significant uncertainty exists as to
the reimbursement status of newly approved therapeutics. Adequate
third-party reimbursement may not be available for our drug
candidates to enable us or our collaborators to maintain price
levels sufficient to realize an appropriate return on their and our
investments in research and product development.
Changes in healthcare law and implementing regulations, including
government restrictions on pricing and reimbursement, as well as
healthcare policy and other healthcare payor cost-containment
initiatives, may negatively impact our ability to generate
revenues.
The potential pricing and reimbursement environment for MS1819,
niclosamide and our other drug candidates and any future products
may change in the future and become more challenging due to, among
other reasons, policies advanced by the current or any new
presidential administration, federal agencies, healthcare
legislation passed by Congress, or fiscal challenges faced by all
levels of government health administration
authorities.
If we or any of our independent contractors, consultants,
collaborators, manufacturers, vendors or service providers fail to
comply with healthcare laws and regulations, we or they could be
subject to enforcement actions, which could result in penalties and
affect our ability to develop, market and sell our product
candidates and may harm our reputation.
We are
subject to federal, state, and foreign healthcare laws and
regulations pertaining to fraud and abuse and patients’
rights. These laws and regulations include:
●
the
U.S. federal healthcare program anti-kickback law, which prohibits,
among other things, persons and entities from soliciting, receiving
or providing remuneration, directly or indirectly, to induce either
the referral of an individual for a healthcare item or service, or
the purchasing or ordering of an item or service, for which payment
may be made under a federal healthcare program such as Medicare or
Medicaid;
●
the
U.S. federal false claims and civil monetary penalties laws, which
prohibit, among other things, individuals or entities from
knowingly presenting or causing to be presented, claims for payment
by government funded programs such as Medicare or Medicaid that are
false or fraudulent, and which may apply to us by virtue of
statements and representations made to customers or third
parties;
●
the
U.S. federal Health Insurance Portability and Accountability Act
(“
HIPAA
”),
which prohibits, among other things, executing a scheme to defraud
healthcare programs;
●
HIPAA,
as amended by the Health Information Technology for Economic and
Clinical Health Act, or HITECH, imposes requirements relating to
the privacy, security, and transmission of individually
identifiable health information, and requires notification to
affected individuals and regulatory authorities of certain breaches
of security of individually identifiable health
information;
●
the
federal Physician Payment Sunshine Act, which requires certain
manufacturers of drugs, devices, biologics and medical supplies to
report annually to the Centers for Medicare & Medicaid
Services, or CMS, information related to payments and other
transfers of value to physicians, other healthcare providers and
teaching hospitals, and ownership and investment interests held by
physicians and other healthcare providers and their immediate
family members, which is published in a searchable form on an
annual basis; and
●
state
laws comparable to each of the above federal laws, such as, for
example, anti-kickback and false claims laws that may be broader in
scope and also apply to commercial insurers and other non-federal
payors, requirements for mandatory corporate regulatory compliance
programs, and laws relating to patient data privacy and
security.
If our
operations are found to be in violation of any such health care
laws and regulations, we may be subject to penalties, including
administrative, civil and criminal penalties, monetary damages,
disgorgement, imprisonment, the curtailment or restructuring of our
operations, loss of eligibility to obtain approvals from the FDA,
or exclusion from participation in government contracting,
healthcare reimbursement or other government programs, including
Medicare and Medicaid, any of which could adversely affect our
financial results. Although effective compliance programs can
mitigate the risk of investigation and prosecution for violations
of these laws, these risks cannot be entirely eliminated. Any
action against us for an alleged or suspected violation could cause
us to incur significant legal expenses and could divert our
management’s attention from the operation of our business,
even if our defense is successful. In addition, achieving and
sustaining compliance with applicable laws and regulations may be
costly to us in terms of money, time and resources.
We will need to grow the size of our organization, and we may
experience difficulties in managing this growth.
As of
December 31, 2020, we had ten employees. As our development
and commercialization plans and strategies develop, we expect to
need additional managerial, operational, research and development,
sales, marketing, financial and other personnel. Future growth
would impose significant added responsibilities on members of
management, including:
●
identifying,
recruiting, integrating, maintaining and motivating additional
employees;
●
managing
our internal development efforts effectively, including the
clinical, FDA and international regulatory review process for our
drug candidates, while complying with our contractual obligations
to contractors and other third parties; and
●
improving
our operational, financial and management controls, reporting
systems and procedures.
Our
future financial performance and our ability to commercialize our
drug candidates will depend, in part, on our ability to effectively
manage any future growth, and our management may also have to
divert a disproportionate amount of its attention away from
day-to-day activities in order to devote a substantial amount of
time to managing these growth activities.
We
currently rely, and for the foreseeable future will continue to
rely, in substantial part on certain independent organizations,
advisors and consultants to provide certain services, including
certain aspects of regulatory approval, clinical management and
manufacturing. There can be no assurance that the services of
independent organizations, advisors and consultants will continue
to be available to us on a timely basis when needed, or that we can
find qualified replacements. In addition, if we are unable to
effectively manage our outsourced activities or if the quality or
accuracy of the services provided by consultants is compromised for
any reason, our clinical trials may be extended, delayed or
terminated, and we may not be able to obtain regulatory approval of
our drug candidates or otherwise advance our business. There
can be no assurance that we will be able to manage our existing
consultants and contractors or find other competent outside
contractors and consultants on economically reasonable terms, or at
all.
If we
are not able to effectively expand our organization by hiring new
employees and expanding our groups of consultants and contractors,
we may not be able to successfully implement the tasks necessary to
further develop and commercialize our drug candidates and,
accordingly, may not achieve our research, development and
commercialization goals.
We are subject to U.S. and foreign anti-corruption and anti-money
laundering laws with respect to our operations and non-compliance
with such laws can subject us to criminal and/or civil liability
and harm our business.
We are
subject to the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or the FCPA, the U.S. domestic bribery statute contained
in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT
Act, and possibly other state and national anti-bribery and
anti-money laundering laws in countries in which we conduct
activities. Anti-corruption laws are interpreted broadly and
prohibit companies and their employees, agents, third-party
intermediaries, joint venture partners and collaborators from
authorizing, promising, offering, or providing, directly or
indirectly, improper payments or benefits to recipients in the
public or private sector. We engage third-party investigators,
CROs, and other consultants to design and perform preclinical
studies of our drug candidates and will do the same for any
clinical trials. Also, once a drug candidate has been approved and
commercialized, we may engage third-party intermediaries to promote
and sell our products abroad and/or to obtain necessary permits,
licenses, and other regulatory approvals. We or our third-party
intermediaries may have direct or indirect interactions with
officials and employees of government agencies or state-owned or
affiliated entities. We can be held liable for the corrupt or other
illegal activities of these third-party intermediaries, our
employees, representatives, contractors, collaborators, partners,
and agents, even if we do not explicitly authorize or have actual
knowledge of such activities.
Noncompliance
with anti-corruption and anti-money laundering laws could subject
us to whistleblower complaints, investigations, sanctions,
settlements, prosecution, other enforcement actions, disgorgement
of profits, significant fines, damages, other civil and criminal
penalties or injunctions, suspension and/or debarment from
contracting with certain persons, the loss of export privileges,
reputational harm, adverse media coverage, and other collateral
consequences. If any subpoenas, investigations, or other
enforcement actions are launched, or governmental or other
sanctions are imposed, or if we do not prevail in any possible
civil or criminal litigation, our business, results of operations
and financial condition could be materially harmed. In addition,
responding to any action will likely result in a materially
significant diversion of management's attention and resources and
significant defense and compliance costs and other professional
fees. In certain cases, enforcement authorities may even cause us
to appoint an independent compliance monitor which can result in
added costs and administrative burdens.
Significant disruptions of information technology systems or
breaches of data security could materially adversely affect our
business, results of operations and financial
condition.
We
collect and maintain information in digital form that is necessary
to conduct our business, and we are increasingly dependent on
information technology systems and infrastructure to operate our
business. In the ordinary course of our business, we collect, store
and transmit large amounts of confidential information, including
intellectual property, proprietary business information and
personal information. It is critical that we do so in a secure
manner to maintain the confidentiality and integrity of such
confidential information. We have established physical, electronic
and organizational measures to safeguard and secure our systems to
prevent a data compromise, and rely on commercially available
systems, software, tools, and monitoring to provide security for
our information technology systems and the processing, transmission
and storage of digital information. We have also outsourced
elements of our information technology infrastructure, and as a
result a number of third-party vendors may or could have access to
our confidential information. Our internal information technology
systems and infrastructure, and those of our current and any future
collaborators, contractors and consultants and other third parties
on which we rely, are vulnerable to damage from computer viruses,
malware, natural disasters, terrorism, war, telecommunication and
electrical failures, cyber-attacks or cyber-intrusions over the
Internet, attachments to emails, persons inside our organization,
or persons with access to systems inside our
organization.
The
risk of a security breach or disruption, particularly through
cyber-attacks or cyber-intrusion, including by computer hackers,
foreign governments and cyber-terrorists, has generally increased
as the number, intensity and sophistication of attempted attacks
and intrusions from around the world have increased. In addition,
the prevalent use of mobile devices that access confidential
information increases the risk of data security breaches, which
could lead to the loss of confidential information or other
intellectual property. The costs to us to mitigate network security
problems, bugs, viruses, worms, malicious software programs and
security vulnerabilities could be significant, and while we have
implemented security measures to protect our data security and
information technology systems, our efforts to address these
problems may not be successful, and these problems could result in
unexpected interruptions, delays, cessation of service and other
harm to our business and our competitive position. If such an event
were to occur and cause interruptions in our operations, it could
result in a material disruption of our product development
programs. For example, the loss of clinical trial data from
completed or ongoing or planned clinical trials could result in
delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. Moreover, if a
computer security breach affects our systems or results in the
unauthorized release of personally identifiable information, our
reputation could be materially damaged.
In
addition, such a breach may require notification to governmental
agencies, the media or individuals pursuant to various federal and
state privacy and security laws, if applicable, including the
Health Insurance Portability and Accountability Act of 1996, as
amended by the Health Information Technology for Clinical Health
Act of 2009, and its implementing rules and regulations, as well as
regulations promulgated by the Federal Trade Commission and state
breach notification laws.
Under
the EU regulation and notably the General Data Protection
Regulation, or GDPR, No. 2016/679, which entered into force on
May 25, 2018 and is applicable personal data that we process
in relation to our presence in the EU, the offering of products or
services to individuals in the EU or the monitoring of the behavior
of individuals in the EU, we have also a legal responsibility to
report personal data breaches to the competent supervisory
authority. The EU data protection regulation includes a broad
definition and a short deadline for the notification of personal
data breaches, which may be difficult to implement in practice and
requires that we implement robust internal processes. Under this
regulation, we have to report personal data breaches to the
competent supervisory authority within 72 hours of the time we
become aware of a breach "unless the personal data breach is
unlikely to result in a risk to the right and freedoms of natural
persons" (Article 33 of the GDPR). In addition, the GDPR
requires that we communicate the breach to the Data Subject if the
breach is "likely to result in a high risk to the rights and
freedoms of natural persons" (Article 34 of the GDPR). In
order to fulfil these requirements, we have to implement specific
internal processes to be followed in case of a personal data
breach, which will allow us to (a) contain and recover the
breach, (b) assess the risk to the data subjects,
(c) notify, and possibly communicate the breach to the data
subjects, (d) investigate and respond to the breach. The
performance of these processes implies substantial costs in
resources and time.
Moreover,
as we may rely on third parties that will also process as processor
the data for which we are a data controller—for example, in
the context of the manufacturing of our drug candidates or for the
conduct of clinical trials, we must contractually ensure that
strict security measures, as well as appropriate obligations
including an obligation to report in due delay any security
incident are implemented, in order to allow us fulfilling our own
regulatory requirements.
We
would also be exposed to a risk of loss or litigation and potential
liability for any security breach on personal data for which we are
data controller. The costs of above-mentioned processes together
with legal penalties, possible compensation for damages and any
resulting lawsuits arising from a breach may be extensive and may
have a negative impact on reputation and materially adversely
affect our business, results of operations and financial
condition.
Our employees and independent contractors, including principal
investigators, consultants, commercial collaborators, service
providers and other vendors may engage in misconduct or other
improper activities, including noncompliance with regulatory
standards and requirements, which could have an adverse effect on
our results of operations.
We are
exposed to the risk that our employees and independent contractors,
including principal investigators, consultants, any future
commercial collaborators, service providers and other vendors may
engage in misconduct or other illegal activity. Misconduct by these
parties could include intentional, reckless and/or negligent
conduct or other unauthorized activities that violate the laws and
regulations of the FDA, EMA and other similar regulatory bodies,
including those laws that require the reporting of true, complete
and accurate information to such regulatory bodies; manufacturing
standards; healthcare fraud and abuse, data privacy laws and other
similar laws; or laws that require the true, complete and accurate
reporting of financial information or data. Activities subject to
these laws also involve the improper use or misrepresentation of
information obtained in the course of clinical trials, the creation
of fraudulent data in our preclinical studies or clinical trials,
or illegal misappropriation of product, which could result in
regulatory sanctions and cause serious harm to our reputation. It
is not always possible to identify and deter misconduct by
employees and other third parties, and the precautions we take to
detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or
regulations. In addition, we are subject to the risk that a person
or government could allege such fraud or other misconduct, even if
none occurred. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our
business and financial results, including, without limitation, the
imposition of significant civil, criminal and administrative
penalties, damages, monetary fines, disgorgements, possible
exclusion from participation in governmental healthcare programs,
individual imprisonment, other sanctions, contractual damages,
reputational harm, diminished profits and future earnings and
curtailment of our operations, any of which could adversely affect
our ability to operate our business and our results of
operations.
Our ability to compete may decline if we do not adequately protect
our proprietary rights.
Our
success depends on obtaining and maintaining proprietary rights to
our drug candidates for the treatment of age-related diseases, as
well as successfully defending these rights against third-party
challenges. We will only be able to protect our drug candidates,
and their uses from unauthorized use by third parties to the extent
that valid and enforceable patents, or effectively protected trade
secrets, cover them. Our ability to obtain patent protection for
our drug candidates is uncertain due to a number of factors,
including:
●
we may
not have been the first to make the inventions covered by pending
patent applications or issued patent
●
we may
not have been the first to file patent applications for our drug
candidates or the compositions we developed or for their
uses;
●
others
may independently develop identical, similar or alternative
products or compositions and uses thereof;
●
our
disclosures in patent applications may not be sufficient to meet
the statutory requirements for patentability;
●
any or
all of our pending patent applications may not result in issued
patents;
●
we may
not seek or obtain patent protection in countries that may
eventually provide us a significant business
opportunity;
●
any
patents issued to us may not provide a basis for commercially
viable products, may not provide any competitive advantages, or may
be successfully challenged by third parties;
●
our
compositions and methods may not be patentable;
●
hers
may design around our patent claims to produce competitive products
which fall outside of the scope of our patents;
●
others
may identify prior art or other bases which could invalidate our
patents.
Even if
we have or obtain patents covering our drug candidates or
compositions, we may still be barred from making, using and selling
our drug candidates or technologies because of the patent rights of
others. Others may have filed, and in the future may file, patent
applications covering compositions or products that are similar or
identical to ours. There are many issued U.S. and foreign patents
relating to chemical compounds and therapeutic products, and some
of these relate to compounds we intend to commercialize. These
could materially affect our ability to develop our drug candidates
or sell our products if approved. Because patent applications can
take many years to issue, there may be currently pending
applications unknown to us that may later result in issued patents
that our drug candidates or compositions may infringe. These patent
applications may have priority over patent applications filed by
us.
Obtaining
and maintaining a patent portfolio entails significant expense and
resources. Part of the expense includes periodic maintenance fees,
renewal fees, annuity fees, various other governmental fees on
patents and/or applications due in several stages over the lifetime
of patents and/or applications, as well as the cost associated with
complying with numerous procedural provisions during the patent
application process. We may or may not choose to pursue or maintain
protection for particular inventions. In addition, there are
situations in which failure to make certain payments or
noncompliance with certain requirements in the patent process can
result in abandonment or lapse of a patent or patent application,
resulting in partial or complete loss of patent rights in the
relevant jurisdiction. If we choose to forgo patent protection or
allow a patent application or patent to lapse purposefully or
inadvertently, our competitive position could
suffer.
In
addition, it is unclear at this time what Brexit's impact will have
on our intellectual property rights and the process for obtaining
and defending such rights. It is possible that certain intellectual
property rights, such as trademarks, granted by the EU will cease
being enforceable in the UK absent special arrangements to the
contrary. With regard to existing patent rights, the effect of
Brexit should be minimal considering enforceable patent rights are
specific to the UK, whether arising out of the European Patent
Office or directly through the UK patent office.
Legal
actions to enforce our proprietary rights (including patents and
trademarks) can be expensive and may involve the diversion of
significant management time. In addition, these legal actions could
be unsuccessful and could also result in the invalidation of our
patents or trademarks or a finding that they are unenforceable. We
may or may not choose to pursue litigation or other actions against
those that have infringed on our patents or trademarks, or used
them without authorization, due to the associated expense and time
commitment of monitoring these activities. If we fail to protect or
to enforce our intellectual property rights successfully, our
competitive position could suffer, which could harm our results of
operations.
Risks Relating to our Finances, Capital Requirements and Other
Financial Matters
We are a clinical stage biopharmaceutical company with a history of
operating losses that are expected to continue and we are unable to
predict the extent of future losses, whether we will generate
significant revenues or whether we will achieve or sustain
profitability.
We are
a company in the clinical stage of pharmaceutical development and
our prospects must be considered in light of the uncertainties,
risks, expenses and difficulties frequently encountered by
companies in their early stages of operations. We have generated
operating losses since our inception, including losses of
approximately $32.7 million and $15.2 million for the years ended
December 31, 2020 and 2019, respectively. We expect to make
substantial expenditures and incur increasing operating costs in
the future and our accumulated deficit will increase significantly
as we expand development and clinical trial activities for MS1819,
niclosamide and our other drug candidates. Our losses have had, and
are expected to continue to have, an adverse impact on our working
capital, total assets and stockholders’ equity. Because of
the risks and uncertainties associated with product development, we
are unable to predict the extent of any future losses, whether we
will ever generate significant revenues or if we will ever achieve
or sustain profitability.
We have
incurred significant operating losses and negative cash flows from
operations since inception. As of December 31, 2020, we had an
accumulated deficit of approximately $95.4 million and negative
working of approximately $7.7 million. Based on our historical and
anticipated rate of cash expenditures, we do not anticipate our
working capital will be sufficient to sustain our business through
the successful commercialization of our drug candidates. Therefore,
we are dependent on obtaining, and are continuing to pursue, the
necessary funding from outside sources, including obtaining
additional funding from the sale of securities, in order to
continue our operations. Without adequate funding, we may not be
able to meet our obligations. We believe these conditions raise
substantial doubt about our ability to continue as a going
concern.
Raising additional funds by issuing securities or through licensing
or lending arrangements may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish
proprietary rights.
To the
extent that we raise additional capital by issuing equity
securities, the share ownership of existing stockholders will be
diluted. Any future debt financing may involve covenants that
restrict our operations, including limitations on our ability to
incur liens or additional debt, pay dividends, redeem our stock,
make certain investments and engage in certain merger,
consolidation or asset sale transactions, among other restrictions.
In addition, if we raise additional funds through licensing
arrangements, it may be necessary to relinquish potentially
valuable rights to our drug candidates or grant licenses on terms
that are not favorable to us.
In the
event we effect any issuance, or any of our subsidiaries, of Common
Stock or Common Stock equivalents for cash consideration, or a
combination of units thereof (a “
Subsequent Financing
”), each
holder of our Series B Preferred Stock has the right, subject to
certain exceptions set forth in the Series B Certificate of
Designations, at its option, to exchange (in lieu of cash
subscription payments) all or some of the Series B Preferred Stock
then held (with a value per share of Series B Preferred Stock equal
to the Liquidation Preference) for any securities or units issued
in a Subsequent Financing on dollar-for-dollar basis.
We will need substantial additional capital and certain terms
included in our financing transactions may prohibit us from raising
capital when needed, which would force us to delay, curtail or
eliminate one or more of our research and development programs or
commercialization efforts.
Our operations have consumed substantial amounts of cash since
inception. During the years ended December 31, 2020 and 2019, we
incurred research and development expense of approximately $19.1
million and $8.7 million, respectively. We expect to continue to
spend substantial amounts on product development, including
conducting clinical trials for MS1819, niclosamide and our other
drug candidates and manufacturing and purchasing clinical trial
materials from our suppliers. We will require substantial
additional funds to support our continued research and development
activities, as well as the anticipated costs of preclinical studies
and clinical trials, regulatory approvals and potential
commercialization. We could spend our available financial resources
much faster than we currently expect.
Further, pursuant to the financing transaction documents we entered
into in connection with the March 2021 Offering, we have
agreed, not to issue, enter into any agreement to issue or
announce the issuance or proposed issuance of any shares of common
stock or common stock equivalents or file any registration
statement until April 29, 2021. In addition, we have
agreed, subject to certain exceptions, for the one-year period
commencing on the signing of the March 2021 Purchase Agreement, not
to (i) issue or sell any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the
right to receive, additional common stock either (A) at a
conversion price, exercise price or exchange rate or other price
that is based upon, and/or varies with, the trading prices of or
quotations for the common stock at any time after the initial
issuance of such debt or equity securities or (B) with a
conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt
or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to our business or
the market for the common stock or (ii) enter into, or effect a
transaction under, any agreement, including, but not limited to, an
equity line of credit, whereby we may issue securities at a future
determined price. The March 2021 Purchase Agreement limits our
ability to make sales of our Common Stock pursuant to our Equity
Line Agreement (as defined below) with Lincoln Park Capital Fund,
LLC until July 7, 2021.
Until such time, if ever, as we can generate a sufficient amount of
product revenue and achieve profitability, we expect to seek to
finance future cash needs through equity and/or debt financings or
corporate collaboration and licensing arrangements. We currently
have no other commitments or agreements relating to any of these
types of transactions and we cannot be certain that additional
funding will be available on acceptable terms, or at all. If we are
unable to raise additional capital, we will have to delay, curtail
or eliminate one or more of our research and development programs.
If we are able to raise additional capital, our stockholders may
experience additional dilution, and as a result, our stock price
may decline.
If we issue additional shares of Common Stock in the future,
including issuances of shares upon conversion
or exercise of our outstanding securities convertible
and/or exercisable into shares of Common Stock, our existing
stockholders will be diluted.
The conversion or exercise, as applicable, of outstanding
securities will dilute the voting interest of the owners of
presently outstanding shares of Common Stock by adding a
substantial number of additional shares of our Common Stock. As of
March 29, 2021, we had:
●
3,932,506
shares of Common Stock issuable upon the exercise of stock options,
at a weighted average exercise price of $1.20 per share under our
2014 Plan;
●
387,000
shares of granted, but unissued restricted stock and restricted
stock units under our 2014 Plan;
●
353,685
shares
of Common Stock issuable upon the exercise of stock options, at a
weighted average exercise price of $1.01
per share under our 2020 Plan;
●
9,646,315
shares of Common Stock that are available for
future issuance under our 2020 Plan;
●
44,930,105
shares of Common Stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $1.02 per
share;
●
12,553,791
shares of Common Stock issuable upon conversion of Series B
Preferred Stock, including accrued and unpaid dividends thereon in
the aggregate amount of approximately $207,000;
●
up to 347,461 shares of Common Stock issuable upon
conversion of Series C Preferred Stock that may be issued pursuant
to the
Exchange Right
, in
excess of amounts currently underlying the Series B Preferred
Stock;
●
up to 13,376,159 shares of Common Stock issuable
upon exercise of Investor Warrants that may be issued pursuant to
the
Exchange Right
;
To the extent any of these convertible securities, warrants or
options are converted or exercised and any additional
options are granted and exercised, there will be
further dilution to stockholders and
investors.
Risks Associated with our Capital Stock
Our failure to maintain compliance with Nasdaq’s continued
listing requirements could result in the delisting of our Common
Stock.
On
March 23, 2020, we received a letter from the Listing
Qualifications Department (the “
Staff
”) of The Nasdaq Stock
Market LLC (“
Nasdaq
”) indicating that, based
upon the closing bid price of our Common Stock for the prior 30
consecutive business days, we were not in compliance with the
requirement to maintain a minimum bid price of $1.00 per share for
continued listing on Nasdaq, as set forth in Nasdaq Listing Rule
5550(a)(2) (the “
Minimum Bid
Price Requirement
”). The 180-day time period for us to
regain compliance was subsequently extended to December 3, 2020,
pursuant to certain COVID-19 related relief from price-based
continued listing requirements issued by Nasdaq on April 16, 2020.
On November 23, 2020, we submitted a request to Nasdaq for a
180-day extension to regain compliance with the Minimum Bid Price
Requirement. On December 4, 2020, we received a letter from Nasdaq
advising that we had been granted a 180-day extension to June 1,
2021 to regain compliance with the Minimum Bid Price Requirement,
in accordance with Nasdaq Listing Rule 5810(c)(3)(A). If we do not
regain compliance within the allotted compliance periods, including
any extensions that may be granted by Nasdaq, Nasdaq will provide
notice that our Common Stock will be subject to delisting. We would
then be entitled to appeal that determination to a Nasdaq hearings
panel. We will continue to monitor the closing bid price of our
Common Stock and seek to regain compliance with the Minimum Bid
Price Requirement within the allotted compliance period. If we do
not regain compliance within the allotted compliance period, Nasdaq
will provide notice that our Common Stock will be subject to
delisting. We would then be entitled to appeal that determination
to a Nasdaq hearings panel. There can be no assurance that we will
regain compliance with the Minimum Bid Price Requirement during the
180-day extension.
On
February 12, 2021, we received a letter from Nasdaq indicating that
the Staff had determined that, from January 21 to February 12,
2021, the closing bid price of the Common Stock had been at $1.00
per share or greater. Accordingly, the Staff determined that we had
regained compliance with the Minimum Bid Price Requirement and that
the matter is now closed.
The limited public market for our securities may adversely affect
an investor’s ability to liquidate an investment in
us.
Although
our Common Stock is currently listed on the Nasdaq Capital Market,
there is limited trading activity. We can give no assurance
that an active market will develop, or if developed, that it will
be sustained. If an investor acquires shares of our Common
Stock, the investor may not be able to liquidate our shares should
there be a need or desire to do so.
The market price of our Common Stock may be volatile and may
fluctuate in a way that is disproportionate to our operating
performance.
Our
stock price may experience substantial volatility as a result of a
number of factors, including:
●
sales
or potential sales of substantial amounts of our Common
Stock;
●
delay
or failure in initiating or completing pre-clinical or clinical
trials or unsatisfactory results of these trials;
●
announcements
about us or about our competitors, including clinical trial
results, regulatory approvals or new product
introductions;
●
developments
concerning our licensors or product manufacturers;
●
litigation
and other developments relating to our patents or other proprietary
rights or those of our competitors;
●
conditions
in the pharmaceutical or biotechnology industries;
●
governmental
regulation and legislation;
●
variations
in our anticipated or actual operating results;
●
change
in securities analysts’ estimates of our performance, or our
failure to meet analysts’ expectations; foreign currency
values and fluctuations; and
●
overall
economic conditions.
Many of
these factors are beyond our control. The stock markets in general,
and the market for pharmaceutical and biotechnological companies in
particular, have historically experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies.
These broad market and industry factors could reduce the market
price of our Common Stock, regardless of our actual operating
performance.
We have never paid and do not intend to pay cash dividends on our
Common Stock. As a result, capital appreciation, if any, will
be your sole source of gain.
We have
never paid cash dividends on any of our capital stock and we
currently intend to retain future earnings, if any, to fund the
development and growth of our business. Our Series B Preferred
Stock carries a cumulative dividend rate of 9.0% per year, which is
cumulative and continues to accrue on a daily basis whether or not
declared and whether or not we have assets legally available
therefor. We may pay such dividends at our option either in cash or
in kind in additional shares of preferred stock. We do not expect
to pay any dividends in cash and have paid accrued dividends in
kind in additional shares of preferred stock to date. In addition,
the terms of existing and future debt agreements may preclude us
from paying dividends. As a result, capital appreciation, if
any, of our Common Stock will be your sole source of gain for the
foreseeable future.
Provisions in our restated certificate of incorporation, our
restated by-laws and Delaware law might discourage, delay or
prevent a change in control of our company or changes in our
management and, therefore, depress the trading price of our Common
Stock.
Provisions
of our restated certificate of incorporation, our restated by-laws
and Delaware law may have the effect of deterring unsolicited
takeovers or delaying or preventing a change in control of our
company or changes in our management, including transactions in
which our stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these
provisions may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests.
These provisions include:
●
the
inability of stockholders to call special meetings;
and
In
addition, Section 203 of the Delaware General Corporation Law
prohibits a publicly-held Delaware corporation from engaging in a
business combination with an interested stockholder, generally a
person which together with its affiliates owns, or within the last
three years, has owned 15% of our voting stock, for a period of
three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination
is approved in a prescribed manner.
The
existence of the foregoing provisions and anti-takeover measures
could limit the price that investors might be willing to pay in the
future for shares of our Common Stock. They could also deter
potential acquirers of our company, thereby reducing the likelihood
that you could receive a premium for your Common Stock in an
acquisition.
We are eligible to be treated as an “emerging growth
company”, as defined in the JOBS Act, and we cannot be
certain if the reduced disclosure requirements applicable to
emerging growth companies will make our Common Stock less
attractive to investors.
We are
an “emerging growth company”, as defined in the
Jumpstart Our Business Startups Act of 2012 (the
“
JOBS Act
”).
For as long as we continue to be an emerging growth company, we may
take advantage of exemptions from various reporting requirements
that are applicable to other public companies that are not emerging
growth companies, including (i) not being required to comply with
the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy
statements, and (iii) exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years,
although circumstances could cause us to lose that status earlier,
including if the market value of our Common Stock held by
non-affiliates exceeds $700.0 million as of any June
30 before that time or if we have total annual gross revenue
of $1.0 billion or more during any fiscal year before that time,
after which, in each case, we would no longer be an emerging growth
company as of the following December 31 or, if we issue more than
$1.0 billion in non-convertible debt during any three-year period
before that time, we would cease to be an emerging growth company
immediately.
Under
the JOBS Act, emerging growth companies can also delay adopting new
or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to
avail ourselves of this exemption from new or revised accounting
standards and, therefore, will be subject to the same new or
revised accounting standards as other public companies that are not
emerging growth companies.
If securities or industry analysts do not publish research or
reports about our business, if they adversely change their
recommendations regarding our shares or if our results of
operations do not meet their expectations, our share price and
trading volume could decline.
The
trading market for our shares is influenced by the research and
reports that industry or securities analysts publish about us or
our business. We do not have any control over these analysts. If
one or more of these analysts cease coverage of our company or fail
to publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our share price or
trading volume to decline. Moreover, if one or more of the analysts
who cover us downgrade our stock, or if our results of operations
do not meet their expectations, our share price could
decline.
We currently have Series B Preferred Stock outstanding. Our
certificate of incorporation authorizes our Board to create new
series of preferred stock without further approval by our
stockholders, which could adversely affect the rights of the
holders of our Common Stock.
Our Board has the authority to fix and determine the relative
rights and preferences of preferred stock. Our Board also has the
authority to issue preferred stock without further stockholder
approval.
We currently have approximately
1,248.89
shares of Series B Preferred Stock outstanding
with a stated value of $7,700 per share, which are currently
convertible at the holder’s option at any time, together with
any accrued but unpaid dividends thereon, into shares of Common
Stock at a conversion price of $0.77, subject to certain
adjustments.
Our Series B Preferred Stock gives its holders the preferred right
to our assets upon liquidation and the right to receive dividend
payments at 9.00% per annum before dividends are distributed to the
holders of Common Stock, among other things. In addition, in the
event we effect any issuance of Common Stock or Common Stock
equivalents for cash consideration, or a combination of units
thereof, the holders of the Series B Preferred Stock have the
right, subject to certain exceptions, at their option, to exchange
(in lieu of cash subscription payments) all or some of the Series B
Preferred Stock then held (with a value per share of the Series B
Preferred Stock equal to the Series B Stated Value plus accrued and
unpaid dividends thereon) for any securities or units issued in
such issuance on a dollar-for-dollar basis. The holders of the
Series B Preferred Stock, voting as a separate class, also have
customary consent rights with respect to certain corporate actions,
including the issuance of an increased number of shares of Series B
Preferred Stock, the establishment of any capital stock ranking
senior to or on parity the Series B Preferred Stock as to dividends
or upon liquidation, the incurrence of indebtedness, and certain
changes to our Charter or Bylaws including other
actions.
Our obligations to the holders of the Series B Preferred Stock and
Series C Preferred Stock could limit our ability to obtain
additional financing or increase our borrowing costs, which could
have an adverse effect on our financial condition and hinder the
accomplishment of our corporate goals.
In addition to the Series B Preferred Stock and Series C Preferred
Stock, our Board could authorize the issuance of additional series
of preferred stock with such rights preferential to the rights of
our Common Stock, including the issuance of a series of preferred
stock that has greater voting power than our Common Stock or that
is convertible into our Common Stock, which could decrease the
relative voting power of our Common Stock or result in dilution to
our existing stockholders.
As a result of the “most favored nation” in the Series
B Certificate of Designations, we may be required to issue
additional shares of Series C Preferred Stock and/or Investor
Warrants which would be convertible for or exercisable into
additional shares of Common Stock, to the investors who purchased
shares of our Series B Preferred Stock and related warrants to
purchase shares of our Common Stock in a private placement in July
2020.
On July 16, 2020, we consummated a private placement offering (the
“
Series B Private
Placement
”) in which we
issued an aggregate of approximately 2,912.58 shares of Series B
Preferred Stock, at a price of $7,700.00 per share, initially
convertible into an aggregate of 29,125,756 shares of Common Stock
at $0.77 per share, together with warrants to purchase an aggregate
of 14,562,826 shares of Common Stock at an exercise price of $0.85
per share. The Series B Preferred Stock carries a cumulative
dividend at a rate of 9.0% per annum, payable at our option either
in cash or in kind in additional shares of Series B Preferred
Stock.
Under the Series B Certificate of Designations, in the event we
effect any issuance of Common Stock or Common Stock equivalents for
cash consideration, or a combination of units thereof (a
“
Subsequent
Financing
”), each holder
of the Series B Preferred Stock has the right to exchange the
stated value, plus accrued and unpaid dividends, of the Series B
Preferred Stock for any securities issued in the Subsequent
Financing, in lieu of any cash subscription payments therefor (the
“
Exchange
Right
”). As a result, as
of March 29, 2021, we may be required to issue up to 13,376.159
additional shares of Series C Preferred Stock that are currently
convertible up to 13,376,159 underlying shares of Common Stock,
together with Investor Warrants to purchase up to an additional
13,376,159 shares of Common Stock, to any holders of Series B
Preferred Stock who elect to exercise their Exchange Right. We
anticipate that we would convert any shares of Series C Preferred
Stock to be issued pursuant to the Exchange Right into underlying
shares of Common Stock immediately upon
issuance.
If the holders of our Series B Preferred Stock exercise their
Exchange Rights, it will result in certain dilution to our
stockholders, and would afford our stockholders a smaller
percentage interest in our voting power, liquidation value and
aggregate book value. The sale or resale of the Common Stock issued
upon conversion of the preferred stock could cause the market price
of our Common Stock to decline. In addition, the issuance of Common
Stock upon the exercise of the Investor Warrants will result in
similar dilution to our stockholders. This dilution, or the
possibility that it may occur, may make it more difficult for us to
sell equity securities in the future at a time and a price that we
deem appropriate.
ITEM 1B.
UNRES
O
LVED
STAFF
COMMENTS
ITEM 2.
PROPERTIES
Facilities
We lease the space for our principal executive offices at 1615
South Congress Avenue, Suite 103, Delray Beach, FL 33445 and an
administrative office at 760 Parkside Avenue, Downstate
Biotechnology Incubator, Suite 217, Brooklyn, NY 11226 on a
month-to-month basis. Our U.S. clinical operations office is
located in approximately 1,990 square feet of office space at 22320
Foothill Boulevard, Suite 200, Hayward, CA 94541 that we occupy
under a lease expiring on May 31, 2022. The operations of
AzurRx SAS are conducted at office space located at 290 chemin de
Saint Dionisy, Jardin des Entreprises, 30980 Langlade, France, that
we occupy under a short-term lease. We believe that our facilities
are adequate to meet our current needs.
ITEM 3.
LEGAL
PROCEEDINGS
As of the date hereof, we know of no material, existing or pending
legal proceedings against us, nor are we the plaintiff in any
material proceedings or pending litigation. There are no
proceedings in which any of our directors, executive officers or
affiliates, or any registered or beneficial stockholder, is an
adverse party or has a material interest adverse to our
interest. From time to time, we may be subject to various
claims, legal actions and regulatory proceedings arising in the
ordinary course of business.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
PA
R
T II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is listed on the Nasdaq Capital Market, or Nasdaq,
under the symbol “AZRX”.
Holders of Record
At March 30, 2021, there were 74,439,377 shares of our Common Stock
issued and outstanding and approximately 166 stockholders of
record.
Dividends
We did
not declare any dividends on our Common Stock for the years ended
December 31, 2020 and 2019, respectively. Our board of directors
does not intend to distribute dividends in the future. Instead, we
plan to retain any earnings to finance the development of our
drug candidates and expansion of our business. The
declaration, payment and amount of any future dividends will be
made at the discretion of the board of directors, and will depend
upon, among other things, the results of our operations, cash flows
and financial condition, operating and capital requirements, and
other factors as the board of directors considers relevant. There
is no assurance that future dividends will be paid, and if
dividends are paid, there is no assurance with respect to the
amount of any such dividend.
Future cash dividends, if any, will be at the discretion of our
board of directors and will depend upon our future operations and
earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors as our board
of directors may deem relevant. We can pay dividends only out of
our profits or other distributable reserves and dividends or
distribution will only be paid or made if we are able to pay our
debts as they fall due in the ordinary course of
business.
Cumulative dividends on the shares of Series B Preferred Stock
accrue at the rate of 9% of the Stated Value per annum, payable
semi-annually on June 30 and December 31 of each year, commencing
on December 31, 2020. Dividends are payable in additional shares of
Series B Preferred Stock valued at the Stated Value or in cash at
our sole option.
Transfer Agent
The transfer agent for our Common Stock is Colonial Stock Transfer
Company, Inc., 66 Exchange Place, 1st Floor, Salt Lake City, Utah
84111, Tel: (801) 355-5740.
Unregistered Sales of Equity Securities
In April 2020, we issued our non-executive Board members stock
options to purchase an aggregate of 460,000 shares of Common Stock
with a strike price of $0.97 per share, subject to time-based
vesting, under the 2014 Plan as payment for services provided to
the Board. Such issuance was exempt from registration under 4(a)(2)
of the Securities Act of 1933, as amended (the “Securities
Act”).
In December 2020, we issued a consultant ten-year stock options to
purchase 10,000 shares of Common Stock with a strike price of $0.97
per share, subject to performance-based milestone vesting related
to clinical development of MS1819, under the 2020 Plan as payment
for services rendered. Such issuance was exempt from registration
under 4(a)(2) of the Securities Act.
During
the year ended December 31, 2020, there were no other sales of our
securities that were not reported in a Current Report on Form 8-K
or our Quarterly Report on Form 10-Q.
ITEM 6.
SELECT
ED
FINANCIAL
DATA
Not applicable.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in
conjunction with our consolidated financial statements, including
the notes thereto contained in this Annual Report. This discussion
contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of a variety of certain factors, including
those set forth under “Risk Factors Associated with Our
Business” and elsewhere in this Annual
Report.
Overview
We are engaged in the research and development of targeted,
non-systemic therapies for the treatment of patients with
gastrointestinal (“
GI
”) diseases. Non-systemic therapies are
non-absorbable drugs that act locally, i.e. in the intestinal
lumen, skin or mucosa, without reaching an individual’s
systemic circulation.
We are currently focused on developing our pipeline of
gut-restricted GI clinical drug candidates. Our lead drug candidate
is MS1819, a recombinant lipase for the treatment of exocrine
pancreatic insufficiency (“
EPI
”)
in patients with
cystic
fibrosis (“
CF
”) and chronic pancreatitis
(“
CP
”)
, currently in two
Phase 2 CF clinical trials. In 2021, we plan to launch two clinical
programs using proprietary formulations of niclosamide, a
pro-inflammatory pathway inhibitor; FW-420, for Grade 1 Immune
Checkpoint Inhibitor-Associated Colitis (“
ICI-AC
”)
and diarrhea in oncology patients, and FW-1022, for Severe
Acute Respiratory Syndrome Coronavirus 2
(“
COVID-19
”)
GI infections.
COVID-19 Update
In March 2020, the WHO declared the novel coronavirus disease, or
COVID-19, outbreak a global pandemic. To limit the spread
of COVID-19, governments have taken various actions including
the issuance of stay-at-home orders and physical distancing
guidelines. Accordingly, businesses have adjusted, reduced or
suspended operating activities. Beginning in March 2020, the
majority of our workforce began working from home. Disruptions
caused by the COVID-19 pandemic, including the effects of the
stay-at-home orders and work-from-home policies, have impacted
productivity, including delayed enrollment of new patients at
certain of our clinical trial sites, and may further disrupt our
business and delay our development programs and regulatory
timelines, the magnitude of which will depend, in part, on the
length and severity of the restrictions and other limitations on
our ability to conduct business in the ordinary course. As a
result, our expenses may vary significantly if there is an
increased impact from COVID-19 on the costs and timing
associated with the conduct of our clinical trials and other
related business activities.
We have implemented business continuity plans designed to address
and mitigate the impact of the ongoing COVID-19 pandemic on our
employees and our business. We continue to operate normally with
the exception of enabling all of our employees to work productively
at home and abiding by travel restrictions issued by federal, state
and local governments. Our current plans to return to the
office remain fluid as federal, state and local guidelines, rules
and regulations continue to evolve.
Financial Operations Overview
Revenue
To date, we have not generated any revenue from
the sale of
our drug candidates or otherwise. In the future, we expect that we
will seek to generate revenue primarily from product sales, but we
may also generate non-product revenue from sources including, but
not limited to, research funding, development and milestone
payments, and royalties on future product sales in connection with
any out-license or other strategic relationships
and/or government grants
we may establish.
Our drug candidates are at an early
stage of development and may never be successfully developed or
commercialized.
Research and Development Expense
Conducting research and development is central to our business.
Historically, the majority of our research and development expenses
have been focused on the development of our lead drug candidate,
MS1819.
Research and development expenses consist primarily of internal and
external costs incurred for our development activities, which
include, among other things:
●
personnel-related
costs, which include salaries, benefits, and stock-based
compensation expense;
●
fees
paid to third parties for services directly related to our drug
development and regulatory efforts;
●
Expenses
incurred under agreements with clinical research organizations
(CROs), investigative sites and consultants and contractors that
conduct or provide other services relating to our clinical trials
and research activities;
●
the
cost of acquiring drug product, drug supply and clinical trial
materials from contract development and manufacturing organization
(CDMOs) and third-party contractors;
●
costs
associated with preclinical and non-clinical
activities;
●
payments and other costs in connection with the
acquisition
our drug candidates
under licensing agreements;
and
●
amortization
of intangible assets, including patents, in-process research and
development and license agreements.
Costs incurred in connection with research and development
activities are expensed as incurred.
We expect our research and development expenses to increase for the
foreseeable future as we
focus
our efforts on the clinical development
of our drug candidates,
including MS1819, and niclosamide through
late-stage clinical trials, as well as chemistry,
manufacturing and controls (“
CMC
”) efforts
. The process of
conducting non-clinical studies and clinical trials necessary to
obtain regulatory approval is costly and time-consuming. It is
difficult to determine with certainty the duration and costs of any
non-clinical study or clinical trial that we may conduct.
In addition, if our product
development efforts are successful, we expect to incur substantial
costs to prepare for potential commercialization of any late-stage
drug candidates and, in the event any of our drug candidates
receives regulatory approval, to potentially fund the launch and
sales and marketing efforts of the product.
The probability of success for any of our current or future drug
candidates will depend on numerous factors, including competition,
manufacturing capability and commercial viability. We will
determine which programs to pursue and how much to fund each
program in response to the scientific and clinical success of each
drug candidate, as well as an assessment of each drug
candidate’s commercial potential.
We do
not record or maintain information regarding costs incurred in
research
and development
on a program or project specific
basis. Our
research and
development
staff, outside consultants, contractors, CROs,
and CDMOs are deployed across several programs and/or
indications. Additionally, many of our costs are not
attributable to individual programs and/or
indications. Therefore, we believe that allocating costs on
the basis of time incurred by our personnel does not accurately
reflect the actual costs of a project.
General and Administrative Expense
General and administrative expenses consist primarily of
personnel-related expenses, including salaries, benefits and
stock-based compensation, related to our executive, finance,
business development and support functions,
legal fees
relating to both intellectual property and corporate matters,
insurance,
costs associated with
operating as a public company, including
corporate
communications and investor relations expense,
information
technology,
professional fees for
accounting, auditing
and other professional
services
,
and facility-related costs.
We anticipate our g
eneral and
administrative expenses
to
increase
for the foreseeable
future to
support of our
expanded research and development activities, intellectual
property, patent and corporate legal expense, insurance, and
costs
associated with operating as a public company, including
corporate communications and investor relations expense. Additional
increases in
g
eneral and
administrative expenses are expected in connection with
i
ncreased business development
efforts, including potential partnership and/or collaboration
agreements and financing activities, expanding infrastructure,
including information technology administration, and the hiring of
additional
personnel
and consultants, among other
expenses.
Liquidity and Capital Resources
To date, we have not generated any revenues and have experienced
net losses and negative cash flows from our
activities.
As of December 31, 2020, we had cash and cash equivalents of
approximately $6.1 million, negative working capital of
approximately $7.7 million, and had sustained cumulative losses
attributable to common stockholders of approximately $95.4 million.
Subsequent to December 31, 2020, we have raised aggregate gross
proceeds of approximately $18.0 from the sale of preferred stock
and Common Stock in public offerings and private placement
transactions, and we have received gross cash proceeds of
approximately $4.6 million from the exercise of warrants. We have
not yet achieved profitability and anticipate that we will continue
to incur net losses for the foreseeable future. We expect that
our expenses will continue to grow and, as a result, we will need
to generate significant product revenues to achieve profitability.
We may never achieve profitability. As such, we are dependent on
obtaining, and are continuing to pursue, the necessary funding from
outside sources, including obtaining additional funding from the
sale of securities in order to continue our operations. Without
adequate funding, we may not be able to meet our obligations. We
believe these conditions may raise substantial doubt about our
ability to continue as a going concern.
Our primary sources of liquidity come from
capital raises
through additional equity and/or debt financings.
This may be impacted by the COVID-19 pandemic,
which is evolving and could negatively impact our ability to raise
additional capital in the future.
We have funded our operations to date primarily through the
issuance of debt, convertible debt securities, preferred stock, as
well as the issuance of Common Stock in various
public offerings and private placement
transactions. We expect to incur substantial expenditures in the
foreseeable future for the development of MS1819, niclosamide and
any other drug candidates. We will require additional financing to
develop our drug candidates, run clinical trials, prepare
regulatory filings and obtain regulatory approvals, fund operating
losses, and, if deemed appropriate, establish manufacturing, sales
and marketing capabilities. Our current financial condition raises
substantial doubt about our ability to continue as a going concern.
Our failure to raise capital as and when needed would have a
material adverse impact on our financial condition, our ability to
meet our obligations, and our ability to pursue our business
strategies. We will seek funds through additional equity and/or
debt financings, collaborative or other arrangements with corporate
sources, or through other sources of financing.
On
December 31, 2020, to finance our entry into the First Wave License
Agreement with First Wave, we entered into a purchase agreement to
raise aggregate gross proceeds of $8.0 million from the sale of
shares of Series C Preferred Stock and warrants, in a combined
private placement and registered direct offering, which closed in
January 2021.
On March 7, 2021, we
entered into a securities purchase agreement to
raise
aggregate gross proceeds of $10.0 million
in a registered direct offering priced at the
market under Nasdaq rules. Additionally, between January and March
2021, we received gross cash proceeds of approximately $4.6 million
from the exercise of warrants.
Although, we are primarily focused on the development of our drug
candidates, including MS1819 and niclosamide, we are also
opportunely focused on expanding our product pipeline of clinical
assets through collaborations, and also through acquisitions of
products and companies. We are continually evaluating potential
asset acquisitions business combinations, and other partnership
opportunities. To finance such acquisitions, we might raise
additional equity capital, incur additional debt, or
both.
Consolidated Results of Operations for the Years Ended December 31,
2020 and 2019
The following table summarizes our consolidated results of
operations for the periods indicated:
|
|
Year Ended
December 31,
|
Increase
|
|
|
|
2020
|
2019
|
(decrease)
|
|
Operating expenses:
|
|
|
|
|
Research
and development expenses
|
$
5,888,004
|
$
8,680,669
|
$
(2,792,665
)
|
|
Research
and development expenses – license acquired
|
13,250,000
|
-
|
13,250,000
|
|
General
and administrative expenses
|
7,294,764
|
6,063,078
|
1,231,686
|
|
Total
operating expenses
|
26,432,768
|
14,743,747
|
11,689,021
|
|
Other
expenses
|
6,238,698
|
433,939
|
5,804,759
|
|
Net
loss
|
$
32,671,466
|
$
15,177,686
|
$
17,493,780
|
Revenues
We have not yet achieved revenue-generating status from any of our
drug candidates. Since inception, we have devoted
substantially all of our time and efforts to developing our lead
drug candidate, MS1819. As a result, we did not have any
revenue during the years ended December 31, 2020 and 2019,
respectively.
Research and Development Expense
Research and development expenses include cash and non-cash
expenses primarily relating to the development of our lead drug
candidate, MS1819 and the acquisition of our licensed niclosamide
drug candidates.
Research and development expenses for the year ended December 31,
2020 totaled approximately $19.1 million, an increase of
approximately $10.5 million, or 121% over the approximately $8.7
million recorded for the year ended December 31, 2019. Non-cash
expenses, including
stock-based compensation, stock expense
and depreciation and amortization
totaled approximately $0.5 million for the year
ended December 31, 2020 and approximately $1.4 million for the year
ended December 31, 2019. C
ash r
esearch and development expenses for the year
ended December 31, 2020 totaled approximately $5.4 million, a
decrease of approximately $1.9 million, or 26% over the
approximately $7.3 million recorded for the year ended December 31,
2019.
The increase in total research and development expenses was
primarily attributable to the $13.3 million of expense related to
the acquisition of our niclosamide drug candidates through the
First Wave License Agreement entered into on December 31, 2020, and
increases of approximately $1.1 million in CMC related costs,
offset by decreases of approximately $2.9 million in clinical
related expenses in connection with reduced clinical activity in
2020 as compared to 2019 partly due to COVID-19, and approximately
$0.9 million in non-cash expenses.
General and Administrative Expense
General and administrative expenses include cash and non-cash
expenses primarily consisting of costs associated with our overall
operations and being a public company. These costs include
personnel, legal and financial professional services, insurance,
corporate communication and investor relations, compliance related
fees, and expenses associated with obtaining and maintaining
intellectual property and patents, among others.
General and administrative expenses for the year ended December 31,
2020 totaled approximately $7.3 million, an increase of
approximately $1.6 million, or 27% over the approximately $5.7
million recorded for the year ended December 31, 2019. Non-cash
expenses, including
stock-based compensation, stock expense
and depreciation and amortization
totaled approximately $0.7 million for the year
ended December 31, 2020, and approximately $0.7 million recorded
for the year ended December 31, 2019. C
ash
general and administrative expenses for the year
ended December 31, 2020 totaled approximately $6.6 million, an
increase of approximately $1.6 million, or 32% over the
approximately $5.0 million recorded for the year ended December 31,
2019.
The increase in total general and administrative expenses was due
primarily to increases in legal expenses of approximately $0.7
million, personnel costs of approximately $0.4 million, business
development related expense of approximately $0.3 million,
directors and officer’s insurance of approximately $0.3
million, and costs associated with being a publicly reporting
company of approximately $0.1 million offset by decreases in travel
and entertainment of $0.1 million, accounting and auditing of $0.1
million, and directors fees of approximately $0.1
million.
Other Expense
Other expenses for the year ended December 31, 2020 totaled
approximately $6.3 million, an increase of approximately $5.5
million, or 686% over the approximately $0.8 million recorded for
the year ended December 31, 2019. Interest expense was
approximately $5.8 million and $0.4 million for the year ended
December 31, 2020 and 2019, respectively. The increased interest
expense is due to amortization of debt discount and accrued
interest related to the convertible debt issued in December 2019
and January 2020.
Net Loss
As a result of the factors above, our net loss for the year ended
December 31, 2020 totaled approximately $32.7 million, an increase
of approximately $17.5 million, or 115% over the approximately
$15.2 million recorded for the year ended December 31,
2019.
Cash Flows for the Years Ended December 31, 2020 and
2019
The following table summarizes our cash flows for the periods
indicated:
|
|
Year
Ended
December 31,
|
|
|
|
2020
|
2019
|
|
Net cash provided by
(used in)
:
|
|
|
|
Operating
activities
|
$
(11,221,538
)
|
$
(14,033,502
)
|
|
Investing
activities
|
87,350
|
(24,098
)
|
|
Financing
activities
|
17,046,121
|
13,144,979
|
|
Net
increase (decrease) in cash and cash equivalents
|
$
5,911,933
|
$
(912,621
)
|
Operating Activities
Net cash used in operating activities during the year
ended December 31, 2020 of approximately $11.2 million was
primarily attributable to our net loss of approximately $32.7
million adjusted for addbacks of non-cash expenses of approximately
$7.3 million, which includes accretion of debt discount of
approximately $4.6 million, loss on debt extinguishment of
approximately $0.6 million, amortization of approximately $0.5
million, and stock-based compensation of approximately $0.5 million
and a net increase of working capital of approximately $14.2
million.
Net cash used in operating activities during the year
ended December 31, 2019 of approximately $14.0 million was
primarily attributable to our net loss of approximately $15.2
million adjusted for addbacks of non-cash expenses of approximately
$2.8 million, which includes amortization of approximately $1.0
million, stock expense of approximately $0.6 million, and
stock-based compensation of approximately $0.6 million and a net
decrease of working capital of approximately $1.7
million.
Investing Activities
Net cash provided by investing activities during the year ended
December 31, 2020 of approximately 87,000 was primarily
attributable to the and sale of equipment related to the closure of
our laboratory in France.
Net cash used in investing activities during the year ended
December 31, 2019 of approximately $24,000 was primarily
attributable to the net purchase
of property and equipment
.
Financing Activities
Net cash provided by financing activities of approximately $17.0
million for the year ended December 31, 2020 was primarily due
to the net proceeds from the
issuance of convertible debt
of approximately $3.2
million in January 2020 and the
issuance of the preferred stock
of
approximately $13.2 million
in
the
Series B Private
Placement in July 2020
offset
by repayments of approximately $0.5 million related to the ADEC
Notes and approximately $0.7 million related to the note
payable
.
Net cash provided by financing activities of approximately $13.1
million for the year ended December 31, 2019 was primarily due to
the net proceeds from our public offerings in
April, May, and July 2019
of approximately $9.5
million,
and issuance of the
convertible debt
of approximately $5.0
million
from the ADEC Note
Offering, and the December 2019 Promissory Note Offering offset by
repayments of approximately $1.6 million related to the ADEC Notes
and approximately $0.3 million related to the note
payable.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial
Condition and Results of Operations is based on our financial
statements, which have been prepared in accordance with generally
accepted accounting principles generally accepted in the United
States of America (“
GAAP
”). The preparation of financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amount of revenue and expense during the reporting
period. In our consolidated financial statements, estimates are
used for, but not limited to, valuation of financial instruments
and intangible assets, fair value of long-lived assets and
contingent consideration, deferred taxes and valuation allowance,
and the depreciable lives of long-lived assets.
On an ongoing basis, we evaluate these estimates and assumptions,
including those described below. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These estimates
and assumptions form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from
those estimates. Due to the estimation processes involved, the
following summarized accounting policies and their application are
considered to be critical to understanding our business operations,
financial condition and operating results.
Stock-Based Compensation
We account for share-based payment awards issued to employees and
members of our Board by measuring the fair value of the award on
the date of grant and recognizing this fair value as stock-based
compensation using a straight-line basis over the requisite service
period, generally the vesting period. For awards issued
to non-employees, the measurement date is the date when the
performance is complete or when the award vests, whichever is the
earliest. Accordingly, non-employee awards are remeasured at each
reporting period until the final measurement date. The fair value
of the award is recognized as stock-based compensation over the
requisite service period, generally the vesting
period.
Debt and Equity Instruments
We analyze debt and equity instruments for various features that
would generally require either bifurcation and derivative
accounting, or recognition of a debt discount or premium under
authoritative guidance.
Detachable warrants issued in conjunction with debt are measured at
their relative fair value, if they are determined to be equity
instrument, or their fair value, if they are determined to be
liability instruments, and recorded as a debt
discount.
Conversion features that are in the money at the commitment date
constitute a beneficial conversion feature that is measured at its
intrinsic value and recognized as debt discount or deemed dividend.
Debt discount is amortized as interest expense over the maturity
period of the debt using the effective interest
method.
Intangible Assets
Our definite-lived intangible assets had a carrying value of
approximately $2.9 million and $3.4 million at December 31, 2020,
and 2019, respectively. These assets include patents, in-process
research and development and license agreements. These intangible
assets were recorded at historical cost and are stated
net of accumulated amortization.
The patents, in-process research and development and licenses are
amortized over their remaining estimated useful lives, ranging from
5 to 12 years, based on the straight-line method. The
estimated useful lives directly impact the amount of amortization
expense recorded for these assets on a quarterly and annual
basis.
In addition, we test for impairment of definite-lived intangible
assets when events or circumstances indicate that the carrying
value of the assets may not be recoverable. Judgment is used in
determining when these events and circumstances arise. If we
determine that the carrying value of the assets may not be
recoverable, judgment and estimates are used to assess the fair
value of the assets and to determine the amount of any impairment
loss. No events or circumstances arose in the years ended
December 31, 2020 and 2019 that would indicate that the carrying
value of any of our definite-lived intangible assets may not be
recoverable.
Goodwill
Goodwill relates to the acquisition of ProteaBio Europe SAS
during 2014 and represents the excess of the total purchase
consideration over the fair value of acquired assets and assumed
liabilities, using the purchase method of accounting. Goodwill is
not amortized but is subject to periodic review for impairment. As
a result, the amount of goodwill is directly impacted by the
estimates of the fair values of the assets acquired and liabilities
assumed.
In addition, goodwill will be reviewed annually, and whenever
events or changes in circumstances indicate that the carrying
amount of the goodwill might not be recoverable. Judgment is used
in determining when these events and circumstances arise. We
perform our review of goodwill on our one reporting unit. If we
determine that the carrying value of the assets may not be
recoverable, judgment and estimates are used to assess the fair
value of the assets and to determine the amount of any impairment
loss.
The carrying value of goodwill was approximately $2.1 million and
$1.9 million, at December 31, 2020 and 2019, respectively. If
actual results are not consistent with our estimates or
assumptions, we may be exposed to an impairment charge that could
be material.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and
may remain an emerging growth company until December 31, 2022. For
so long as we remain an emerging growth company, we are permitted
and intend to rely on exemptions from certain disclosure
requirements that are applicable to other public companies that are
not emerging growth companies. These exemptions
include:
●
reduced disclosure
about our executive compensation arrangements
;
●
no non-binding stockholder advisory votes on executive compensation
or golden parachute arrangements; and
●
exemption from the auditor attestation requirement in the
assessment of our internal control over financial
reporting.
We have taken advantage of reduced reporting requirements in this
Annual Report on Form 10-K and may continue to do so until
such time that we are no longer an emerging growth company. We will
remain an “emerging growth company” until the earliest
of (a) the last day of the fiscal year in which we have total
annual gross revenues of $1.07 billion or more, (b) December 31,
2021, the last day of the fiscal year following the fifth
anniversary of the completion of our
IPO
, (c) the date on which
we have issued more than $1.0 billion in nonconvertible debt during
the previous three years or (d) the date on which we are deemed to
be a large accelerated filer under the rules of the
SEC. Section 107 of the JOBS Act provides that an
emerging growth company can take advantage of the extended
transition period for complying with new or revised accounting
standards. We have irrevocably elected not to avail ourselves of
this extended transition period and, as a result, we will adopt new
or revised accounting standards on the relevant dates on which
adoption of such standards is required for other public
companies.
In addition, we are also a smaller reporting company as defined in
the Exchange Act. We may continue to be a smaller reporting company
even after we are no longer an emerging growth company. We may take
advantage of certain of the scaled disclosures available to smaller
reporting companies and will be able to take advantage of these
scaled disclosures for so long as (i) our voting
and non-voting common stock held by non-affiliates is
less than $250.0 million measured on the last business day of our
second fiscal quarter or (ii) our annual revenue is less than
$100.0 million during the most recently completed fiscal year and
our voting and non-voting common stock held
by non-affiliates is less than $700.0 million
measured on the last business day of our second fiscal
quarter.
Off-Balance Sheet Items
We had the following contractual obligations over the periods
indicated:
|
Contractual Obligations
|
Total
|
2021
|
2022
|
2023
|
2024
|
2025
|
|
Operating
Leases (1)
|
$
78,795
|
$
55,420
|
$
23,375
|
$
-
|
$
-
|
$
-
|
|
(1)
|
Only includes basic rent payments for our
properties. Additional monthly payments under the lease
agreements shall include tax payments and operational
costs.
|
ITEM 7A.
QU
A
NTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
The audited consolidated financial statements of AzurRx BioPharma,
Inc., including the notes thereto, together with the report thereon
of Mazars USA LLP, our independent registered public accounting
firm, are included in this Annual Report as a separate section
beginning on page F-1.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
|
Evaluation of disclosure controls and procedures.
|
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) is (1) recorded,
processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms and
(2) accumulated and communicated to our management, including
our principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure.
As of December 31, 2020, our senior management, with the
participation of our principal executive officer and principal
financial officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Our senior management recognizes
that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their
objectives, and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures. Our principal executive officer and principal financial
officer have concluded based upon the evaluation described above
that, as of December 31, 2020 our disclosure controls and
procedures were effective at the reasonable assurance
level.
|
Management’s Annual Report on Internal Control over Financial
Reporting.
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such
term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Our internal control over financial reporting is a
process designed under the supervision of our principal executive
officer and principal financial officer to provide reasonable
assurance regarding the reliability of financial reporting and
preparation of our financial statements for external purposes in
accordance with generally accepted accounting
principles.
Due to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements and, even when
determined to be effective, can only provide reasonable, not
absolute, assurance with respect to financial statement preparation
and presentation. Projections of any evaluation of
effectiveness to future periods are subject to risk that controls
may become inadequate as a result of changes in conditions or
deterioration in the degree of compliance.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (“
COSO
”) issued in May 2013 and related COSO
guidance. Based on our evaluation under this framework, management
has concluded that, as of December 31, 2020, our internal control
over financial reporting was effective based upon those
criteria.
This report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting.
Changes in Internal Controls over Financial Reporting.
There were no significant changes in our internal control over
financial reporting identified in management’s evaluation
pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during
the period covered by this Annual Report on Form 10-K that
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B.
OTH
E
R
INFORMATION
None.
PART III
|
ITEM
1
0.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The
following section sets forth certain information regarding our
directors. There are no family relationships between any of the
directors and our Named Executive Officers.
|
Director, Title
|
Age
|
|
James Sapirstein – President, Chief Executive Officer,
Chairman and Non-Independent Director
|
59
|
|
Edward J. Borkowski – Lead Independent Director
|
60
|
|
Charles J. Casamento – Independent Director
|
75
|
|
Alastair Riddell, MSc., MBChB., DSc. – Independent
Director
|
71
|
|
Vern L. Schramm, Ph.D. – Independent Director
|
79
|
|
Gregory Oakes –Independent Director
|
52
|
James Sapirstein
was appointed to the Board on October 8,
2019 and as our President and Chief Executive Officer effective
that same day. Mr. Sapirstein was appointed Chair of the Board
effective February 19, 2021. Prior to joining us, Mr. Sapirstein
served as Chief Executive Officer and as a director of ContraVir
Pharmaceuticals, Inc. (now known as Hepion Pharmaceuticals, Inc.)
from March 2014 to October 2018. Previously, Mr. Sapirstein was the
Chief Executive Officer of Alliqua Therapeutics from October 2012
to February 2014. He founded and served as Chief Executive Officer
of Tobira Therapeutics from October 2006 to April 2011 and served
as Executive Vice President, Metabolic and Endocrinology for Serono
Laboratories from June 2002 to May 2005. Mr. Sapirstein’s
earlier career included a number of senior level positions in the
area of marketing and commercialization, including as Global
Marketing Lead for Viread (tenofovir) while at Gilead Sciences and
as Director of International Marketing of the Infectious Disease
Division at Bristol Myers Squibb. Mr. Sapirstein is currently the
Chair Emeritus of BioNJ, the New Jersey affiliate of the
Biotechnology Innovation Organization, and also serves on the
Emerging Companies and Health Section Boards of the Biotechnology
Innovation Organization. Mr. Sapirstein received his
bachelor’s degree in pharmacy from Rutgers University and
holds an MBA degree in management from Fairleigh Dickinson
University.
Mr.
Sapirstein’s nearly 36 years of pharmaceutical industry
experience which spans areas such as drug development and
commercialization, including participation in 23 product launches,
six of which were global launches led by him makes him a valuable
asset to the Board and in his oversight and execution of our
business plan.
Edward J. Borkowski
was appointed to the Board in May 2015,
and currently serves as our Lead Independent Director.
Mr. Borkowski served as Chair of the
Board from 2015
through his resignation effective as of
February 19, 2021.
Mr. Borkowski is a healthcare
executive who currently serves as Executive Vice President for
Therapeutics MD. He served as Executive Vice President
of
MiMedx
Group, Inc. (Nasdaq: MDGX) from April 2018 until December 2019. Mr.
Borkowski also served as a director for Co-Diagnostics, Inc.
(Nasdaq: CODX), from May 2017 until June 2019. Previously, he
served as the Chief Financial Officer
of Aceto
Corporation (Nasdaq: ACET) from February 2018 to April 2018, and
has held several executive positions with
Concordia International, an
international specialty pharmaceutical company,
between
May 2015
to
February
2018
. Mr. Borkowski has
also served as Chief Financial Officer of Amerigen Pharmaceuticals,
a generic pharmaceutical company with a focus on oral, controlled
release products
and as the Chief Financial Officer and
Executive Vice President of Mylan N.V. In addition, Mr. Borkowski
previously held the position of Chief Financial Officer with
Convatec, a global medical device company focused on wound care and
ostomy, and Carefusion, a global medical device company for which
he helped lead its spin-out from Cardinal Health into an
independent public company. Mr. Borkowski has also served in senior
financial positions at Pharmacia and American Home Products
(Wyeth). He started his career with Arthur Andersen & Co. after
receiving his MBA in accounting from Rutgers University subsequent
to having earned his degree in Economics and Political Science from
Allegheny College. Mr. Borkowski is currently a Trustee and a
member of the Executive Committee of Allegheny
College.
Mr.
Borkowski’s extensive healthcare and financial expertise,
together with his public company experience provides the Board and
management with valuable insight in the growth of our business
plan.
Charles J. Casamento
was appointed to the Board in March
2017. Since 2007, Mr. Casamento has been executive director and
principal of The Sage Group, a health care advisory group. Prior to
that, Mr. Casamento was president and Chief Executive Officer of
Osteologix, a startup company which he oversaw going public, from
October 2004 until April 2007. Mr. Casamento was the founder of
Questcor Pharmaceuticals where he was President, Chief Executive
Officer and Chair from 1999 through 2004. During his time at
Questcor, the company acquired Acthar, a product with sales that
would eventually exceed $1.0 billion. Mr. Casamento also served as
President, Chief Executive Officer and Chair of RiboGene Inc. until
1999 when RiboGene was merged another company to form Questcor. He
was also the Co-Founder, President and Chief Executive Officer of
Indevus (formerly Interneuron Pharmaceuticals) and has held senior
management positions at Genzyme Corporation, where he was Senior
Vice President, American Hospital Supply, where he was Vice
President of Business Development for the Critical Care division,
Johnson & Johnson, Hoffmann-LaRoche and Sandoz. He currently
serves as Chairman of the Board of Directors of Relmada
Therapeutics (OTCQB: RLMD) and also serves on the Board of
Directors of Eton Pharmaceuticals (Nasdaq: ETON), and was
previously a Director and Vice Chair of the Catholic Medical
Missions Board, a large not for profit international organization.
Mr. Casamento holds a bachelor's degree in Pharmacy from Fordham
University and an MBA from Iona College.
Mr.
Casamento’s expertise and knowledge of the financial
community combined with his experience in the healthcare sector
makes him a valued member of the Board.
Dr. Alastair Riddell
was appointed to the Board in September
2015. Since June 2016, Dr. Riddell has served as Chair of Nemesis
Biosciences Ltd and Chair of Feedback plc (LON: FDBK). He has also
served as Chair of the South West Academic Health Science network
in the UK since January 2016. Since his appointment in December
2015, Dr. Riddell has served as Non-Executive Director of Cristal
Therapeutics in The Netherlands. From September 2012 to February
2016, he served as Chair of Definigen Ltd., and from November 2013
to September 2015 as Chair of Silence Therapeutics Ltd., and from
October 2009 to November 2012 as Chair of Procure
Therapeutics. Between 2007 to 2009, Dr. Riddell served
as the Chief Executive Officer of Stem Cell Sciences plc. and
between 2005 to 2007, served at Paradigm Therapeutics Ltd. as the
Chief Executive Officer. Between 1998 to 2005, Dr. Riddell also
served as the Chief Executive Officer of Pharmagene plc. Dr.
Riddell
began his
career as a doctor in general practice in a variety of hospital
specialties and holds a Master of Science and a Bachelor of
Medicine and Surgery degrees. He was recently awarded a Doctorate
of Science, Honoris Causa by Aston University.
Dr.
Riddell’s medical background coupled with his expertise in
the life sciences industry, directing all phases of clinical
trials, before moving to sales, marketing and general management,
makes him a well-qualified member of the Board.
Dr. Vern L. Schramm
was appointed to the Board in October
2017. Dr. Schramm has served as Professor of the Albert Einstein
College of Medicine since 1987 and Chair of the Department of
Biochemistry from 1987 to 2015, and was awarded the Ruth Merns
Endowed Chair in Biochemistry. His fields of interest include
enzymatic transition state analysis, transition state inhibitor
design, biological targets for inhibitor design, and mechanisms of
N-ribosyltransferases. Dr. Schramm was elected to the National
Academy of Sciences in 2007, and served as the Associate Editor for
the
Journal of the American
Chemical Society
between 2003 to 2012. A frequent
lecturer and presenter in topics related to chemical biology, Dr.
Schramm has been a consultant and advisor to Pico Pharmaceuticals,
Metabolon Inc., Sirtris Pharmaceuticals, and BioCryst
Pharmaceuticals. Dr. Schramm obtained his BS in Bacteriology with
an emphasis in chemistry from South Dakota State College and holds
a Master’s Degree in Nutrition with an emphasis in
biochemistry from Harvard University, a Ph.D. in Mechanism of
Enzyme Action from the Australian National University and completed
his postdoctoral training at NASA Ames Research Center, Biological
Sciences, with an NSF-NRC fellowship.
Dr.
Schramm’s substantial experience in biochemistry and
expertise in the chemistry related to non-systemic biologics makes
him a respected member of the Board and an asset to us specifically
in the development of our drug candidates.
Gregory Oakes
was appointed to the
Board on April 13, 2020.
Mr. Oakes brings over 25 years of
pharmaceutical industry and leadership experience and currently
serves as
President, North
America, Relypsa, Inc, Executive Vice President, Vifor Pharma. Mr.
Oakes previously served as
Corporate Vice President, Global Integration Lead
for Otezla® (apremilast) at Amgen, Inc. where he was
responsible for the integration and continued success of the brand
with $2 billion in assets. Prior to Amgen from 2017 - 2019, Mr.
Oakes served as Corporate Vice President and U.S. General Manager
at Celgene Corp., a global biopharmaceutical company which develops
and commercializes medicines for cancer and inflammatory disorders.
Mr. Oakes also served as the Global Commercial Integration Lead at
Celgene where he helped steer the $74 billion acquisition by
Bristol-Myers Squibb and the $13.4 billion divestiture of
Otezla®. From 2010 to 2017, Mr. Oakes held several positions
at Novartis AG, the most recent as Head of Sandoz
Biopharmaceuticals, North America. He began his career at
Schering-Plough (Merck) where he held executive roles in both the
U.S. and Europe. Mr. Oakes holds a bachelor's degree in Marketing
and Business Administration from Edinboro University and a M.B.A.
from Clemson University. He currently sits on the Board of BioNJ
and previously served on various Executive Committees at Celgene,
Novartis, and Schering-Plough (Merck).
Mr. Oakes’ background of over 25 years of pharmaceutical
industry and leadership experience combined with broad experience
in pharmaceutical commercialization and acquisitions makes him a
qualified member of the Board.
Non-Executive Director Compensation
On
October 1, 2020, our Board adopted a Non-Executive Director
Compensation Policy under which each of our non-executive directors
is entitled to receive the following cash compensation for their
service on the Board (paid quarterly): (i) an annual retainer of
$35,000; (ii) the chairman of the Board is entitled to receive an
annual retainer in the amount of $20,000, (iii) the chair of the
Audit Committee is entitled to receive an annual retainer in the
amount of $10,000, (iv) each non-chairperson member of the Audit
Committee is entitled to receive an annual retainer in the amount
of $5,000, (v) the chair of the Compensation Committee is entitled
to receive an annual retainer in the amount of $7,500, (vi) each
non-chairperson member of the Compensation Committee is entitled to
receive an annual retainer in the amount of $3,500, (vii) the chair
of the Corporate Governance and Nominating Committee is entitled to
receive an annual retainer in the amount of $5,000, and (viii) each
non-chairperson member of the Corporate Governance and Nominating
Committee is entitled to receive an annual retainer in the amount
of $2,500. Additionally, under this policy, each of our
non-executive directors is entitled to receive an annual grant of
80,000 stock options for their service on the Board which will vest
in equal quarterly installments.
The
following table provides information regarding compensation paid to
non-employee directors for the year ended December 31, 2020. Mr.
Sapirstein did not receive compensation for his service on the
Board as employee director for the year ended December 31, 2020.
Information regarding executive compensation paid to Messrs.
Sapirstein during 2020 is reflected in the Summary Compensation
table under “
Executive
Compensation
.”
|
Name
|
Fees Earned or Paid in Cash
(2)
|
Stock Awards
|
Option Awards
(3)
|
All Other
Compensation
|
Total
|
|
Edward
J. Borkowski
|
$
19,375
|
$
-
|
$
35,968
|
-
|
$
55,343
|
|
Charles
J. Casamento
|
$
11,500
|
$
-
|
$
35,968
|
-
|
$
47,468
|
|
Alastair
Riddell
|
$
11,500
|
$
-
|
$
35,968
|
-
|
$
47,468
|
|
Vern
L. Schramm
|
$
8,750
|
$
-
|
$
35,968
|
-
|
$
44,718
|
|
Gregory
Oakes (1)
|
$
8,750
|
$
-
|
$
30,444
|
-
|
$
39,194
|
(1)
Mr.
Oakes was appointed to the board effective April 13,
2020.
(2)
Rep
resents
amounts of accrued and unpaid cash compensation for board services
through December 31, 2020. By agreement with each director, on
January 4, 2021, an aggregate of 41,237 stock options were awarded
to the directors in lieu of payment of such cash.
.
(3)
Represents
the aggregate grant date fair value of 80,000 stock options issued
to each of Messrs. Borkowski, Casamento, Riddell and Schramm on
April 6, 2020, and 60,000 stock options issued to Mr. Oakes on
April 13, 2020, our non-employee directors, calculated in
accordance with ASC Topic 718.
Compensation Committee Interlocks and Insider
Participation
None of
our executive officers currently serves, or has served during the
last three years, on the Compensation Committee of any other entity
that has one or more officers serving as a member of our
Board.
Board Leadership Structure
Effective
as of February 19, 2021, our President and Chief Executive Officer,
Mr. James Sapirstein, was appointed to serve as Chair of our Board.
Mr. Sapirstein has provided strong leadership to the Board and
management, instilling a clear focus on our strategy and business
plans. The Board has chosen this structure because it believes Mr.
Sapirstein serves as a bridge between management and the Board,
ensuring that both groups act with a common purpose. The Board
believes that the combined role of Chair and Chief Executive
Officer will better assist management in developing strategic
direction and then holding management accountable for the execution
of strategy once it is developed. The Board believes, at this time,
the combined role of Chair and Chief Executive Officer, together
with independent directors, is in the best interest of stockholders
because it provides the appropriate balance between strategy
development and independent oversight of management. As a result,
all directors, other than Mr. Sapirstein, are independent as
defined under Nasdaq and SEC rules, and all committees of the Board
are comprised entirely of independent directors.
Following
this change, Mr. Edward J. Borkowski, who previously served as
Chair of our Board, now serves as lead independent director and has
the following responsibilities:
●
provides
leadership to the Board in any situation where the Chair’s
role may be, or may be perceived to be, in conflict, and also
chairs meetings when the chairman is absent;
●
serving
as liaison between the Chair and the independent
directors;
●
approving
information sent to the Board; and;
●
approving
meeting agendas for the Board.
The
Board believes that the lead independent director further
strengthens the Board’s independence and autonomous oversight
of our business as well as Board communication and effectiveness.
The role of lead independent director serves as a bridge between
the independent directors and management.
Director Independence
The
Board has determined that all of its members, other than Mr.
Sapirstein, our President, Chief Executive Officer and Chair of our
Board are “independent” within the meaning of Nasdaq
Listing Rule 5605(a)(2) under the rules of the Nasdaq Stock Market
(“
Nasdaq
”), and
the Securities and Exchange Commission (“
SEC
”) rules regarding
independence.
Director Nomination Process
The
Corporate Governance and Nominating Committee identifies director
nominees by first considering those current members of the Board
who are willing to continue service. Current members of the Board
with skills and experience that are relevant to our business and
are willing to continue their service as a director are considered
for re-election, balancing the value of continuity of service by
existing members of the Board with that of obtaining a new
perspective. Nominees for director are selected by a majority of
the members of the Board. Although we do not have a formal
diversity policy, in considering the suitability of director
nominees, the Corporate Governance and Nominating Committee
considers such factors as it deems appropriate to develop a Board
and its committees that are diverse in nature and comprised of
experienced and seasoned advisors. Factors considered by the
Corporate Governance and Nominating Committee include sound
judgment, knowledge, skill, diversity, integrity, experience with
businesses and other organizations of comparable size, including
experience in the biopharma industry, clinical studies, FDA
compliance, intellectual property, business, finance,
administration or public service, the relevance of a
candidate’s experience to our needs and experience of other
Board members, experience with accounting rules and practices, the
desire to balance the considerable benefit of continuity with the
periodic injection of the fresh perspective provided by new
members, and the extent to which a director candidate would be a
desirable addition to the Board and its committees.
The
Board may consider suggestions for persons to be nominated for
director that are submitted by stockholders. The Corporate
Governance and Nominating Committee will evaluate stockholder
suggestions for director nominees in the same manner as it
evaluates suggestions for director nominees made by management,
then-current directors or other appropriate sources.
The Role of the Board in Risk Oversight
Our
Board oversees a company-wide approach to risk management,
determines our appropriate risk level in general, assesses the
specific risks faced by us and reviews steps taken by management to
manage those risks. Although our Board has ultimate oversight
responsibility for the risk management process, specific areas of
risk are overseen by designation of such duties and
responsibilities to certain committees of the Board.
Specifically,
the Board has designated certain fiduciary duties to its
Compensation Committee, which is responsible for overseeing the
management of risks relating to our executive compensation plans
and arrangements, and the incentives created by the compensation
awards it administers. The Board has also designated specific
fiduciary duties to its Audit Committee, which is responsible for
overseeing the management of enterprise risks and financial risks,
as well as potential conflicts of interests. The Board is
responsible for overseeing the management of risks associated with
the independence of the Board.
Code of Business Conduct and Ethics
The
Board adopted a code of business conduct and ethics (the
“
Code
”) that
applies to our directors, officers and employees. A copy of this
Code is available on our website at
www.azurrx.com/investors
. We
intend to disclose on our website any amendments to and waivers of
the Code that apply to our principal executive officer, principal
financial officer, principal accounting officer, controller, or
persons performing similar functions.
Stockholder Communications
If you
wish to communicate with the Board, you may send your communication
in writing to AzurRx BioPharma, Inc., Attention: Chief Financial
Officer –
1615 South
Congress Avenue, Suite 103, Delray Beach, Florida
33445.
You
must include your name and address in the written communication and
indicate whether you are a stockholder of the Company. The Chief
Financial Officer will review any communication received from a
stockholder, and all material and appropriate communications from
stockholders will be forwarded to the appropriate director or
directors or committee of the Board based on the subject
matter.
Meetings of the Board
Each of
our directors who served during the year ended December 31, 2020
attended or participated in no less than 75% or more of the
aggregate of (i) the total number of meetings of the Board;
and (ii) the total number of meetings held by all committees
of the Board on which such director served as a member during such
year. Although directors are not required to attend our annual
meeting of stockholders, they are encouraged to
attend.
The
following table represents the composition of each committee of the
Board and meetings held as well as actions taken by unanimous
written consent (“
UWC
”) in lieu of holding a
meeting, during the fiscal year ended December 31,
2020:
|
|
|
Committees
|
||
|
Director
|
Board
|
Audit
|
Compensation
|
Corporate
Governance and Nominating
|
|
Edward J. Borkowski
(1)
|
C
|
CC
|
X
|
CC
|
|
Charles J.
Casamento
|
X
|
X
|
X
|
X
|
|
Alastair
Riddell
|
X
|
X
|
CC
|
X
|
|
Vern L.
Schramm
|
X
|
|
|
|
|
James Sapirstein
(1)
|
X
|
|
|
|
|
Gregory
Oakes
|
X
|
|
|
|
|
Meetings
Held During 2020
|
6
|
4
|
3
|
-
|
|
Actions
Taken by UWC During 2020
|
9
|
-
|
1
|
2
|
|
C – Chair
of the Board
CC –
Committee Chair
X –
Member
|
|
|
|
|
|
(1)
|
Effective
February 19, 2021, Mr. Borkowski resigned as Chair of the Board and
Mr. Sapirstein was appointed Chair of the Board.
|
Board Committees
The
standing committees of the Board consist of the Audit Committee,
Compensation Committee, and Corporate Governance and Nominating
Committee. Our Board has adopted written charters for each of these
committees, copies of which are available on our website at
www.azurrx.com/investors
. Our
Board may establish other committees as it deems necessary or
appropriate from time to time.
Audit Committee
The
duties and responsibilities of the Audit Committee include but are
not limited to:
●
appointing,
compensating, retaining, evaluating, terminating, and overseeing
our independent registered public accounting firm;
●
discussing
with our independent registered public accounting firm the
independence of its members from its management;
●
reviewing
with our independent registered public accounting firm the scope
and results of their audit;
●
approving
all audit and permissible non-audit services to be performed by our
independent registered public accounting firm;
●
overseeing
the financial reporting process and discussing with management and
our independent registered public accounting firm the interim and
annual financial statements that are filed with the
SEC;
●
reviewing
and monitoring our accounting principles, accounting policies,
financial and accounting controls, and compliance with legal and
regulatory requirements;
●
coordinating
oversight of the Code and our disclosure controls and procedures on
behalf of the Board;
●
establishing
procedures for the confidential and/or anonymous submission of
concerns regarding accounting, internal controls or auditing
matters; and
●
reviewing
and approving related-person transactions.
The
rules of Nasdaq require our Audit Committee to consist of at least
three directors, all of whom must be deemed to be independent
directors under Nasdaq rules. The Board has affirmatively
determined that Messrs. Borkowski and Casamento, and Dr. Riddell,
each meet the definition of “independent director” for
purposes of serving on an Audit Committee under Nasdaq rules.
Additionally, the Board has determined that Messrs. Borkowski and
Casamento each qualify as an “audit committee financial
expert,” as such term is defined in Item 407(d)(5) of
Regulation S-K.
Compensation Committee
The
duties and responsibilities of the Compensation Committee include
but are not limited to:
●
reviewing
key employee compensation goals, policies, plans and
programs;
●
reviewing
and approving the compensation of our directors and executive
officers;
●
reviewing
and approving employment agreements and other similar arrangements
between us and our executive officers; and
●
appointing
and overseeing any compensation consultants or advisors to the
Company.
The rules of Nasdaq require our Compensation Committee to consist
entirely of independent directors. The Board has affirmatively
determined that Mr. Borkowski and Dr. Riddell meet the definition
of “independent director” for purposes of serving on
the Compensation Committee under Nasdaq rules.
Corporate Governance and Nominating Committee
The
duties and responsibilities of the Corporate Governance and
Nominating Committee include but are not limited to:
●
assisting
the Board in identifying qualified individuals to become members of
the Board;
●
determining
the composition of the Board and monitoring the activities of the
Board to assess overall effectiveness; and
●
developing
and recommending to our Board corporate governance guidelines
applicable to the Company and advising our Board on corporate
governance matters.
|
ITEM 11.
|
EX
E
CUTIVE
COMPENSATION
|
The
following table sets forth information regarding our current
executive officers as appointed by the Board, each to serve in such
position until their respective successors have been duly appointed
and qualified or until their earlier death, resignation or removal
from office. Our executive officers are appointed by and serve at
the discretion of the Board, subject to the terms of any employment
agreements they may have with us. The following is a brief
description of the qualifications and business experience of each
of our current executive officers.
|
Executive Officer
|
Age
|
Title
|
|
James Sapirstein
|
58
|
President, Chief Executive Officer and Director
|
|
Daniel Schneiderman
|
42
|
Chief Financial Officer
|
|
James E. Pennington
|
78
|
Chief Medical Officer
|
Our
executive officers are appointed by and serve at the discretion of
the Board, subject to the terms of any employment agreements they
may have with us. The following is a brief description of the
qualifications and business experience of each of our current
executive officers.
James Sapirstein.
Please see Mr. Sapirstein’s
biography under the “Directors” section of this Annual
Report.
Daniel Schneiderman
was
appointed as our Chief Financial Officer on January 2, 2020. Prior
to joining us, from November 2018 through December 2019 Mr.
Schneiderman served as Chief Financial Officer of Biophytis SA,
(ENXTPA: ALBPS; Nasdaq: BPTS) and its U.S. subsidiary, Biophytis,
Inc., a European-based, clinical-stage biotechnology company
focused on the development of drug candidates for age-related
diseases, with a primary focus on neuromuscular diseases. From
February 2012 through August 2018, Mr. Schneiderman served as Vice
President of Finance, Controller and Secretary of MetaStat, Inc.
(OTCQB: MTST), a publicly traded biotechnology company with a focus
on Rx/Dx precision medicine solutions to treat patients with
aggressive (metastatic) cancer. From 2008 through February 2012,
Mr. Schneiderman was Vice President of Investment Banking at
Burnham Hill Partners LLC, a boutique investment bank providing
capital raising, advisory and merchant banking services. From 2004
through 2008, Mr. Schneiderman served in various roles and
increasing responsibilities, including as Vice President of
Investment Banking at Burnham Hill Partners, a division of Pali
Capital, Inc. Previously, Mr. Schneiderman worked at H.C.
Wainwright & Co., Inc. in 2004 as an investment banking
analyst. Mr. Schneiderman holds a bachelor’s degree in
economics from Tulane University.
Dr. James E. Pennington
was appointed as our Chief Medical
Officer in May 2018.
Prior to joining
us, Dr. Pennington served as Senior Clinical Fellow from 2010 to
2018 and as Executive Vice President and Chief Medical Officer from
2007 to 2010 at Anthera Pharmaceuticals, Inc. (Nasdaq: ANTH). From
2004 to 2007, Dr. Pennington served as Executive Vice President and
Chief Medical Officer at CoTherix, Inc., and has held various
executive positions at a number of pharmaceutical companies,
including InterMune Inc., Shaman Pharmaceuticals and Bayer
Corporation. He has served on several editorial boards, and has
authored numerous original research publications and reviews. Dr.
Pennington is currently a Clinical Professor of Medicine with the
University of California San Francisco, where he has taught since
1986. Prior to that, he was a professor at Harvard Medical School.
Dr. Pennington received a Bachelor of Arts from the University of
Oregon and a Doctor of Medicine from the University of Oregon
School of Medicine, and is Board Certified in internal medicine and
infectious diseases.
Summary Compensation
The
table set forth below reflects certain information regarding the
compensation paid or accrued during the years ended December 31,
2020 and 2019 to our Chief Executive Officer and our executive
officers, other than our Chief Executive Officer, who were serving
as an executive officer as of December 31, 2020, and whose annual
compensation exceeded $100,000 during such year (collectively the
“
Named Executive
Officers
”).
As
previously reported on our Current Report on Form 8-K filed on
March 28, 2019, Dr. Dupret retired and resigned from his position
as President of AzurRx SAS, a wholly owned French subsidiary of the
Company effective July 1, 2019. Due to the resignation of Mr. Spoor
as President and Chief Executive Officer effective October 8, 2019,
Mr. Sapirstein was appointed as our President and Chief Executive
Officer effective that same day. Compensation paid to Dr. Dupret
and Mr. Spoor during the year ended December 31, 2019 is reflected
in the table below.
|
Executive Compensation
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
All
Other
|
|
|
|
Year
|
Salary
|
Bonus
|
Awards
|
Compensation
|
Total
|
|
Current Named Executive Officers
|
|
|
|
|
|
|
|
James
Sapirstein
|
2020
|
$
462,500
|
$
159,505
(2)
|
$
837,840
(3)
|
|
$
1,459,845
|
|
President
and Chief Executive Officer
|
2019
|
102,404
|
-
|
232,900
(4)
|
-
|
335,304
|
|
|
|
|
|
|
|
|
|
James
Pennington
|
2020
|
260,000
|
64,799
|
209,460
(3)
|
-
|
534,259
|
|
Chief
Medical Officer
|
2019
|
255,000
|
75,000
(2)
|
115,000
(4)
|
-
|
445,000
|
|
|
|
|
|
|
|
|
|
Daniel
Schneiderman
|
2020
|
285,000
|
71,029
(2)
|
451,352
(3)
|
-
|
807,381
|
|
Chief
Financial officer
|
2019
|
-
|
-
|
- (5)
|
-
|
-
|
|
Former Named Executive Officers (1)
|
|
|
|
|
||
|
John
M. (Thijs) Spoor
|
2020
|
-
|
-
|
-
|
-
|
-
|
|
Former
President, Chief Executive Officer and Director (6)
|
2019
|
340,177
|
-
|
157,500
(4)
|
-
|
497,677
|
|
|
|
|
|
|
|
|
|
Maged
Shenouda
|
2020
|
-
|
-
|
-
|
-
|
-
|
|
Former
Chief Financial Officer (7)
|
2019
|
308,035
|
-
|
105,000
(4)
|
-
|
413,035
|
|
|
|
|
|
|
|
|
|
Daniel
Dupret
|
2020
|
-
|
-
|
-
|
-
|
-
|
|
Former
Chief Scientific Officer
|
2019
|
151,393
|
-
|
-
|
-
|
151,393
|
|
(1)
Mr. Spoor’s employment with us as President and Chief
Executive Officer terminated effective October 8, 2019 due to his
resignation. In addition, Mr. Spoor resigned as a member of the
Board on April 29, 2020.
|
|
Mr. Shenouda’s employment with
us as Chief Financial Officer terminated effective November 30,
2019 due to his resignation.
|
|
Dr. Dupret retired and resigned from
his position as President of AzurRx SAS, a wholly owned French
subsidiary of ours effective July 1, 2019.
|
|
(2)
Represents accrued and unpaid bonuses during 2020, as of December
31, 2020.
|
|
(3) Represents the grant date fair value of
restricted stock and stock options issued during the year ended
December 31, 2020, calculated in accordance with ASC Topic 718. The
assumptions used in the calculation of these amounts are included
in Note 13 of the notes to the consolidated financial statements
contained in our Annual Report, filed with the SEC on
March 30, 2020.
|
|
(4)
Represents the grant date fair value of restricted stock and stock
options issued during the year ended December 31, 2019, calculated
in accordance with ASC Topic 718. The assumptions used in the
calculation of these amounts are included in Note 13 of the notes
to the consolidated financial statements contained in the
Company’s Annual Report, filed with the SEC on March 30,
2020.
|
|
(5)
Mr. Schneiderman received no compensation during this period or
prior to his appointments as our Chief Financial Officer, which
became effective January 2, 2020.
|
|
(6)
On June 28, 2019, we accrued an incentive bonus in the amount of
$255,000 payable to Mr. Spoor. Subsequent to Mr. Spoor’s
resignation, the Compensation Committee reviewed the accrued bonus
and determined that such amount was not owed to Mr. Spoor, which
determination is currently being challenged by Mr. Spoor. As a
result of the Board’s and management’s determination,
we reversed the accrual in the quarter ended December 31, 2019.
This bonus has been excluded from the table.
In addition, all unvested shares of
restricted stock and stock options subject to time and other
performance-based vesting conditions have been forfeited in
connection with Mr. Spoor's resignation as our President and Chief
Executive Officer. Mr. Spoor also forfeited the right to receive
241,667 earned, but unissued shares of restricted stock in
connection with his resignation from the Board on April 29,
2020.
On July 9, 2020, we and Mr. Spoor
entered into a settlement and general release (the “Spoor
Settlement and Release”), effective July 9, 2020 (the
“Spoor Settlement Date”), of certain claims relating to
Mr. Spoor's separation from the Company on October 8, 2019. In
connection with the Spoor Settlement and Release, on July 14, 2020,
we granted Mr. Spoor warrants to purchase an aggregate of 150,000
shares of Common Stock, which had a grant date fair value of
$85,770. In addition, Mr. Spoor legally released all claims to a
discretionary bonus in the amount of $255,000, which we originally
accrued in June 2019 but was subsequently reversed during the
quarter ended December 31, 2019, legally released all claims
relating to $348,400 due to JIST Consulting, a company controlled
by Mr. Spoor and we also paid Mr. Spoor's legal expenses in the
amount of $51,200.
|
|
(7)
On June 28, 2019, we accrued an incentive bonus in the amount of
$100,000 payable to Mr. Shenouda. Subsequent to Mr.
Shenouda’s resignation, the Compensation Committee reviewed
the accrued bonus and determined that such amount was not owed, and
we reversed the accrual in the quarter ended December 31, 2019.
This bonus has been excluded from the table.
On July 2, 2020, we and Maged
Shenouda, entered into a settlement and general release (the
“Shenouda Settlement and Release”), of certain claims
relating to Mr. Shenouda’s s separation from the Company
effective November 30, 2019. In connection with the Shenouda
Settlement and Release, we paid a total of $15,000 to Mr. Shenouda,
which amount includes $10,000 of accounts payable of the Company
due to Mr. Shenouda for services provided and $5,000 for legal
expenses, and Mr. Shenouda legally released all claims relating to
a discretionary bonus in the amount of $100,000 we originally
accrued in June 2019, but was subsequently reversed during the
quarter ended December 31, 2019
|
Employment Arrangements and Potential Payments upon Termination or
Change of Control
Current Named Executive Officers
Sapirstein Employment Agreement
.
Effective October 8, 2019, we entered
into an employment agreement with Mr. Sapirstein to serve as our
President and Chief Executive Officer for a term of three years,
subject to further renewal upon agreement of the parties. The
employment agreement with Mr. Sapirstein originally provided for a
base salary of $450,000 per year, which was subsequently increased
to $480,000 per year during the year ended December 31, 2020. In
addition to the base salary, Mr. Sapirstein is eligible to receive
(i) a bonus of up to 40% of his base salary on an annual basis,
based on certain milestones that are yet to be determined; (ii) 1%
of net fees received by us upon entering into license agreements
with any third-party with respect to any product current in
development or upon the sale of all or substantially all of our
assets; (iii) a grant of 200,000 restricted shares of our Common
Stock which are subject to vest as follows (a) 100,000 upon the
first commercial sale of MS1819 in the U.S., and (b) 100,000 upon
our total market capitalization exceeding $1.0 billion for 20
consecutive trading days; (iv) a grant of 300,000 10-year stock
options to purchase shares of our Common Stock which are subject to
vest as follows (a) 50,000 upon us initiating our next Phase 2
clinical trial in the U.S. for MS1819, (b) 50,000 upon us
completing our next or subsequent Phase 2 clinical trial in the
U.S. for MS1819, (c) 100,000 upon us initiating a Phase 2I clinical
trial in the U.S. for MS1819, and (d) 100,000 upon us initiating a
Phase 1 clinical trial in the U.S. for any product other than
MS1819. Mr. Sapirstein is entitled to receive 20 days of paid
vacation, participate in full employee health benefits and receive
reimbursement for all reasonable expenses incurred in connection
with his services to us.
In the event that Mr. Sapirstein’s employment is terminated
by us for Cause, as defined in his employment agreement, or by Mr.
Sapirstein voluntarily, then will not be entitled to receive any
payments beyond amounts already earned, and any unvested equity
awards will terminate. In the event that Mr. Sapirstein’s
employment is terminated as a result of an Involuntary Termination
Other than for Cause, as defined in the Agreement, Mr. Sapirstein
will be entitled to receive the following compensation: (i)
severance in the form of continuation of his salary (at the Base
Salary rate in effect at the time of termination, but prior to any
reduction triggering Good Reason) for a period of 12 months
following the termination date; (ii) payment of Executive’s
premiums to cover COBRA for a period of 12 months following the
termination date; and (iii) a prorated annual bonus.
Schneiderman Employment Agreement
.
Effective January 2, 2020, we entered into an
employment agreement with Mr. Schneiderman to serve as our Chief
Financial Officer for a term of three years, subject to further
renewal upon agreement of the parties. The employment agreement
with Mr. Schneiderman provides for a base salary of $285,000 per
year. In addition to the base salary, Mr. Schneiderman is eligible
to receive (a) an annual milestone cash bonus based on certain
milestones that will be established by our Board or the
Compensation Committee, (b) grants of stock options to purchase
such number of shares equal to one and a quarter percent (1.25%) of
the issued and outstanding Common Stock on January 2, 2020, or
335,006 shares of Common Stock with an exercise price of $1.03 per
share, which shall vest in over a term of three years. Mr.
Schneiderman is entitled to receive 20 days of paid vacation,
participate in full employee health benefits and receive
reimbursement for all reasonable expenses incurred in connection
with his service to us. We may terminate Mr. Schneiderman’s
employment agreement at any time, with or without Cause, as such
term is defined in his employment agreement. Effective July 16,
2020, our Board approved an amended and restated option grant to
Mr. Schneiderman, amending and restating the grant previously made
on January 2, 2020, to reduce the amount of shares issuable upon
exercise of such option to be the maximum number of shares Mr.
Schneiderman was eligible to receive under the Amended and Restated
2014 Omnibus Equity Incentive Plan (the “2014 Plan”) on
the original grant date (or 300,000 shares), due to the 2014 Plan
provisions relating to Section 162(m)
limitations.
In the
event that Mr. Schneiderman’s employment is terminated by us
for Cause, as defined in Mr. Schneiderman’s employment
agreement, or by Mr. Schneiderman voluntarily, then he will not be
entitled to receive any payments beyond amounts already earned, and
any unvested equity awards will terminate. If we terminate his
employment agreement without Cause, not in connection with a Change
of Control, as such term is defined in Mr. Schneiderman’s
employment agreement, he will be entitled to (i) all salary owed
through the date of termination; (ii) any unpaid annual milestone
bonus; (iii) severance in the form of continuation of his salary
for the greater of a period of six months following the termination
date or the remaining term of the employment agreement; (iv)
payment of premiums to cover COBRA for a period of six months
following the termination date; (v) a prorated annual bonus equal
to the target annual milestone bonus, if any, for the year of
termination multiplied by the formula set forth in the agreement.
If we terminate Mr. Schneiderman’s employment agreement
without Cause, in connection with a Change of Control, he will be
entitled to the above and immediate accelerated vesting of any
unvested options or other unvested awards.
Pennington Employment Agreement
.
Effective May 28, 2018, we entered
into an employment agreement with Mr. Pennington to serve as our
Chief Medical Officer. The employment agreement with Dr. Pennington
provides for a base annual salary of $250,000. In addition to his
salary, Dr. Pennington is eligible to receive an annual milestone
bonus, awarded at the sole discretion of the Board based on his
attainment of certain financial, clinical development, and/or
business milestones established annually by the Board or
Compensation Committee. The employment agreement is terminable by
either party at any time. In the event of termination by us other
than for cause, Dr. Pennington is entitled to three months’
severance payable over such period. In the event of termination by
us other than for cause in connection with a Change of Control, Dr.
Pennington will receive six months’ severance payable over
such period.
Former Named Executive Officers
Spoor Employment Agreement
.
On January 3, 2016, we entered into
an employment agreement with our former President and Chief
Executive Officer, Johan Spoor. The employment agreement provided
for a term expiring January 2, 2019. Although Mr. Spoor’s
employment agreement expired, he remained employed as our President
and Chief Executive Officer under the terms of his prior employment
agreement through his resignation as President and Chief Executive
Officer on October 8, 2019. In addition, Mr. Spoor resigned as a
member of the Board on April 29, 2020.
The
employment agreement with Mr. Spoor provided for a base salary of
$425,000 per year. At the sole discretion of the Board or the
Compensation Committee of the Board, following each calendar year
of employment, Mr. Spoor was eligible to receive an additional cash
bonus based on his attainment of certain financial, clinical
development, and/or business milestones to be established annually
by the Board or the Compensation Committee. Mr. Spoor’s
employment agreement was terminable by either party at any time. In
the event of termination by us without Cause or by Mr. Spoor for
Good Reason not in connection with a Change of Control, as those
terms are defined in Mr. Spoor’s employment agreement, he was
entitled to twelve months’ severance payable over such
period. In the event of termination by us without Cause or by Mr.
Spoor for Good Reason in connection with a Change of Control, as
those terms are defined in Mr. Spoor’s employment agreement,
he was eligible to receive eighteen months’ worth of his base
salary in a lump sum as severance.
Mr.
Spoor resigned from his position as our President and Chief
Executive Office effective October 8, 2019. Mr. Spoor received no
additional or severance compensation and all unvested stock options
and shares of restricted Common Stock granted to Mr. Spoor were
cancelled as a result of Mr. Spoor’s resignation. Mr. Spoor
had a period of twelve months following his resignation to exercise
all vested stock options.
Shenouda Employment Agreement
. On September 26, 2017,
we entered into an employment agreement with Mr. Shenouda to serve
as our Executive Vice-President of Corporate Development and Chief
Financial Officer for a term of three years, during which time he
received a base salary of $275,000. In addition to the base salary,
Mr. Shenouda was eligible to receive an annual milestone cash bonus
based on the achievement of certain financial, clinical
development, and/or business milestones, which milestones were
established annually at the sole discretion of our Board or the
Compensation Committee. Mr. Shenouda’s employment
agreement provided for the issuance of stock options to purchase
100,000 shares of Common Stock, pursuant to the 2014 Plan, with an
exercise price of $4.39 per share and a term of ten years. These
stock options vested upon the achievement of certain strategic
milestones during the year ended December 31, 2018.
Mr.
Shenouda’s employment agreement was terminable by us any
time, with or without Cause, as such term is defined in the
agreement. If we terminated the agreement without Cause, or if the
agreement was terminated due to a Change of Control, as such term
is defined in the agreement, Mr. Shenouda was entitled to (i) all
salary owed through the date of termination; (ii) any unpaid annual
milestone bonus; (iii) severance in the form of continuation
of his salary for the greater of a period of 12 months following
the termination date or the remaining term of his employment
agreement; (iv) payment of premiums to cover COBRA for a period of
12 months following the termination date; (v) a prorated annual
bonus equal to the target annual milestone bonus, if any, for the
year of termination multiplied by the formula set forth in the
agreement; and (vi) immediate accelerated vesting of any unvested
options or other unvested awards.
Mr.
Shenouda resigned from his position as our Chief Financial Officer
effective November 30, 2019. Mr. Shenouda received no additional or
severance compensation and all unvested stock options and shares of
restricted Common Stock granted to Mr. Shenouda were cancelled as a
result of Mr. Shenouda’s resignation. Mr. Shenouda had a
period of twelve months following his resignation to exercise all
vested stock options.
Outstanding Equity Incentive Awards at Fiscal Year-End
The
following table sets forth information regarding unexercised
options, stock that has not vested and equity incentive awards held
by each of the Named Executive Officers outstanding as of
December 31, 2020 and 2019:
|
Name
|
Grant
Date
|
Number of Securities underlying unexercised
options (#) exercisable
|
Equity incentive plan awards: Number of underlying
unexercised unearned options (#)
|
Option exercise price
($)
|
Option
expiration date
|
Number of Shares or units of stock that have not
vested (#)
|
Market value of shares or units of stock
that have not vested ($)
|
Equity incentive plan awards: Number
of Unearned shares, units or other rights that have not vested
(#)
|
Equity incentive plan awards: market or payout
value of unearned shares, units or other rights that have not
vested ($)
|
|
Current Named Executive Officers
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
James
|
10/8/2019
|
-
|
300,000
(1)
|
$
0.56
|
10/7/2029
|
-
|
-
|
-
|
$
-
|
|
Sapirstein
|
10/8/2019
|
-
|
-
|
$
-
|
-
|
-
|
-
|
200,000
(2)
|
$
112,000
|
|
|
7/16/2020
|
-
|
1,200,000
(3)
|
$
0.85
|
7/15/2030
|
-
|
-
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
|
1/2/2020
|
-
|
300,000
(4)
|
$
1.03
|
1/1/2030
|
-
|
-
|
|
$
-
|
|
Schneiderman
|
7/16/2020
|
-
|
285,006
|
$
0.85
|
7/15/2030
|
-
|
-
|
|
$
-
|
|
|
7/16/2020
|
|
35,006
(4)
|
$
0.85
|
7/15/2030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
|
6/13/2019
|
-
|
110,000
|
$
1.75
|
6/13/2024
|
-
|
-
|
-
|
$
-
|
|
Pennington
|
7/16/2020
|
-
|
300,000
|
$
0.85
|
7/15/2030
|
-
|
-
|
-
|
$
-
|
|
(1)
|
Represents stock options issued to Mr. Sapirstein on October 8,
2019 under the terms of his employment agreement, which options
will vest as follows: (i) as to 50,000 shares upon initiating our
next U.S. Phase 2 clinical trial for MS1819, (ii) as to 50,000
shares upon completing the next U.S. Phase 2 clinical trial for
MS1819, (iii) as to 100,000 shares upon our initiating a Phase 3
clinical trial in the U.S. for MS1819, and (iv) as to 100,000
shares upon initiating a U.S. Phase 1 clinical trial for any
product other than MS1819.
|
|
(2)
|
Represents the restricted stock unit (“
RSU
”) award issued to Mr. Sapirstein on October
8, 2019 under the terms of his employment agreement, which RSU will
vest as follows: (i) as to 100,000 shares upon the first commercial
sale in the U.S. of MS1819, and (ii) as to 100,000 shares upon our
total market capitalization exceeding $1.0 billion for 20
consecutive trading days.
|
|
(3)
|
Represents stock options issued to Mr. Sapirstein on July 16, 2020
under 2014 Plan, which options will vest as follows: (i) 50,000
upon initiating its next U.S. Phase 2 clinical trial MS1819, (ii)
50,000 upon completing the next U.S. Phase 2 clinical trial, (iii)
100,000 upon the Company initiating a Phase 3 clinical trial in the
U.S. for MS1819, and (iv) 100,000 upon initiating a U.S. Phase 1
clinical trial for any product other than MS1819.
|
|
(4)
|
During the three months ended September 30, 2020, the Board
approved an amended and restated option grant to Mr. Schneiderman,
amending and restating a grant previously made on January 2, 2020,
to reduce the amount of shares issuable upon exercise of such
option to be the maximum number of shares Mr. Schneiderman was
eligible to receive under the 2014 Plan on the original grant date,
or 300,000 shares, due to the 2014 Incentive Plan provisions
relating to the Section 162(m) limitations described above. The
Board also approved the issuance of a replacement option covering
the balance of shares intended to be issued at that time, or 35,006
shares. The original stock option has an exercise price of $1.03,
the closing sale price of Common Stock on January 2, 2020, which
was the date of its original grant, and the replacement stock
option has an exercise price of $0.85, the closing sale price of
the Common Stock on its date of grant. Both the original stock
option and the replacement stock option vest over a term of three
years, in 36 equal monthly installments on each monthly anniversary
of January 2, 2020.
|
Securities Authorized for Issuance Under Equity Compensation
Plans
The
following table provides information as of December 31, 2020
regarding equity compensation plans approved by our security
holders and equity compensation plans that have not been approved
by our security holders:
|
|
Number of securities
to be issued upon exercise of outstanding options, warrants
and
|
Weighted-average
exercise price of outstanding options, warrants
and
|
Number of securities
remaining available for future issuance under equity compensation
plans reflected in
|
|
Plan category
|
rights
|
rights
|
column
(a))
|
|
|
(a)
|
(b)
|
(c
)
|
|
Equity
compensation plans approved by security holders (1)
(2)
|
4,298,691
|
1.23
|
9,783,815
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
|
|
|
|
|
Total
|
4,298,691
|
1.23
|
9,783,815
|
(1)
Excludes
387,000 shares of Common Stock reserved under the 2014 Plan as of
December 31, 2020, subject to the issuance of restricted stock and
RSUs.
(2)
Represents
outstanding stock options granted to our current or former
employees, directors and consultants pursuant to the 2014 Omnibus
Equity Incentive Plan (the “2014 Plan” and 2020 Omnibus
Equity Incentive Plan (the “2020 Plan”).
Summary of Amended and Restated 2014 Omnibus Equity Incentive
Plan
The
Board and stockholders adopted and approved the 2014 Plan, which
took effect on May 12, 2014, and the 2020 Plan, which took effect
on September 11, 2020. From the effective date of the 2020 Plan, no
new awards have been or will be made under the 2014
Plan.
Stock Options
.
The
2014 Plan permitted the grant of “incentive stock
options” (“ISOs”), which are intended to meet the
requirements for special federal income tax treatment under the
Code, and “nonqualified stock options”
(“NQSOs”) that do not meet the requirements of Section
422 of the Code. No stock option may be transferred other than by
will or by the laws of descent and distribution, and during a
recipient’s lifetime a stock option may be exercised only by
the recipient. However, the Compensation Committee may permit the
holder of a stock option, SAR or other award to transfer the stock
option, right or other award to immediate family members or a
family trust for estate planning purposes. The Compensation
Committee will determine the extent to which a holder of a stock
option may exercise the option following termination of service
with us.
Restricted Stock Awards and Restricted Stock Unit Awards
. A
restricted stock award is a grant or sale of Common Stock to the
participant, subject to our right to repurchase all or part of the
shares at their purchase price (or to require forfeiture of such
shares if issued to the participant at no cost) in the event that
conditions specified by the Compensation Committee in the award are
not satisfied prior to the end of the time period during which the
shares subject to the award may be repurchased by or forfeited to
us. A restricted stock unit entitles the participant to receive a
cash payment equal to the fair market value of a share of Common
Stock for each restricted stock unit subject to such restricted
stock unit award, if the participant satisfies the applicable
vesting requirement. The Compensation Committee will determine the
restrictions and conditions applicable to each award of restricted
stock award or restricted stock unit award, which may include
performance-based conditions.
Unrestricted Stock Awards
. An unrestricted stock award is a
grant or sale of shares of our Common Stock to the participant that
is not subject to transfer, forfeiture or other restrictions, in
consideration for past services rendered to us or an affiliate or
for other valid consideration.
Change-in-Control Provisions
. In connection with the grant
of an award, the Compensation Committee may provide that, in the
event of a change in control, such award will become fully vested
and immediately exercisable.
Potential Limitation on Company Deductions
Section
162(m) of the Code generally disallows a tax deduction for
compensation in excess of $1 million paid in a taxable year by a
publicly held corporation to its chief executive officer and
certain other “covered employees.” Effective for
taxable years beginning prior to January 1, 2018, an exception to
this deduction limit applied to “performance-based
compensation” that satisfied certain criteria. Under
regulations issued by the Internal Revenue Service under Section
162(m), stock options and stock appreciation rights were treated as
performance-based compensation if, among other things, an annual
limit was placed on issuing such awards to a single
individual. In order to comply with the foregoing exception to
the $1 million deduction limit under Section 162(m), the 2014 Plan
previously contained an annual limit on issuing awards of stock
options and stock appreciation rights to a single individual, which
was intended to allow us to deduct such awards granted as
performance-based compensation. Pursuant to the Tax Cut and Jobs
Act of 2017, however, the exception for performance-based
compensation under Section 162(m) of the Code was repealed. As a
result, the annual limit in the 2014 Plan was no longer effective
to allow us to claim this deduction. Accordingly, effective July
16, 2020, our Board approved an amendment to the 2014 Plan that
removed this annual limit.
Summary of the 2020 Omnibus Equity Incentive Plan
The
Board and stockholders have adopted and approved the 2020 Plan,
which is a comprehensive incentive compensation plan under which we
can grant equity-based and other incentive awards to our officers,
employees, directors, consultants and advisers. The purpose of the
2020 Plan is to help us attract, motivate and retain such persons
with awards under the 2020 Plan and thereby enhance stockholder
value.
Administration
. The 2020 Plan
is administered by the Compensation Committee of the Board, which
consists of three members of the Board, each of whom is a
“non-employee director” within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the “
Exchange
Act
”). The Compensation
Committee may grant stock options, stock appreciation rights
(“SARs”), performance stock awards, performance unit
awards, dividend equivalent right awards, restricted stock awards,
restricted stock unit awards, unrestricted stock awards, incentive
bonus awards and other cash-based awards and other stock-based
awards to our non-employee directors, officers, employees and
nonemployee consultants or our affiliates. Among other things, the
Compensation Committee has complete discretion, subject to the
express limits of the 2020 Plan, to determine the directors,
employees and individual consultants to be granted an award, the
type of award to be granted, the terms and conditions of the award,
the form of payment to be made and/or the number of shares of
Common Stock subject to each award, the exercise price of each
option and base price of each SAR, the term of each award, the
vesting schedule for an award, whether to accelerate vesting, the
value of the Common Stock underlying the award, and the required
withholding, if any. Except as prohibited by applicable law or
stock exchange rules, the Compensation Committee may delegate
administrative functions under the 2020 Plan and may authorize a
Reporting Person (as defined in the Exchange Act) to make certain
awards under the 2020 Plan. Subject to the terms of the Plan, the
Compensation Committee shall have the authority to amend the terms
of an award in any manner that is not inconsistent with the Plan
(including to extend the post-termination exercisability period of
options and SARs), provided that no such action (except an action
relating to a change of control) shall materially and adversely
impair the rights of an award recipient with respect to such an
outstanding award without the consent of the award recipient. The
Compensation Committee is also authorized to construe the award
agreements, and may prescribe rules relating to the 2020
Plan.
Eligibility
. Employees,
directors and individual consultants of the Company or an affiliate
as well as prospective employees, directors and individual
consultants of the Company or an affiliate are eligible to
participate in the 2020 Plan. The 2020 Plan allows for grants to
employees, directors and individual consultants of the Company or
an affiliate who are non-US persons. Currently, we have nine
employees (including one executive director), five non-executive
directors and approximately ten non-employee
consultants.
Shares Subject to the 2020 Plan
. The maximum aggregate number of shares of Common
Stock that may be issued under the 2020 Plan shall be 10,000,000
shares. The 2020 Plan allows for 100,000,000 shares to be issued as
“incentive stock options” (“
ISOs
”). In addition, the 2020 Plan contains an
“evergreen provision” providing for an annual increase
in the number of shares of our Common Stock available for issuance
under the 2020 Plan on January 1 of each year for a period of ten
years, commencing on January 1, 2021 and ending on (and including)
January 1, 2030, in an amount equal to the lesser of (i) ten
percent of the total number of shares of Common Stock outstanding
on December 31st of the preceding calendar year or (ii) such number
of shares determined by the Board.
If any award expires, is cancelled, or terminates unexercised or is
forfeited, the number of shares subject thereto is again available
for grant under the 2020 Plan. The maximum number of shares of
Common Stock that may be subject to awards to outside directors, in
the aggregate, during any calendar year is 250,000.
The number of shares authorized for issuance under the 2020 Plan
and each of the preceding share limitations are subject to
customary adjustments for stock splits, stock dividends,
recapitalization, reorganization, merger, combination, exchange or
similar transactions.
Stock Options
. The 2020 Plan
provides for either ISOs, which are intended to meet the
requirements for special federal income tax treatment under the
Code, or “nonqualified stock options”
(“
NQSOs
”) that do not meet the requirements of
Section 422 of the Code. Stock options may be granted on such terms
and conditions as the Compensation Committee may
determine;
provided,
however
, that the per share
exercise price under a stock option may not be less than the fair
market value of a share of Common Stock on the date of grant and
the term of the stock option may not exceed 10 years (110% of such
value and five years in the case of an ISO granted to an employee
who owns (or is deemed to own) more than 10% of the total combined
voting power of all classes of our capital stock or our parent or
subsidiary). ISOs may only be granted to employees. In addition,
the aggregate fair market value of Common Stock covered by one or
more ISOs (determined at the time of grant), which are exercisable
for the first time by an employee during any calendar year may not
exceed $100,000. Any excess is treated as a NQSO. Stock options
granted under the 2020 Plan will be exercisable at such time or
times as the Compensation Committee prescribes at the time of grant
and recipients will be permitted to pay the exercise price as set
forth by the Compensation Committee in the applicable option
agreement. No stock option may be transferred other than by will or
by the laws of descent and distribution, and during a
recipient’s lifetime a stock option may be exercised only by
the recipient. However, the Compensation Committee may permit the
holder of a stock option, SAR or other award to transfer the stock
option, right or other award to immediate family members or a
family trust for estate planning purposes. The Compensation
Committee will determine the extent to which a holder of a stock
option may exercise the option following termination of service
with us.
Stock Appreciation Rights
. A
SAR entitles the participant, upon exercise, to receive an amount,
in cash or stock or a combination thereof, equal to the increase in
the fair market value of the underlying Common Stock between the
date of grant and the date of exercise. SARs may be granted in
tandem with, or independently of, stock options granted under the
2020 Plan. A SAR granted in tandem with a stock option (i) is
exercisable only at such times, and to the extent, that the related
stock option is exercisable in accordance with the procedure for
exercise of the related stock option; (ii) terminates upon
termination or exercise of the related stock option (likewise, the
Common Stock option granted in tandem with a SAR terminates upon
exercise of the SAR); (iii) is transferable only with the related
stock option; and (iv) if the related stock option is an ISO, may
be exercised only when the value of the stock subject to the stock
option exceeds the exercise price of the stock option. A SAR that
is not granted in tandem with a stock option is exercisable at such
times as the Compensation Committee may specify. The Compensation
Committee will determine the other terms applicable to SARs. The
exercise price per share of a SAR will be determined by the
Compensation Committee, but will not be less than 100% of the fair
market value of a share of our Common Stock on the date of grant,
as determined by the Compensation Committee. The maximum term of
any SAR granted under the 2020 Plan is ten years from the date of
grant. Generally, each SAR will entitle a participant upon exercise
to an amount equal to: (i) the excess of the fair market value on
the exercise date of one share of our Common Stock over the
exercise price,
multiplied
by
(ii) the number of
shares of Common Stock covered by the SAR. Payment may be made in
shares of our Common Stock, in cash, or partly in Common Stock and
partly in cash, all as determined by the Compensation
Committee.
Performance Shares and Performance Unit Awards
. Performance share and performance unit awards
entitle the participant to receive cash or shares of Common Stock
upon the attainment of specified performance goals. In the case of
performance units, the right to acquire the units is denominated in
cash values. The Compensation Committee will determine the
restrictions and conditions applicable to each award of performance
shares and performance units.
Dividend Equivalent Right Awards
. A dividend equivalent right award entitles the
participant to receive bookkeeping credits, cash payments and/or
Common Stock distributions equal in amount to the distributions
that would have been made to the participant had the participant
held a specified number of shares of Common Stock during the period
the participant held the dividend equivalent right. A dividend
equivalent right may be awarded as a component of another award
under the 2020 Plan, where, if so awarded, such dividend equivalent
right will expire or be forfeited by the participant under the same
conditions as under such other award.
Restricted Stock Awards and Restricted Stock Unit
Awards
. A restricted stock
award is a grant or sale of Common Stock to the participant,
subject to our right to repurchase all or part of the shares at
their purchase price (or to require forfeiture of such shares if
issued to the participant at no cost) in the event that conditions
specified by the Compensation Committee in the award are not
satisfied prior to the end of the time period during which the
shares subject to the award may be repurchased by or forfeited to
us. Restricted stock units entitle the participant to receive a
cash payment equal to the fair market value of a share of Common
Stock for each restricted stock unit subject to such restricted
stock unit award, if the participant satisfies the applicable
vesting requirement. The Compensation Committee will determine the
restrictions and conditions applicable to each award of restricted
stock award or restricted stock unit award, which may include
performance-based conditions.
Unrestricted Stock Awards
. An
unrestricted stock award is a grant or sale of shares of our Common
Stock to the participant that is not subject to transfer,
forfeiture or other restrictions, in consideration for past
services rendered to us or an affiliate or for other valid
consideration.
Other Cash-Based Awards and Other Stock-Based
Awards
. The Compensation
Committee may award other types of cash-based or equity-based
awards under the 2020 Plan, including the grant or offer for sale
of shares of unrestricted shares and the right to receive one or
more cash payments subject to satisfaction of such conditions as
the Compensation Committee may impose.
Incentive Bonus Awards
.
Incentive bonus awards may be awarded to the participant based upon
the attainment of specified levels of our performance as measured
by pre-established, objective performance criteria determined at
the discretion of the Compensation Committee.
Change-of-Control Provisions
.
The Compensation Committee may, at the time of the grant of an
award, provide for the effect of a change of control (as defined in
the 2020 Plan) on an award, including (i) accelerating or extending
the time periods for exercising, vesting in, or realizing gain from
any award, (ii) eliminating or modifying the performance or other
conditions of an award, or (iii) providing for the cash settlement
of an award for an equivalent cash value, as determined by the
Compensation Committee. The Compensation Committee may, in its
discretion and without the need for the consent of any recipient of
an award, also take one or more of the following actions contingent
upon the occurrence of a change of control: (a) cause any or all
outstanding stock options and SARs to become immediately
exercisable, in whole or in part; (b) cause any other
awards
to become non-forfeitable, in whole or in part;
(c) cancel any stock option or SAR in exchange for a substitute
option; (d) cancel any award of restricted stock, restricted stock
units, performance shares or performance units in exchange for a
similar award of the capital stock of any successor corporation;
(e) redeem any restricted stock, restricted stock unit, performance
share or performance unit for cash and/or other substitute
consideration with a value equal to the fair market value of an
unrestricted share of our Common Stock on the date of the change of
control; (f) cancel any stock option or SAR in exchange for cash
and/or other substitute consideration based on the value of our
Common Stock on the date of the change in
control
,
and
cancel any stock option or SAR without any payment if its exercise
price exceeds the value of our Common Stock on the date of the
change of control; or (g) make such other modifications,
adjustments or amendments to outstanding awards as the Compensation
Committee deems necessary or appropriate.
Amendment and Termination
. The
Compensation Committee may adopt, amend and rescind rules relating
to the administration of the 2020 Plan, and amend, suspend or
terminate the 2020 Plan, provided, that (a) to the extent necessary
and desirable to comply with any applicable law, regulation, or
stock exchange rule, we shall obtain stockholder approval of any
2020 Plan amendment in such a manner and to such a degree as
required, and (b) stockholder approval is required for any
amendment to the 2020 Plan that (i) increases the number of shares
available for issuance under the 2020 Plan, or (ii) changes the
persons or class of persons eligible to receive
awards.
|
ITEM 12.
|
SECURI
T
Y OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The
following table sets forth information regarding shares of our
Common Stock beneficially owned as of March 29, 2021
by:
●
each of
our officers and directors;
●
all
officers and directors as a group; and
●
each
person known by us to beneficially own five percent or more of the
outstanding shares of our Common Stock. Percentage of ownership is
calculated based on 74,439,377 shares of Common Stock outstanding
as of March 30, 2021.
|
|
Number
|
Percent Ownership
|
|
Name and Address of Beneficial Owner (1)
|
of Shares
(2)
|
of Class
(3)
|
|
Current Named Executive Officers and Directors
|
|
|
|
James
Sapirstein, President and Chief Executive Officer (4)
|
341,883
|
*
|
|
Daniel
Schneiderman, Chief Financial Officer (5)
|
150,862
|
*
|
|
James
E. Pennington, Chief Scientific Officer (6)
|
120,833
|
*
|
|
Edward
J. Borkowski, Chair of the Board of Directors (7)
|
1,380,274
|
1.9
%
|
|
Charles
J. Casamento, Director (8)
|
226,998
|
*
|
|
Alastair
Riddell, Director (9)
|
272,049
|
*
|
|
Vern
L. Schranmm, Director (10)
|
200,498
|
*
|
|
Gregory
Oakes, Director (11)
|
60,000
|
*
|
|
All
directors and executive officer as a group (8 persons)
|
2,753,397
|
3.7%
|
(1)
Unless
otherwise indicated, the address of such individual is c/o AzurRx
BioPharma, Inc., 1615 South Congress Avenue, Suite 103, Delray
Beach, FL 33445.
(2)
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. All entries exclude beneficial ownership of shares
issuable pursuant to warrants, options or other derivative
securities that have not vested or that are not otherwise
exercisable as of the date hereof or which will not become vested
or exercisable within 60 days.
(3)
Percentages
are rounded to nearest tenth of a percent. Percentages are based on
74,439,377 shares of Common Stock outstanding. Warrants, options or
other derivative securities that are presently exercisable or
exercisable within 60 days are deemed to be beneficially owned by
the person holding such securities for the purpose of computing the
percentage ownership of that person, but are not treated as
outstanding for the purpose of computing the percentage of any
other person.
(4)
Includes (i) 141,667 shares of Common Stock
issuable upon exercise of vested options, (ii) 135,281 shares of
Common Stock issuable upon conversion of approximately 13.53 shares
of Series B Preferred Stock, which includes issued PIK dividends
through December 31, 2020, and (iii) 64,935 shares of Common Stock
issuable upon exercise of warrants. Excludes (i) 1,358,333 shares
of Common Stock issuable upon exercise of unvested options, and
(ii) 200,000 shares of Common Stock issuable upon unvested
Restricted Stock Units (RSUs).
Pursuant to the Exchange Right, Mr. Sapirstein has
the right to exchange the stated value, plus accrued and unpaid
dividends, of the shares of Series B Preferred Stock beneficially
owned by him for shares of Series C Preferred Stock and Investor
Warrants on a dollar-for-dollar basis.
(5)
Includes
(i) 1,000 shares of Common Stock and (ii) 149,862 shares of Common
Stock issuable upon exercise of vested options. Excludes 435,144
shares of Common Stock issuable upon exercise of unvested
options.
(6)
Includes
120,833 shares of Common Stock issuable upon exercise of vested
options. Excludes 364,167 shares of Common Stock issuable upon
exercise of unvested options.
(7)
Includes
(i) 409,773 shares of Common Stock; (ii) 336,397 shares of Common
Stock issuable upon the exercise of warrants; (iii) 140,000 shares
of Common Stock issuable upon exercise of vested options; (iv)
480,423 shares of Common Stock issuable upon conversion of
approximately 48.043 shares of Series B Preferred Stock, which
includes issued PIK dividends through December 31, 2020, and (v)
13,680 shares of Common Stock held by Mr. Borkowski’s spouse.
Excludes (i) 45,000 unvested and unissued restricted shares of
Common Stock; and (ii) 41,237 shares of Common Stock issuable upon
exercise of unvested options. Pursuant to the Exchange Right, Mr.
Borkowski has the right to exchange the stated value, plus accrued
and unpaid dividends, of the shares of Series B Preferred Stock
beneficially owned by him for shares of Series C Preferred Stock
and Investor Warrants on a dollar-for-dollar basis.
(8)
Includes
(i) 107,998 shares of Common Stock; (ii) 110,000 shares of Common
Stock issuable upon exercise of vested options; and (iii) 9,000
shares of Common Stock held by La Jolla Lenox Trust, a family trust
of which the Trustee is someone other than Mr. Casamento. Mr.
Casamento and members of his immediate family are the sole
beneficiaries of the trust. Excludes 75,000 shares of Common Stock
issuable upon exercise of unvested options. Excludes 41,237 shares
of Common Stock issuable upon exercise of unvested
options.
(9)
Includes
(i) 132,049 shares of Common Stock and (ii) 140,000 shares of
Common Stock issuable upon exercise of vested options. Excludes (i)
30,000 unvested restricted shares of Common Stock; and (ii) 41,237
shares of Common Stock issuable upon exercise of unvested
options.
(10)
Includes
(i) 90,498 shares of Common Stock and (ii) 110,000 shares of Common
Stock issuable upon exercise of vested options. Excludes 41,237
shares of Common Stock issuable upon exercise of unvested
options.
(11)
Includes
60,000 shares of Common Stock issuable upon exercise of vested
options. Excludes 41,237 shares of Common Stock issuable upon
exercise of unvested options.
|
|
|
|
ITEM 13.
|
CERT
A
IN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Johan (Thijs) Spoor
During
the year ended December 31, 2015, we employed the services of JIST
Consulting (“
JIST
”), a company controlled by
Johan (Thijs) Spoor, our former Chief Executive Officer and
President, as a consultant for business strategy, financial
modeling, and fundraising. Included in accounts payable at December
31, 2020 and 2019, is $0 and approximately $348,000, respectively,
for JIST relating to Mr. Spoor’s services. The approximately
$348,000 included in the accounts payable at December 31, 2019 has
since been waived by Mr. Spoor, pursuant to a settlement and
general release, effective July 9, 2020. Mr. Spoor received no
other compensation from us other than as specified in his
employment agreement. On October 8, 2019, Mr. Spoor resigned as our
Chief Executive Officer and President, and on April 29, 2020, Mr.
Spoor resigned as a member of the Board.
In June
2019, we accrued an incentive bonus in the amount of $255,000
payable to Mr. Spoor. Subsequent to Mr. Spoor’s resignation,
the Compensation Committee reviewed the accrued bonus and
determined that such amount was not owed, which determination is
being challenged by Mr. Spoor. As a result of management’s
determination, we reversed the accrual in the quarter ended
December 31, 2019.
As part of a
settlement and general release effective July 9, 2020, Mr. Spoor
waived all claims to the incentive bonus in the amount of $255,000
and also waived all claims to the amount of
approximately
$348,000 due to JIST Consulting, a
company controlled by Mr. Spoor. Also in connection with the
settlement and general release, Mr. Spoor received warrants to
purchase an aggregate of 150,000 shares of Common Stock and we
agreed to pay Mr. Spoor’s legal expenses in the amount
of
approximately
$51,000.
As of
December 31, 2019, Mr. Spoor was entitled to an aggregate of
241,667 shares of restricted Common Stock with an aggregate grant
date fair value of approximately $856,000 that have vested but not
been issued. Mr. Spoor forfeited the right to receive these
shares on April 29, 2020 in connection with his resignation from
the Board.
Mr.
Spoor received no additional or severance compensation and all
unvested stock options and shares of restricted Common Stock
granted to Mr. Spoor were cancelled as a result of Mr.
Spoor’s resignation.
Maged Shenouda
From
October 1, 2016 until his appointment as our Chief Financial
Officer on September 25, 2017, we employed the services of Maged
Shenouda as a financial consultant. Included in accounts payable at
December 31, 2020 and 2019 is $0 and $10,000, respectively, for Mr.
Shenouda’s services. On November 1, 2019, Mr. Shenouda
submitted his resignation as our Chief Financial Officer, effective
November 30, 2019.
In June
2019, we accrued an incentive bonus in the amount of $100,000
payable to Mr. Shenouda. Subsequent to Mr. Shenouda’s
resignation, the Compensation Committee reviewed the accrued bonus
and determined that such amount was not owed, and we reversed the
accrual in the quarter ended December 31, 2019.
As part of a settlement and general release
entered into on July 2, 2020, Mr. Shenouda waived all claims to the
incentive bonus in the amount of $100,000 and we agreed to pay Mr.
Shenouda a settlement sum of $15,000, which includes $10,000 due to
Mr. Shenouda reflected in our accounts payable as of June 30,
2020.
Mr.
Shenouda resigned from his position as our Chief Financial Officer
effective November 30, 2019. Mr. Shenouda received no additional or
severance compensation and all unvested stock options and shares of
restricted Common Stock granted to Mr. Shenouda were cancelled as a
result of Mr. Shenouda’s resignation. Mr. Shenouda has a
period of twelve months following his resignation to exercise all
vested stock options.
Promissory Notes, Series B Private Placement and Series B
Exchange
On
December 20, 2019, Edward J. Borkowski, a Director, purchased a
Promissory Note (the “
Borkowski Promissory Note
”) for
an original principal amount of $100,000, together with related
warrants exercisable for 51,547 shares of Common Stock at an
exercise price of $1.07, pursuant to a Note Purchase Agreement by
and between us and certain accredited investors. The Borkowski
Promissory Note accrued interest at a rate of 9% per annum and was
convertible at the option of the holder into shares of Common Stock
at a price of $0.97 per share. On July 16, 2020, in connection with
the Series B Private Placement and the Series B Exchange, Mr.
Borkowski purchased $250,000 worth of Series B Preferred Stock and
related Series B Warrants for cash, and Mr. Borkowski also
exchanged the balance of his outstanding Borkowski Promissory Note
of $105,128 (including outstanding principal amount and accrued and
unpaid interest thereon) for
approximately
13.65 shares of Series B
Preferred Stock convertible into 136,531 shares of Common Stock,
Series B Warrants for 68,266 shares of Common Stock and Exchange
Warrants for 25,774 shares of Common Stock.
On
January 3, 2020, Edmund Burke Ross, Jr., a stockholder that
beneficially owned greater than 5% of our outstanding shares,
purchased a Promissory Note for an original amount of $750,000,
together with related warrants exercisable for 375,000 shares of
Common Stock at an exercise price of $1.07, pursuant to a Note
Purchase Agreement by and between us and certain accredited
investors. The Promissory Note accrued interest at a rate of 9% per
annum and was convertible at the option of the holder into shares
of Common Stock at a price of $0.97 per share. On July 16, 2020, in
connection with the Private Placement and the Exchange, Mr. Ross
exchanged the balance of his outstanding Promissory Note of
approximately $786,000 (including outstanding principal amount and
accrued and unpaid interest thereon) for 102.06191 shares of Series
B Preferred Stock convertible into 1,020,620 shares of Common
Stock, Series B Warrants for 510,310 shares of Common Stock and
Exchange Warrants for 193,299 shares of Common Stock.
On July
16, 2020, in connection with the Series B Private Placement and the
Exchange, James Sapirstein, President, Chief Executive Officer and
Director purchased $100,000 worth of Series B Preferred Stock and
related Series B Warrants for cash. Mr. Sapirstein received
approximately
12.99 shares of
Series B Preferred Stock convertible into 129,871 shares of Common
Stock and Series B Warrants for 64,936 shares of Common
Stock.
Policy and Procedures Governing Related Party
Transactions
The
Board is committed to upholding the highest legal and ethical
conduct in fulfilling its responsibilities and recognizes that
related party transactions can present a heightened risk of
potential or actual conflicts of interest.
The SEC
rules define a related party transaction to include any
transaction, arrangement or relationship which: (i) we are a
participant; (ii) the amount involved exceeds $120,000; and (iii)
executive officer, director or director nominee, or any person who
is known to be the beneficial owner of more than 5% of our Common
Stock, or any person who is an immediate family member of an
executive officer, director or director nominee or beneficial owner
of more than 5% of our Common Stock had or will have a direct or
indirect material interest.
Although
we do not maintain a formal written procedure for the review and
approval of transactions with such related persons, it is our
policy for the disinterested members of our Board to review all
related party transactions on a case-by-case basis. To receive
approval, a related-party transaction must have a legitimate
business purpose for us and be on terms that are fair and
reasonable to us and our stockholders and as favorable to us and
our stockholders as would be available from non-related entities in
comparable transactions.
All
related party transactions must be disclosed in our applicable
filings with the SEC as required under SEC rules.
|
ITEM 14.
|
PR
I
NCIPAL ACCOUNTING FEES AND
SERVICES
|
Set
forth below are fees billed or expected to be billed to us by
our independent registered public accounting firm Mazars USA LLP
for the years ended December 31, 2020 and 2019 for the professional
services performed for us.
Audit Fees
The following table presents fees for professional services billed
by Mazars USA LLP for the fiscal years ended December 31, 2020 and
2019.
|
|
For the years ended
December 31,
|
|
|
|
2020
|
2019
|
|
Audit fees
(1)
|
$
165,766
|
$
124,640
|
|
Audit-related fees
(2)
|
34,700
|
71,500
|
|
Tax fees
(3)
|
27,055
|
31,087
|
|
All other fees
(4)
|
-
|
-
|
|
Total
|
$
227,521
|
$
227,227
|
(1)
Professional
services rendered by the Mazars USA LLP for the audit of our annual
financial statements and review of financial statements included in
our Form 10-Q’s.
(2)
The
aggregate fees billed for assurance and related services by Mazars
USA LLP that are reasonably related to the performance of the audit
or review of our financial statements and are not reported under
Note 1 above, principally related to registration statement
filings.
(3)
The
aggregate fees billed for professional services rendered by Mazars
USA LLP for tax compliance, tax advice, and tax
planning.
(4)
The
aggregate fees billed for products and services provided by Mazars
USA LLP other than the services reported in Notes 1 through 3
above.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has the sole authority for the appointment,
compensation and oversight of the work of our independent auditors.
The Audit Committee has established a policy regarding pre-approval
of all auditing services and the terms thereof and non-audit
services (other than non-audit services prohibited under Section
10A(g) of the Exchange Act or the applicable rules of the SEC or
the Public Company Accounting Oversight Board) to be provided to us
by the independent auditor. However, the pre-approval requirement
may be waived with respect to the provision of non-audit services
for us if the “de minimus” provisions of Section
10A(i)(1)(B) of the Exchange Act are satisfied.
The Audit Committee has considered whether the provision of
audit-related fees, tax fees, and all other fees as described above
is compatible with maintaining Mazars USA LLP’s independence
and has determined that such services for fiscal year 2020 were
compatible. All such services were approved by the Audit Committee
pursuant to Rule 2-01 of Regulation S-X under the Exchange Act to
the extent that rule was applicable.
The
Audit Committee is responsible for reviewing and discussing the
audited financial statements with management, discussing with the
independent registered public accountants the matters required in
Auditing Standards No. 16, receiving written disclosures from the
independent registered public accountants required by the
applicable requirements of the Public Company Accounting Oversight
Board regarding the independent registered public
accountants’ communications with the Audit Committee
concerning independence and discussing with the independent
registered public accountants their independence, and recommending
to our board of directors that the audited financial statements be
included in our annual report on Form 10-K.
PA
R
T IV
ITEM 15.
EXHIBITS
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
Amended
and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, filed July 13,
2016).
|
|
|
|
Amended
and Restated Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-1,
filed with the SEC July 13, 2016).
|
|
|
|
Certificate
of Amendment to Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of the Company's Current
Report on Form 8-K, filed with the SEC December 30,
2019).
|
|
|
|
Certificate
of the Designations, Powers, Preferences and Rights of Series B
Convertible Preferred Stock (incorporated by reference to Exhibit
3.1 of the Company's Current Report on Form 8-K filed with the SEC
on July 20, 2020.)
|
|
|
|
Amended
and Restated Bylaws (incorporated by reference to Exhibit 3.1 of
the Company's Current Report on Form 8-K filed with the SEC on
August 5, 2020.)
|
|
|
|
Certificate
of the Designations, Powers, Preferences and Rights of Series C
9.00% Convertible Junior Preferred Stock (incorporated by reference
to Exhibit 3.1 of the Company’s Current Report on Form 8-K
filed with the SEC on January 8, 2021).
|
|
|
|
Certificate
of Amendment to the Certificate of Incorporation of the Registrant
(incorporated by reference to the Company’s Current Report on
Form 8-K filed with the SEC on February 25, 2021).
|
|
|
|
Form of
Common Stock Certificate (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form S-1, filed with the
SEC on July 29, 2016).
|
|
|
|
Form of
Investor Warrant (incorporated by reference to Exhibit 4.2 of the
Company’s Registration Statement on Form S-1 filed with the
SEC on July 13, 2016).
|
|
|
|
Form of
Underwriter Warrant (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1, filed with the
SEC on July 29, 2016).
|
|
|
|
Form of
Series A Warrant, dated April 11, 2017 between the Company and
Lincoln Park Capital Fund, LLC (incorporated by reference to
Exhibit 10.3 filed with the Company’s Current Report on Form
8-K filed with the SEC on April 12, 2017).
|
|
|
|
Form of
Series A Warrant, dated June 5, 2017 (incorporated by reference to
Exhibit 10.3 filed with the Company’s Current Report on Form
8-K filed with the SEC on June 9, 2017).
|
|
|
|
Form of
Series A-1 Warrant, dated June 5, 2017 (incorporated by reference
to Exhibit 10.4 filed with the Company’s Current Report on
Form 8-K filed with the SEC on June 9, 2017).
|
|
|
|
Form of
Underwriter Warrant (incorporated by reference to Exhibit 4.1 of
the Company’s Current Report on Form 8-K filed with the SEC
on May 4, 2018).
|
|
|
|
Form of
Selling Agent Warrant (incorporated by reference to Exhibit 4.1 of
the Company’s Current Report on Form 8-K filed with the SEC
on April 3, 2019).
|
|
|
|
Form of
Selling Agent Warrant (incorporated by reference to Exhibit 4.1 of
the Company’s Current Report on Form 8-K filed with the SEC
on May 14, 2019).
|
|
|
|
Form of
Wainwright Warrant (incorporated by reference to Exhibit 4.1 of the
Company’s Current Report on Form 8-K filed with the SEC on
July 22, 2019).
|
|
|
|
Form of Warrant (incorporated by reference to Exhibit 4.1 of the
Company’s Current Report on Form 8-K filed with the SEC on
July 20, 2020).
|
|
|
|
Form of Warrant for Convertible Notes Offering (incorporated by
reference to Exhibit 4.2 of the Company’s Registration
Statement on Form S-3 filed with the SEC on July 27,
2020).
|
|
|
|
Form of Pre-funded Warrant (incorporated by reference to Exhibit
4.1 of the Company’s Current Report on Form 8-K filed with
the SEC on January 4, 2021).
|
|
|
|
Form of Private Placement Warrant (incorporated by reference to
Exhibit 4.2 of the Company’s Current Report on Form 8-K filed
with the SEC on January 4, 2021).
|
|
|
|
Form of Wainwright Warrant (incorporated by reference to Exhibit
4.1 of the Company’s Current Report on Form 8-K filed with
the SEC on January 8, 2021).
|
|
|
|
Form of Pre-Funded Warrant (incorporated by reference to Exhibit
4.1 of the Company’s Current Report on Form 8-K filed with
the SEC on March 10, 2021).
|
|
|
Form of Warrant (incorporated by reference to Exhibit 4.2 of the
Company’s Current Report on Form 8-K filed with the SEC on
March 10, 2021).
|
|
|
|
Form of Wainwright Warrant (incorporated by reference to Exhibit
4.3 of the Company’s Current Report on Form 8-K filed with
the SEC on March 10, 2021).
|
|
|
4.19
*
|
|
Description of Capital Stock.
|
|
|
Stock
Purchase Agreement dated May 21, 2014 between the Registrant,
Protea Biosciences Group, Inc. and its wholly-owned subsidiary,
Protea Biosciences, Inc (incorporated by reference to Exhibit 10.1
of the Company’s Registration Statement on Form S-1 filed
with the SEC on July 13, 2016).
|
|
|
10.2
†
|
|
Amended
and Restated AzurRx BioPharma, Inc. 2014 Omnibus Equity Incentive
Plan (incorporated by reference to Exhibit 10.3 of the
Company’s Registration Statement on Form S-1 filed with the
SEC on July 13, 2016).
|
|
|
Securities
Purchase Agreement dated April 11, 2017 between the Registrant and
Lincoln Park Capital Fund, LLC (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed with the SEC on April 12, 2017).
|
|
|
|
Registration
Rights Agreement dated April 11, 2017 between the Registrant and
Lincoln Park Capital Fund, LLC (incorporated by reference to
Exhibit 10.4 of the Company’s Current Report on Form 8-K
filed with the SEC on April 12, 2017).
|
|
|
|
Form of
Securities Purchase Agreement dated June 5, 2017 (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed with the SEC on June 9, 2017).
|
|
|
|
Form of
Registration Rights Agreement dated June 5, 2017 (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on
Form 8-K filed with the SEC on April 12, 2017).
|
|
|
|
Sublicense
Agreement dated August 7, 2017 by and between the Registrant and
TransChem, Inc. (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the SEC on
August 11, 2017).
|
|
|
|
Asset
Sale and Purchase Agreement, dated December 7, 2018, by and between
Protea Biosciences Group, Inc., Protea Biosciences, Inc. and AzurRx
Biopharma, Inc. (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the SEC on
December 13, 2018).
|
|
|
|
Registration
Rights Agreement, dated February 14, 2019 (incorporated by
reference to Exhibit 10.6 of the Company’s Current Report on
Form 8-K filed with the SEC on February 20, 2019).
|
|
|
|
Asset Purchase Agreement,
by and between AzurRx BioPharma,
Inc., AzurRx BioPharma SAS
and Laboratoires Mayoly Spindler SAS, dated March
27, 2019 (incorporated by reference to Exhibit 10.25 of the
Company’s Annual Report on Form 10-K filed with the SEC on
April 1, 2019).
|
|
|
|
Patent
License Agreement, by and between AzurRx BioPharma, Inc.
and Laboratoires Mayoly Spindler SAS, dated March
27, 2019 (incorporated by reference to Exhibit 10.26 of the
Company’s Annual Report on Form 10-K filed with the SEC on
April 1, 2019).
|
|
|
10.12
†
|
|
Employment
Agreement by and between AzurRx BioPharma, Inc. and James
Sapirstein, dated October 8, 2019 (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed with the SEC on October 11, 2019).
|
|
|
Securities
Purchase Agreement, dated November 13, 2019 (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed with the SEC on November 14, 2019).
|
|
|
|
Registration
Rights Agreement, dated November 13, 2019 (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on
Form 8-K filed with the SEC on November 14, 2019).
|
|
|
10.1
5
|
|
Form of
Note Purchase Agreement (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K filed with the
SEC on December 30, 2019).
|
|
|
Form of
Warrant (incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K filed with the SEC on
December 30, 2019).
|
|
|
|
Form of
Registration Rights Agreement (incorporated by reference to Exhibit
10.4 of the Company’s Current Report on Form 8-K filed with
the SEC on December 30, 2019).
|
|
|
10.18
†
|
|
Employment
Agreement by and between AzurRx BioPharma, Inc. and Daniel
Schneiderman, dated January 1, 2020 (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed with the SEC on January 6, 2020).
|
|
|
Form of
Purchase Agreement, by and among the Company and the investors set
forth on the signature pages thereto, including the form of
Exchange Addendum (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the SEC on
July 20, 2020).
|
|
|
Form of
Registration Rights Agreement, by and among the Company and the
investors set forth on the signature page thereto (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on
Form 8-K filed with the SEC on July 20, 2020).
|
|
|
10.21
†
|
|
First
Amendment to 2014 Omnibus Equity Incentive Plan (incorporated by
reference as Exhibit 10.3 of the Company’s Current Report on
Form 8-K filed with the SEC on July 20, 2020).
|
|
10.22
†
|
|
2020
Omnibus Equity Incentive Plan (incorporated by reference to Exhibit
10.4 of the Company’s Quarterly Report on Form 10-Q filed
with the SEC on November 16, 2020).
|
|
|
Form of
Purchase Agreement (incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K filed with the SEC
on January 4, 2021).
|
|
|
|
Form of
Registration Rights Agreement (incorporated by reference to Exhibit
10.2 of the Company’s Current Report on Form 8-K filed with
the SEC on January 4, 2021).
|
|
|
|
First
Wave Purchase Agreement (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K filed with the
SEC on January 8, 2021).
|
|
|
10.26
#
|
|
First
Wave License Agreement (
incorporated
by reference to Exhibit 10.1 filed with the Company’s Current
Report on Form 8-K filed with the SEC on January 13,
2021).
|
|
|
Form of
Purchase Agreement (
incorporated by
reference to Exhibit 10.1 filed with the Company’s Current
Report on Form 8-K filed with the SEC on March 10,
2021).
|
|
|
|
Subsidiaries
of the Registrant (incorporated by reference to Exhibit 21.1 filed
with the Company’s Registration Statement on Form S-1 filed
with the SEC on July 13, 2016).
|
|
|
23.1
*
|
|
Consent
of Mazars USA LLP.
|
|
|
Certification
of CEO as Required by Rule 13a-14(a) or Rule
15d-14(a).
|
|
|
|
Certification
of CFO as Required by Rule 13a-14(a) or Rule
15d-14(a).
|
|
|
|
Certification
of CEO and CFO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17
CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of
the United States Code.
|
|
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema
|
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
* Filed
herewith.
# Certain
portions of this exhibit (indicated by “[*****]”) have
been omitted as we have determined (1) it is not material and
(2) is the type that the Company treats as private or
confidential.
|
†
|
Indicates
a management contract or compensation plan, contract or
arrangement.
|
I
TEM 16: FORM 10-K
SUMMARY
None.
SI
G
NATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly
authorized.
|
|
AZURRX BIOPHARMA, INC.
|
|
March 31, 2021
|
By:
/s/ James
Sapirstein
Name: James
Sapirstein
Title: President and
Chief Executive Officer
By:
/s/ Daniel
Schneiderman
Name: Daniel
Schneiderman
Title: Chief Financial
Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on
behalf of the registrant and in the capacities held on the dates
indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ James Sapirstein
|
|
President, Chief Executive Officer and Chair of the Board of
Directors
|
|
March 31, 2021
|
|
James Sapirstein
|
|
(principal executive officer)
|
|
|
|
|
|
|
|
|
|
/s/ Daniel Schneiderman
|
|
Chief Financial Officer
|
|
March 31, 2021
|
|
Daniel Schneiderman
|
|
(principal financial officer and accounting officer)
|
|
|
|
|
|
|
|
|
|
/s/ Edward J. Borkowski
|
|
Director
|
|
March 31, 2021
|
|
Edward J. Borkowski
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Charles J. Casamento
|
|
Director
|
|
March 31, 2021
|
|
Charles J. Casamento
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Alastair Riddell
|
|
Director
|
|
March 31, 2021
|
|
Alastair Riddell
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Vern L. Schramm
|
|
Director
|
|
March 31, 2021
|
|
Vern L. Schramm
|
|
|
|
|
|
/s/ Gregory Oakes
|
|
Director
|
|
March 31, 2021
|
|
Gregory Oakes
|
|
|
|
|
AzurRx B
i
oPharma,
Inc.
Index to Consolidated Financial Statements
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
|
REPORT OF I
N
DEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and the Board of Directors of AzurRx BioPharma,
Inc.
Opinion
on the
Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of
AzurRx BioPharma, Inc. (the “Company”) as of December
31, 2020 and 2019, and the related consolidated statements of
operations and comprehensive loss, changes in stockholders’
equity, and cash flows for the years then ended, and the related
notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2020 and 2019,
and the results of their operations and their cash flows for the
years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Emphasis of a Matter
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has incurred significant operating losses and negative cash
flows from operations since inception. The Company also had an
accumulated deficit of approximately $95.4 million at December 31,
2020. The Company is dependent on obtaining necessary funding from
outside sources, including obtaining additional funding from the
sale of securities in order to continue their operations. These
conditions raise substantial doubt about its ability to continue as
a going concern. Management’s plans regarding those matters
also are described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting
firm registered with the Public Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent
with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform
an audit of the Company's internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no
such opinion.
Our audits
included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the
consolidated
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Mazars USA LLP
We have
served as the Company’s auditor since 2015.
New
York, New York
March
31, 2021
AZURRX BIOPH
A
RMA,
INC.
Consolidated Balance Sheets
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
$
6,062,141
|
$
175,796
|
|
Other
receivables
|
551,489
|
2,637,303
|
|
Prepaid
expenses
|
1,256,154
|
595,187
|
|
Total
Current Assets
|
7,869,784
|
3,408,286
|
|
|
|
|
|
Property,
equipment, and leasehold improvements, net
|
18,329
|
77,391
|
|
|
|
|
|
Other
Assets:
|
|
|
|
Patents,
net
|
2,879,536
|
3,407,084
|
|
Goodwill
|
2,054,048
|
1,886,686
|
|
Operating
lease right-of-use assets
|
74,238
|
82,386
|
|
Deposits
|
27,920
|
41,047
|
|
Total
Other Assets
|
5,035,742
|
5,417,203
|
|
Total
Assets
|
$
12,923,855
|
$
8,902,880
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable and accrued expenses
|
$
1,685,603
|
$
1,754,682
|
|
Accounts
payable and accrued expenses - related party
|
-
|
533,428
|
|
Payables
related to license agreement
|
13,250,000
|
-
|
|
Note
payable
|
552,405
|
444,364
|
|
Convertible
debt
|
-
|
1,076,938
|
|
Other
current liabilities
|
57,417
|
476,224
|
|
Total
Current Liabilities
|
15,545,425
|
4,285,636
|
|
|
|
|
|
Other
liabilities
|
19,123
|
-
|
|
Total
Liabilities
|
15,564,548
|
4,285,636
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
Common
stock - Par value $0.0001 per share; 150,000,000 shares authorized;
31,150,309 and 26,800,519 shares issued and outstanding at December
31, 2020 and December 31, 2019, respectively.
|
3,115
|
2,680
|
|
Series
B preferred stock- Par value $0.0001 per share; 5,194.81 shares
authorized; 2,773.62 and 0 shares issued and outstanding at
December 31, 2020 and December 31, 2019, respectively.
|
-
|
-
|
|
Additional
paid-in capital
|
93,834,936
|
68,575,851
|
|
Accumulated
deficit
|
(95,366,198
)
|
(62,694,732
)
|
|
Accumulated
other comprehensive loss
|
(1,112,546
)
|
(1,266,555
)
|
|
Total
Stockholders' Equity
|
(2,640,693
)
|
4,617,244
|
|
Total
Liabilities and Stockholders' Equity
|
$
12,923,855
|
$
8,902,880
|
The accompanying notes are an integral part of these Consolidated
Financial Statements.
AZURRX BIOPH
A
RMA, INC.
Consolidated Statements of Operations and Comprehensive
Loss
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Operating
expenses:
|
|
|
|
Research
and development expenses
|
$
5,888,004
|
$
8,680,669
|
|
Research
and development expenses - license acquired
|
13,250,000
|
-
|
|
General
and administrative expenses
|
7,294,764
|
6,063,078
|
|
Total
operating expenses
|
26,432,768
|
14,743,747
|
|
|
|
|
|
Loss
from operations
|
(26,432,768
)
|
(14,743,747
)
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
Interest
expense
|
(5,840,614
)
|
(433,939
)
|
|
Interest
income
|
484
|
-
|
|
Gain
on settlement
|
211,430
|
-
|
|
Loss
on debt extinguishment
|
(609,998
)
|
-
|
|
Total
other income (expenses)
|
(6,238,698
)
|
(433,939
)
|
|
|
|
|
|
Loss
before income taxes
|
(32,671,466
)
|
(15,177,686
)
|
|
|
|
|
|
Income
taxes
|
-
|
-
|
|
|
|
|
|
Net loss
|
$
(32,671,466
)
|
$
(15,177,686
)
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
Foreign
currency translation adjustment
|
(154,009
)
|
(116,443
)
|
|
Total
comprehensive loss
|
$
(32,825,475
)
|
$
(15,294,129
)
|
|
|
|
|
|
Net
loss
|
$
(32,671,466
)
|
$
(15,177,686
)
|
|
Deemed
dividend of preferred stock
|
(8,155,212
)
|
-
|
|
Series
B preferred stock dividends
|
(905,660
)
|
-
|
|
Net
loss applicable to common stockholders
|
(41,732,338
)
|
(15,177,686
)
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding
|
28,436,292
|
22,425,564
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
$
(1.15
)
|
$
(0.68
)
|
The accompanying notes are an integral part of these Consolidated
Financial Statements.
AZURRX BIOP
H
ARMA,
INC.
Consolidated Statements of Changes in Stockholders'
Equity
|
|
Series B Preferred Stock
|
Common Stock
|
Additional Paid In
|
Accumulated
|
Accumulated Other
Comprehensive
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Loss
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
-
|
$
-
|
17,704,925
|
$
1,771
|
$
53,139,259
|
$
(47,517,046
)
|
$
(1,150,112
)
|
$
4,473,872
|
|
Common stock
issued from public offering
|
|
|
7,522,097
|
752
|
9,475,997
|
|
|
9,476,749
|
|
Common stock
issued to consultants
|
|
|
190,398
|
19
|
209,981
|
|
|
210,000
|
|
Common stock
issued for warrant exercises
|
|
|
775,931
|
77
|
1,740,882
|
|
|
1,740,959
|
|
Common stock
issued to Lincoln Park for equity purchase
agreement
|
|
|
487,168
|
49
|
(49
)
|
|
|
-
|
|
Warrants
issued in association with convertible debt
issuances
|
|
|
|
|
1,081,673
|
|
|
1,081,673
|
|
Beneficial
conversion feature on convertible debt
issuances
|
|
|
|
|
1,359,284
|
|
|
1,359,284
|
|
Stock-based
compensation
|
|
|
|
|
574,335
|
|
|
574,335
|
|
Restricted
stock granted to employees/directors
|
|
|
120,000
|
12
|
607,579
|
|
|
607,591
|
|
Convertible
debt converted into common stock
|
|
|
|
|
325,320
|
|
|
325,320
|
|
Warrant
modification
|
|
|
|
|
61,590
|
|
|
61,590
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
(116,443
)
|
(116,443
)
|
|
Net
loss
|
|
|
|
|
|
(15,177,686
)
|
|
(15,177,686
)
|
|
Balance, December 31, 2019
|
-
|
$
-
|
26,800,519
|
$
2,680
|
$
68,575,851
|
$
(62,694,732
)
|
$
(1,266,555
)
|
$
4,617,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020
|
-
|
$
-
|
26,800,519
|
$
2,680
|
$
68,575,851
|
$
(62,694,732
)
|
$
(1,266,555
)
|
$
4,617,244
|
|
Issuance of
Series B preferred stock and warrants for cash, conversion of
promissory notes, net
|
2,912
|
-
|
-
|
-
|
14,460,155
|
-
|
-
|
14,460,155
|
|
Warrants
issued in connection with Series B preferred stock
offering
|
-
|
-
|
-
|
-
|
5,952,516
|
-
|
-
|
5,952,516
|
|
Warrants
issued as inducement to exchange promissory notes into Series B
preferred stock offering
|
-
|
-
|
-
|
-
|
986,526
|
-
|
-
|
986,526
|
|
Series B
Preferred Stock
|
-
|
-
|
-
|
-
|
8,155,212
|
-
|
-
|
8,155,212
|
|
Deemed
dividend of preferred stock
|
-
|
-
|
-
|
-
|
(8,155,212
)
|
-
|
-
|
(8,155,212
)
|
|
Deemed
dividend related to exchange of promissory notes into Series B
preferred stock
|
-
|
-
|
-
|
-
|
(1,129,742
)
|
-
|
-
|
(1,129,742
)
|
|
Issuance of
Series B preferred PIK shares for accrued
dividends
|
118
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Common stock
issued upon conversion of Series B preferred
stock
|
(256
)
|
-
|
2,565,813
|
257
|
(257
)
|
-
|
-
|
-
|
|
Common stock
issued to settle accounts payable
|
-
|
-
|
105,937
|
11
|
131,126
|
-
|
-
|
131,137
|
|
Common stock
issued to Lincoln Park for equity purchase
agreement
|
-
|
-
|
1,495,199
|
149
|
988,199
|
-
|
-
|
988,348
|
|
Warrants
issued in association with convertible debt
issuances
|
-
|
-
|
-
|
-
|
1,252,558
|
-
|
-
|
1,252,558
|
|
Beneficial
conversion feature on convertible debt
issuances
|
-
|
-
|
-
|
-
|
1,838,422
|
-
|
-
|
1,838,422
|
|
Common stock
issued to consultants
|
-
|
-
|
182,841
|
18
|
144,387
|
-
|
-
|
144,405
|
|
Settlement
with former chief executive officer
|
-
|
-
|
-
|
-
|
85,770
|
-
|
-
|
85,770
|
|
Stock-based
compensation
|
-
|
-
|
-
|
-
|
549,425
|
-
|
-
|
549,425
|
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
154,009
|
154,009
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(32,671,466
)
|
-
|
(32,671,466
)
|
|
Balance, December 31, 2020
|
2,774
|
$
-
|
31,150,309
|
$
3,115
|
$
93,834,936
|
$
(95,366,198
)
|
$
(1,112,546
)
|
$
(2,640,693
)
|
The accompanying notes are an integral part of these Consolidated
Financial Statements.
AZURRX BIOPHAR
M
A,
INC.
Consolidated Statements of Cash Flows
|
|
Year Ended
December
31,
|
|
|
|
2020
|
2019
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$
(32,671,466
)
|
$
(15,177,686
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
|
37,797
|
63,096
|
|
Amortization
|
527,548
|
956,950
|
|
Non-cash
lease expense
|
(4,855
)
|
-
|
|
Fixed
assets written off
|
10,950
|
7,296
|
|
Stock-based
compensation
|
522,133
|
574,335
|
|
Restricted
stock granted to employees/directors
|
27,292
|
607,591
|
|
Common
stock granted to consultants
|
166,905
|
210,000
|
|
Accreted
interest on convertible debt
|
234,074
|
112,543
|
|
Accretion
of debt discount
|
4,580,168
|
313,364
|
|
Loss
on debt extinguishment
|
609,998
|
-
|
|
Gain
on settlement
|
(211,430
)
|
-
|
|
Beneficial
conversion feature related to promissory note exchange
|
798,413
|
-
|
|
Net
changes in assets and liabilities:
|
|
|
|
Other
receivables
|
2,083,270
|
(749,859
)
|
|
Prepaid
expenses
|
(660,845
)
|
(85,681
)
|
|
Right
of use assets
|
(110,835
)
|
(82,234
)
|
|
Deposits
|
(15,412
)
|
3,900
|
|
Accounts
payable and accrued expenses
|
(750,027
)
|
(420,788
)
|
|
Payables
related to license agreement
|
13,250,000
|
-
|
|
Accrued
dividends payable
|
-
|
-
|
|
Other
liabilities
|
354,784
|
(366,329
)
|
|
Net
cash used in operating activities
|
(11,221,538
)
|
(14,033,502
)
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Purchase
of property and equipment, net
|
(4,167
)
|
(24,098
)
|
|
Proceeds
from sale of property and equipment, net
|
91,517
|
-
|
|
Net
cash used in investing activities
|
87,350
|
(24,098
)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds
from issuance of note payable, net
|
799,772
|
498,783
|
|
Proceeds
from issuance of common stock, net
|
988,348
|
9,476,749
|
|
Proceeds
from issuance of convertible debt, net
|
3,227,002
|
4,967,308
|
|
Proceeds
from issuance of preferred stock, net
|
13,197,740
|
-
|
|
Received
from stockholder in relation to warrant modification
|
-
|
61,590
|
|
Repayments
of note payable
|
(691,741
)
|
(309,451
)
|
|
Repayments
of convertible debt
|
(475,000
)
|
(1,550,000
)
|
|
Net
cash provided by financing activities
|
17,046,121
|
13,144,979
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
5,911,933
|
(912,621
)
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
(25,588
)
|
(25,926
)
|
|
|
|
|
|
Cash
and cash equivalents, beginning balance
|
175,796
|
1,114,343
|
|
Cash and cash equivalents, ending balance
|
$
6,062,141
|
$
175,796
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
Cash
paid for interest
|
$
105,460
|
$
8,032
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
Common
stock issued for patents purchased from Mayoly
|
$
-
|
$
1,740,959
|
|
Warrant
modification related to convertible debt issuance
|
$
-
|
$
325,320
|
|
Deemed
dividend on preferred stock
|
$
8,155,212
|
$
-
|
|
Accrued
dividends on preferred stock
|
$
905,660
|
$
-
|
|
Exchange
of promissory notes into preferred stock and warrants
|
$
609,998
|
$
-
|
|
Payables
related to license agreement
|
$
13,250,000
|
$
-
|
The accompanying notes are an integral part of these Consolidated
Financial Statements.
AZURRX BIOP
H
ARMA, INC.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
Note 1 - The Company and Basis of Presentation
The Company
AzurRx BioPharma, Inc. (“
AzurRx
” or “
Parent
”) was incorporated on January 30, 2014 in
the State of Delaware. In June 2014, the Company acquired 100% of
the issued and outstanding capital stock of AzurRx SAS (formerly
“
ProteaBio Europe
SAS
”), a company
incorporated in October 2008 under the laws of France. Parent and
its wholly-owned subsidiary, AzurRx SAS (“
ABS
”), are collectively referred to as the
“
Company
”.
The Company is engaged in the research and development of targeted,
non-systemic therapies for the treatment of patients with
gastrointestinal (“
GI
”) diseases. Non-systemic therapies are
non-absorbable drugs that act locally, i.e. in the intestinal
lumen, skin or mucosa, without reaching an individual’s
systemic circulation.
The Company is
currently focused on
developing its pipeline of gut-restricted GI clinical drug
candidates. Our lead drug candidate is MS1819, a recombinant
lipase for the treatment of exocrine pancreatic insufficiency
(“
EPI
”)
in patients with
cystic
fibrosis (“
CF
”) and chronic pancreatitis
(“
CP
”)
, currently in two
Phase 2 CF clinical trials. In 2021, we plan to launch two
clinical programs using in-licensed proprietary formulations of
niclosamide, a pro-inflammatory pathway inhibitor; FW-1022,
for Severe Acute Respiratory Syndrome Coronavirus 2
(“
COVID-19
”)
GI infections, and FW-420, for Grade 1 Immune Checkpoint
Inhibitor-Associated Colitis (“
ICI-AC
”)
and diarrhea in oncology patients.
Since its inception, the Company has devoted substantially all of
its efforts to research and development, business development, and
raising capital, and has financed its operations through issuance
of common stock, convertible preferred stock, convertible debt and
other debt/equity instruments. The Company is subject to risks and
uncertainties common to early-stage companies in the biotechnology
industry, including, but not limited to, development and regulatory
success, development by competitors of new technological
innovations, dependence on key personnel, protection of proprietary
technology, compliance with government regulations, and ability to
secure additional capital to fund operations.
Historically, the Company’s major sources of cash have been
comprised of proceeds from various public and private offerings of
its capital stock. As of December 31, 2020, the Company had
approximately $6.1 million in cash and cash equivalents. The
Company has incurred recurring losses, has experienced recurring
negative operating cash flows and requires significant cash
resources to execute its business plans. The Company has an
accumulated deficit of approximately $95.4 million as of December
31, 2020.
We have implemented business continuity plans designed to address
and mitigate the impact of the COVID-19 pandemic on our
business. The extent to which the ongoing COVID-19
pandemic impacts our business, our clinical development and
regulatory efforts, our corporate development objectives and the
value of and market for our Common Stock, will depend on future
developments that are highly uncertain and cannot be predicted with
confidence at this time, such as the ultimate duration of the
pandemic
, travel restrictions,
quarantines, social distancing and business closure requirements in
the U.S., Europe and other countries, and the effectiveness of
actions taken globally to contain and treat the
disease. The
global economic slowdown, the overall disruption
of global healthcare systems and the other risks and uncertainties
associated with the pandemic could have a material adverse effect
on our business, financial condition, results of operations and
growth prospects.
In addition, we are subject to other challenges and risks specific
to our business and our ability to execute on our strategy, as well
as risks and uncertainties common to companies in the
pharmaceutical industry with development and commercial operations,
including, without limitation, risks and uncertainties associated
with: obtaining regulatory approval of our drug candidates; delays
or problems in the manufacture and supply of our drug candidates,
loss of single source suppliers or failure to comply with
manufacturing regulations; identifying, acquiring or in-licensing
additional products or drug candidates; pharmaceutical product
development and the inherent uncertainty of clinical success; and
the challenges of protecting and enhancing our intellectual
property rights; complying with applicable regulatory
requirements. In addition, to the extent the
ongoing COVID-19 pandemic adversely affects our business and
results of operations, it may also have the effect of heightening
many of the other risks and uncertainties discussed
above.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States of America
(“
GAAP
”) and
include the accounts of AzurRx
and its wholly-owned subsidiary, AzurRx SAS. Intercompany
transactions and balances have been eliminated upon
consolidation.
The
accompanying consolidated financial statements have been prepared
as if the Company will continue as a going concern. The Company has
incurred significant operating losses and negative cash flows from
operations since inception. At December 31, 2020, we had an
accumulated deficit of approximately $95.4 million and had negative
working capital of approximately $4.7 million. The Company is
dependent on obtaining additional working capital funding from the
sale of equity securities and/or debt in order to continue to
execute its development plan and continue operations.
Subsequent
to
December 31, 2020, we have raised aggregate gross proceeds of
approximately $18.0 million from the sale of preferred stock and
Common Stock in public offerings and private placement
transactions. Net proceeds from our 2021 offerings are intended to
be used for the cash consideration to First Wave under the First
Wave License Agreement, to initiate our two niclosamide programs in
2021, and for other general corporate purposes. Additionally, we
have received gross cash proceeds of approximately $4.6 million
from the exercise of warrants, which proceeds are intended to be
used for general corporate purposes.
Without
adequate working capital, the Company may not be able to meet its
obligations and continue as a going concern. These conditions raise
substantial doubt about the Company’s ability to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Note 2 - Significant Accounting Policies and Recent Accounting
Pronouncements
Use of Estimates
The
accompanying consolidated financial statements are prepared in
conformity with GAAP and include certain estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements (including goodwill, intangible assets and
contingent consideration), and the reported amounts of revenue and
expense during the reporting period, including contingencies.
Accordingly, actual results may differ from those
estimates
Cash and Cash Equivalents
The
Company considers all highly liquid investments with maturities of
three months or less from date of purchase to be cash equivalents.
All cash and cash equivalent balances were highly liquid at
December 31, 2020 and 2019, respectively.
Concentrations of Credit Risk
Financial
instruments that potentially expose the Company to concentrations
of credit risk consist of cash. The Company primarily maintains its
cash balances with financial institutions in federally insured
accounts in the U.S. The Company may from time to time have cash in
banks in excess of FDIC insurance limits. At December 31, 2020 and
2019, the Company had approximately $2.7 million and $0,
respectively, in one account in the U.S. in excess of these limits.
The Company has not experienced any losses to date resulting from
this practice. The Company mitigates its risk by maintaining the
majority of its cash and equivalents with high quality financial
institutions.
The
Company also has exposure to foreign currency risk as its
subsidiary in France has a functional currency in
Euros.
Cyber-Related Fraud
In
August 2019, management was advised that it was a victim of a
cyber-related fraud whereby a hacker impersonated one of the
Company’s key vendors to redirect payments, totaling
approximately $420,000. The Company, including the Audit Committee,
completed its investigation and is reviewing all available avenues
of recovery, including from the Company’s financial
institution to recover the payments. As of December 31, 2020, the
Company had recovered approximately $50,000 from its financial
institution but management is unable to determine the probability
of recovering anything further from the cyber-related fraud.
Therefore, as of December 31, 2019, the Company recorded a loss of
approximately $370,000 which is included in general and
administrative expense. As a result of the cyber-related fraud, the
Company has instituted additional controls and procedures and all
employees now undergone cybersecurity training.
Debt Instruments
Detachable warrants issued in conjunction with debt are measured at
their relative fair value, if they are determined to be equity
instrument, or their fair value, if they are determined to be
liability instruments, and recorded as a debt
discount. Conversion features that are in the money at
the commitment date constitute a beneficial conversion feature that
is measured at its intrinsic value and recognized as debt discount.
Debt discount is amortized as interest expense over the maturity
period of the debt using the effective interest method. Contingent
beneficial conversion features are recognized when the contingency
has been resolved.
Debt Issuance Costs
Debt issuance costs are recorded as a direct reduction of the
carrying amount of the related debt. Debt issuance costs are
amortized over the maturity period of the related debt instrument
using the effective interest method.
Equity-Based Payments to Non-Employees
Equity-based
payments to non-employees are measured at fair value on the grant
date per ASU No. 2018-07, Improvements to Nonemployee Share-Based
Payment Accounting.
Fair Value Measurements
The
Company follows Accounting Standards Codification
(“ASC”
) Topic 820-10, Fair
Value Measurements and Disclosures
(“ASC 820”
), which among
other things, defines fair value, establishes a consistent
framework for measuring fair value and expands disclosure for each
major asset and liability category measured at fair value on either
a recurring or nonrecurring basis. Fair value is an exit price,
representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that
market participants would use in pricing an asset or
liability.
As a
basis for considering such assumptions, a three-tier fair value
hierarchy has been established, which prioritizes the inputs used
in measuring fair value as follows:
Level
1: Observable inputs such as quoted prices (unadjusted) in active
markets for identical assets or liabilities;
Level
2: Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
Level
3: Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own assumptions,
which reflect those that a market participant would
use.
In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an
instrument’s level within the fair value hierarchy is based
on the lowest level of input that is significant to the overall
fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement in
its entirety requires judgment and considers factors specific to
the financial instrument.
The
Company recognizes transfers between levels as if the transfers
occurred on the last day of the reporting period.
Foreign Currency Translation
For
foreign subsidiaries with operations denominated in a foreign
currency, assets and liabilities are translated to U.S. dollars,
which is the functional currency, at period end exchange rates.
Income and expense items are translated at average rates of
exchange prevailing during the periods presented. Gains and losses
from translation adjustments are accumulated in a separate
component of stockholders’ equity.
Goodwill and Intangible Assets
Goodwill
represents the excess of the purchase price of the acquired
business over the fair value of amounts assigned to assets acquired
and liabilities assumed. Goodwill and other intangible assets with
indefinite useful lives are reviewed for impairment annually or
more frequently if events or circumstances indicate impairment may
be present. Any excess in carrying value over the estimated fair
value is charged to results of operations. The Company has not
recognized any impairment charges through December 31,
2020.
Intangible assets subject to amortization consist of in process
research and development, license agreements, and patents reported
at the fair value at date of the acquisition less accumulated
amortization. Amortization expense is provided using the
straight-line method over the estimated useful lives of the assets
as follows:
Patents
7.2 years
In
Process Research &
Development
12 years
License
Agreements
5 years
Impairment of Long-Lived Assets
The
Company periodically evaluates its long-lived assets for potential
impairment in accordance with ASC Topic 360, Property, Plant and
Equipment
(“ASC
360”
). Potential impairment is assessed when there is
evidence that events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. Recoverability of
these assets is assessed based on undiscounted expected future cash
flows from the assets, considering a number of factors, including
past operating results, budgets and economic projections, market
trends and product development cycles. If impairments are
identified, assets are written down to their estimated fair value.
The Company has not recognized any impairment charges through
December 31, 2020.
Income Taxes
Income
taxes are recorded in accordance with ASC 740, Accounting for
Income Taxes
(“ASC
740”
), which provides for deferred taxes using an
asset and liability approach. The Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax
returns. The Company determines its deferred tax assets and
liabilities based on differences between financial reporting and
tax bases of assets and liabilities, which are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are
provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets
will not be realized.
The
Company accounts for uncertain tax positions in accordance with the
provisions of ASC 740. When uncertain tax positions exist, the
Company recognizes the tax benefit of tax positions to the extent
that the benefit will more likely than not be realized. The
determination as to whether the tax benefit will more likely than
not be realized is based upon the technical merits of the tax
position as well as consideration of the available facts and
circumstances. At December 31, 2020 and 2019, the Company does not
have any significant uncertain tax positions. All tax years are
still open for audit.
Leases
Effective
January 1, 2019, the Company adopted Accounting Standards Update
(“
ASU
”) No.
2016-02, “Leases”. This ASU requires substantially all
leases be recorded on the balance sheet as right of use assets and
lease obligations. The Company adopted the ASU using a modified
retrospective adoption method at January 1, 2019, as outlined in
ASU No. 2018-11, “Leases - Targeted Improvements”.
Under this method of adoption, there is no impact to the
comparative consolidated statement of operations and consolidated
balance sheet. The Company determined that there was no
cumulative-effect adjustment to beginning retained earnings on the
consolidated balance sheet. In addition, the Company elected the
package of practical expedients permitted under the transition
guidance within the new standard, which among other things, allowed
carryforward of historical lease classifications. Adoption of this
standard did not materially impact the Company’s results of
operations and had no impact on the consolidated statement of cash
flows.
Research and Development
Research
and development costs are charged to operations when incurred and
are included in operating expense. Research and development costs
consist principally of
compensation
of employees and consultants that perform the Company’s
research activities, the fees paid for and to maintain the
Company’s licenses, and the payments to third parties for
clinical trials and manufacturing, and amortization of intangible
assets related to the acquisition of MS1819.
Stock-Based Compensation
The
Company’s board of directors (the “
Board
”) and stockholders have
adopted and approved the Amended and Restated 2014 Omnibus Equity
Incentive Plan (the “
2014
Plan
”) which took effect on May 12, 2014, and the 2020
Omnibus Equity Incentive Plan, which took effect on September 11,
2020 (the “
2020
Plan
”). From the effective date of the 2020 Plan, no
new awards have been or will be made under the 2014 Plan. The
Company accounts for its stock-based compensation awards to
employees and Board members in accordance with ASC Topic 718,
Compensation—Stock Compensation (“
ASC 718
”). ASC 718 requires all
stock-based payments to employees and Board members, including
grants of employee stock options, to be recognized in the
statements of operations by measuring the fair value of the award
on the date of grant and recognizing this fair value as stock-based
compensation using a straight-line method over the requisite
service period, generally the vesting period.
For
awards with performance conditions that affect their vesting, such
as the occurrence of certain transactions or the achievement of
certain operating or financial milestones, recognition of fair
value of the award occurs when vesting becomes
probable.
The
Company estimates the grant date fair value of stock option awards
using the Black-Scholes option-pricing model. The use of the
Black-Scholes option-pricing model requires management to make
assumptions with respect to the expected term of the option, the
expected volatility of the Common Stock consistent with the
expected life of the option, risk-free interest rates and expected
dividend yields of the Common Stock.
License Agreements
As more
fully discussed in Note 14, the Company entered into a license
agreement (the “
First Wave
License Agreement
”) with First Wave Bio, Inc.
(“
First Wave
”),
pursuant to which First Wave granted the Company an exclusive
license to certain patents and patent applications related to a
proprietary formulation of niclosamide for use in the fields of
ICI-AC and
COVID-19 GI infections. The acquisition of intellectual property
and patents for
the worldwide,
exclusive right to develop, manufacture, and commercialize
proprietary formulations of niclosamide for the fields of treating
ICI-AC and COVID-19 in humans was accounted for as an asset
acquisition and
initial liabilities of approximately $13.3
million in connection with the license acquisition were recorded as
research and development expense, because it was determined to have
no alternative future uses and therefore no separate economic
value, which included cash payments totaling approximately $10.3
million and the issuance of approximately $3.0 million of preferred
stock.
As more
fully discussed in Note 14, the Company entered into a sublicense
agreement with TransChem, Inc. (“
TransChem
”), pursuant to which
TransChem granted the Company an exclusive license to certain
patents and patent applications. Payments made to TransChem in
connection with this sublicence agreement were recorded as research
and development expense. The Company terminated the sublicence
agreement with TransChem during the year ended December 31,
2020.
Subsequent Events
The
Company considered events or transactions occurring after the
balance sheet date but prior to the date the consolidated financial
statements are available to be issued for potential recognition or
disclosure in its consolidated financial statements.
Recent Accounting Pronouncements
In
January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill
and Other, Simplifying the Accounting for Goodwill Impairment. ASU
2017-04 removes Step 2 of the goodwill impairment test, which
requires a hypothetical purchase price allocation. A goodwill
impairment will now be the amount by which a reporting unit’s
carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. All other goodwill impairment guidance will
remain largely unchanged. Entities will continue to have the option
to perform a qualitative assessment to determine if a quantitative
impairment test is necessary. This new guidance will be applied
prospectively and is effective for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019.
This ASU, which the Company adopted as of January 1, 2020, did not
have a material effect on the Company’s consolidated
financial statements.
In
August 2020, the FASB issued accounting pronouncement (ASU 2020-06)
related to the measurement and disclosure requirements for
convertible instruments and contracts in an entity's own equity.
The pronouncement simplifies and adds disclosure requirements for
the accounting and measurement of convertible instruments and the
settlement assessment for contracts in an entity's own equity. As a
smaller reporting company, as defined by the U.S. Securities and
Exchange Commission (the
"SEC"
), this pronouncement is effective
for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2023. The Company is currently
evaluating the impact of this ASU on the financial
statements.
Note 3 -
Fair Value
Disclosures
Fair
value is the price that would be received from the sale of an asset
or paid to transfer a liability assuming an orderly transaction in
the most advantageous market at the measurement date. GAAP
establishes a hierarchical disclosure framework that prioritizes
and ranks the level of observability of inputs used in measuring
fair value.
The
fair value of the Company's financial instruments are as
follows:
|
|
|
Fair Value Measured at Reporting Date Using
|
|
||
|
|
Carrying Amount
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|
At
December 31, 2020:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
6,062,141
|
$
3,000,184
|
$
3,061,957
|
$
-
|
$
6,062,141
|
|
Other
receivables
|
$
551,489
|
$
-
|
$
-
|
$
-
|
$
551,489
|
|
Note
payable
|
$
552,405
|
$
-
|
$
-
|
$
-
|
$
552,405
|
|
|
|
|
|
|
|
|
At
December 31, 2019:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
175,796
|
$
-
|
$
175,796
|
$
-
|
$
175,796
|
|
Other
receivables
|
$
2,637,303
|
$
-
|
$
-
|
$
2,637,303
|
$
2,637,303
|
|
Note
payable
|
$
444,364
|
$
-
|
$
-
|
$
444,364
|
$
444,364
|
|
Convertible
debt
|
$
1,076,938
|
$
-
|
$
-
|
$
1,076,938
|
$
1,076,938
|
At
December 31, 2020, cash and cash equivalents included approximately
$3.0 million held in high-quality money market funds quoted in an
active market and included in level 1 in the table
above.
The
fair value of other receivables approximates carrying value as
these consist primarily of French research and development tax
credits that are normally received the following year.
The
fair value of the note payable in connection with the financing of
directors and officer’s liability insurance approximates
carrying value due to the terms of such instruments and applicable
interest rates.
The
convertible debt is based on its fair value less unamortized debt
discount plus accrued interest through the date of reporting (see
Note 9).
Note 4 - Other Receivables
Other
receivables consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Research
and development tax credits
|
$
493,906
|
$
2,566,281
|
|
Other
|
57,583
|
71,022
|
|
Total
other receivables
|
$
551,489
|
$
2,637,303
|
At
December 31, 2020, r
esearch and
development
tax credits was comprised of the 2020 refundable
tax credits for research conducted in France and Europe. At
December 31, 2019, the r
esearch and
development
tax credits were comprised of the 2017, 2018,
and 2019 refundable tax credits for research conducted in France
and Europe. During the year ended December 31, 2020, the Company
received the 2017, 2018 and 2019 refundable tax
credits.
At
December 31, 2020 and 2019, other consisted of amounts due from
U.S. r
esearch and development
tax credits.
Note 5 - Property, Equipment and Leasehold
Improvements
Property,
equipment and leasehold improvements consisted of the
following:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Laboratory
equipment
|
$
2,410
|
$
193,661
|
|
Computer
equipment
|
19,676
|
74,836
|
|
Office
equipment
|
5,483
|
36,703
|
|
Leasehold
improvements
|
29,163
|
35,711
|
|
Total
property, plant and equipment
|
56,732
|
340,911
|
|
Less
accumulated depreciation
|
(38,403
)
|
(263,520
)
|
|
Property,
plant and equipment, net
|
$
18,329
|
$
77,391
|
Depreciation
expense was approximately $48,000 and $63,000 for the years ended
December 31, 2020 and 2019, respectively. Approximately $10,000 of
write-offs of fixed assets was included in depreciation for the
year ended December 31, 2020.
For the
year ended December 31, 2020, approximately $33,000 of depreciation
was included in research and development expense and approximately
$15,000 of depreciation was included in general and administrative
expense.
For the
year ended December 31, 2019, approximately $42,000 of depreciation
was reclassified to research and development expense and
approximately $13,000 of depreciation remained in general and
administrative expense.
Note 6 - Intangible Assets and Goodwill
Patents
Pursuant
to the Mayoly APA entered into in March 2019 (see Note 14), in
which the Company purchased all remaining rights, title and
interest in and to MS1819 from Mayoly, the Company recorded Patents
in the amount of approximately $3.8 million as
follows:
|
Common
stock issued at signing to Mayoly, subject to vesting
|
$
1,740,959
|
|
Due
to Mayoly at 12/31/19 - €400,000
|
449,280
|
|
Due
to Mayoly at 12/31/20 - €350,000
|
393,120
|
|
Assumed
Mayoly liabilities and forgiveness of Mayoly debt
|
1,219,386
|
|
|
$
3,802,745
|
Intangible
assets are as follows:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Patents
|
$
3,802,745
|
$
3,802,745
|
|
Less
accumulated amortization
|
(923,209
)
|
(395,661
)
|
|
Patents,
net
|
$
2,879,536
|
$
3,407,084
|
Amortization
expense was approximately $528,000 and $780,000 for the years ended
December 31, 2020, and 2019, respectively.
For the
year ended December 31, 2019, approximately $780,000 of
amortization was included research and development expense.
Amortization expense for the year ended December 31, 2019 included
approximately $385,000 from in process research and development and
license agreements written off as a result of the Mayoly
APA.
As of
December 31, 2020, amortization expense related to patents is
expected to be approximately $528,000 for each of the next five
years (2021 through 2025).
|
2021
|
$
527,548
|
|
2022
|
$
527,548
|
|
2023
|
$
527,548
|
|
2024
|
$
527,548
|
|
2025
|
$
527,548
|
Goodwill is as follows:
|
|
Goodwill
|
|
Balance
at January 1, 2019
|
$
1,924,830
|
|
Foreign
currency translation
|
(38,144
)
|
|
Balance
at December 31, 2019
|
1,886,686
|
|
Foreign
currency translation
|
167,362
|
|
Balance
at December 31, 2020
|
$
2,054,048
|
Note 7 - Accounts Payable and Accrued Expense
Accounts
payable and accrued expense consisted of the
following:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Trade
payables
|
$
1,558,591
|
$
1,683,505
|
|
Accrued
expense
|
127,012
|
71,177
|
|
Total
accounts payable and accrued expense
|
$
1,685,603
|
$
1,754,682
|
Note 8 - Note Payable
Directors and Officer’s Liability Insurance
On
November 30, 2020, the Company entered into a 9-month financing
agreement for its directors and officer’s liability insurance
in the amount of approximately $620,000 that bears interest at an
annual rate of 4.250%. Monthly payments, including principal and
interest, of approximately $70,000 per month. The balance due under
this financing agreement was approximately $552,000 at December 31,
2020.
On
December 5, 2019, the Company entered into a 9-month financing
agreement for its directors and officer’s liability insurance
in the amount of approximately $500,000 that bears interest at an
annual rate of 5.461%. Monthly payments, including principal and
interest, were approximately $57,000 per month. The balance due
under this financing agreement was approximately $444,000 at
December 31, 2019.
CARES ACT PPP Loan
In April 2020, the Company applied for and received a CARES Act
Paycheck Protection Program (“
PPP
”) loan of approximately $179,000 through
the Small Business Administration (SBA). In May 2020, the Company
returned the loan in full after analysis of the
updated guidance from the U.S. Department of Treasury and the
SBA regarding the eligibility for such loans.
Note 9 – Convertible Debt
The ADEC Note Offering
On
February 14, 2019, the Company entered into a Note Purchase
Agreement (the
“ADEC
NPA”
) with ADEC Private Equity Investments, LLC
(
“ADEC”
),
pursuant to which the Company issued to ADEC two Senior Convertible
Notes (
“Note A”
and
“Note B,”
respectively, each an
“ADEC
Note,”
and together, the
“ADEC Notes”
), in the
principal amount of $1.0 million per ADEC Note, resulting in gross
proceeds to the Company of $2.0 million (the “
ADEC Note
Offering
”).
The
ADEC Notes accrued interest at a rate of 10% per annum; provided,
however, that in the event the Company should elect to repay the
full balance due under the terms of both ADEC Notes prior to
December 31, 2019, then the interest rate would be reduced to 6%
per annum. Interest would be payable at the time all outstanding
principal amounts owed under each ADEC Note were repaid. The ADEC
Notes were scheduled to mature on the earlier to occur of (i) the
tenth business day following the receipt by ABS of certain tax
credits that the Company expects to receive prior to July 2019 in
the case of Note A (the
“2019 Tax Credit”
) and July
2020 in the case of Note B (the
“2020 Tax Credit”
),
respectively, or (ii) December 31, 2019 in the case of Note A and
December 31, 2020 in the Case of Note B (the
“Maturity Dates”
). As a
condition to entering into the ADEC NPA, ABS and ADEC also entered
into a Pledge Agreement, pursuant to which ABS agreed to pledge an
interest in each of the 2019 Tax Credit and 2020 Tax Credit to ADEC
in order to guarantee payment of all amounts due under the terms of
the ADEC Notes.
Each of
the ADEC Notes was convertible, at ADEC’s option, into shares
of Common Stock, at a conversion price equal to $2.50 per share;
provided, however, that pursuant to the term of the ADEC Notes,
ADEC could not convert all or a portion of the ADEC Notes if such
conversion would result in the significant stockholder and/or
entities affiliated with him beneficially owning in excess of
19.99% of the shares of Common Stock issued and outstanding
immediately after giving effect to the issuance of the shares
issuable upon conversion of the ADEC Notes (the “
ADEC Note Conversion
Shares
”).
As
additional consideration for entering into the ADEC NPA, the
Company entered into a warrant amendment agreement, whereby the
Company agreed to reduce the exercise price of 1,009,565
outstanding warrants previously issued by the Company to ADEC and
its affiliates (the
“ADEC
Warrants”
) to $1.50 per share (the “
ADEC Warrant Amendment
”). The
ADEC Warrant Amendment did not alter any other terms of the ADEC
Warrants. The ADEC Warrant Amendment resulted in a debt discount of
approximately $325,000 that was accreted to additional interest
expense over the lives of the ADEC Notes.
In
December 2019, the Company repaid $1,550,000 principal amount of
the ADEC Notes and on January 2, 2020 repaid the remaining
principal balance of $450,000 plus outstanding accrued interest of
approximately $104,000. As of December 31, 2020, no ADEC Notes were
outstanding.
Senior Convertible Promissory Note Offering
On
December 20, 2019, the Company began an offering of (i) Senior
Convertible Promissory Notes (each a “
Promissory Note
,” and together,
the “
Promissory
Notes
”) in the principal amount of up to $8.0 million
to certain accredited investors (the “
Note Investors
”), and (ii)
warrants (“
Note
Warrants
”) to purchase shares of Common Stock, each
pursuant to Note Purchase Agreements entered into by and between
the Company and each of the Note Investors (the “
Promissory
NPAs”) (the
“
Promissory Note
Offering
”).
In
December 2019, the Company issued Promissory Notes to the Note
Investors in the aggregate principal amount of approximately $3.4
million. The Promissory Notes were scheduled to mature on September
20, 2020, accrue interest at a rate of 9% per annum, and were
convertible, at the sole option of the holder, into shares of
Common Stock (the “
Promissory Note Conversion
Shares
”) at a price of $0.97 per share (the
“
Conversion
Option
”). The Promissory Notes could be prepaid by the
Company at any time prior to the maturity date in cash without
penalty or premium (the “
Prepayment Option
”).
On
January 2, 2020, January 3, 2020, and January 9, 2020, the Company
issued Promissory Notes to the Note Investors in the aggregate
principal amount of approximately $3.5 million.
As
additional consideration for the execution of the Promissory NPA,
each Note Investor also received Note Warrants to purchase that
number of shares of Common Stock equal to one-half (50%) of the
Promissory Note Conversion Shares issuable upon conversion of the
Promissory Notes (the “
Note
Warrant Shares
”). The Note
Warrants have an exercise price of $1.07 per share and expire five
years from the date of issuance. In addition, all of the Note
Warrants, other than those issued in the December 20, 2019 closing
(covering an aggregate of 2,374,345 shares of Common Stock) contain
a provision prohibiting exercise until the expiration of six months
from the date of issuance. The Company and each Note Investor
executed a Registration Rights Agreement (the “
RRA
”), pursuant to which the
Company agreed to file a registration statement. The Company filed
a registration statement with the SEC on February 7, 2020 covering
the Promissory Note Conversion Shares and Note Warrant Shares, but
that registration statement was not declared effective and was
subsequently withdrawn by the Company. On July 27, 2020, the
Company filed a separate registration statement in connection with
the Series B Private Placement and the Exchange described in Note
11, which also covers the Note Warrant Shares. That registration
statement was declared effective on September 21,
2020.
In
connection with the four closings in December 2019 of the
Promissory
Note
Offering, the Company paid aggregate placement agent fees of
approximately $339,000, which fees were based on (i) 9% of the
aggregate principal amount of the Promissory Notes issued to the
Note Investors introduced by the placement agent, and (ii) a
non-accountable expense allowance of 1% of the gross proceeds from
the Promissory
Note
Offering. In addition, the placement agent was issued warrants,
containing substantially the same terms and conditions as the Note
Warrants, to purchase an aggregate of 244,372 shares of Common
Stock (the “
Placement Agent
Warrants
”), representing 7% of the Promissory Note
Conversion Shares issuable upon conversion of the Promissory Notes
issued to the Note Investors. The Placement Agent Warrants have an
exercise price of $1.21 per share and expire five years from the
date of issuance.
In
connection with the three closings in January 2020 of the
Promissory
Note
Offering, the Company paid aggregate placement agent fees of
approximately $277,000, which fees were based on (i) 9% of the
aggregate principal amount of the Promissory Notes issued to the
Note Investors introduced by the placement agent, and (ii) a
non-accountable expense allowance of 1% of the gross proceeds from
the Promissory
Note
Offering. In addition, the placement agent was issued January
Placement Agent Warrants, to purchase an aggregate of 199,732
shares of Common Stock. 41,495 of these January Placement Agent
Warrants have an exercise price of $1.21 per share and 158,237 of
these January Placement Agent Warrants have an exercise price of
$1.42 per share.
The
Company determined the Prepayment Option feature represents a
contingent call option. The Company evaluated the Prepayment Option
in accordance with ASC 815-15-25. The Company determined that the
Prepayment Option feature is clearly and closely related to the
debt host instrument and is not an embedded derivative requiring
bifurcation. Additionally, the Company determined the Conversion
Option represents an embedded call option. The Company evaluated
the Conversion Option in accordance with ASC 815-15-25. The Company
determined that the Conversion Option feature meets the scope
exception from ASC 815 and is not an embedded derivative requiring
bifurcation.
The
Company evaluated the Promissory Notes for a beneficial conversion
feature in accordance with ASC 470-20. The Company determined that
at each commitment date the effective conversion price was below
the closing stock price (market value), and the Convertible Notes
contained a beneficial conversion feature.
Pursuant
to the December 2019 closings of the Promissory Note Offering, the
principal amount of approximately $3.4 million was first allocated
based on the relative fair value of the Promissory Notes and the
Note Warrants. The fair value of the Note Warrants amounted to
approximately $913,000. Then the beneficial conversion feature was
calculated, which amounted to approximately $1.4 million. The
Company incurred debt issuance costs of approximately $0.6 million
related to the offering. The initial carrying value of the
Promissory Notes issued amounted to approximately $0.5
million.
Pursuant
to the January 2020 closings of the Promissory Note Offering, the
principal amount of approximately $3.5 million was first allocated
based on the relative fair value of the Promissory Notes and the
Note Warrants. The fair value of the Note Warrants amounted to
approximately $2.4 million. Then the beneficial conversion feature
was calculated, which amounted to approximately $1.8 million. The
Company incurred debt issuance costs of approximately $0.5 million
related to the offering. The initial carrying value of the
Promissory Notes issued amounted to approximately $0.1
million.
On June
1, 2020, the Company entered into an amendment to a certain
Promissory Note in the principal amount of $100,000 issued on
December 20, 2019 to Edward J. Borkowski, the chairman of the
Board, to increase the Conversion Price to $1.07 per share (the
“
Note
Amendment
”).
The Company
evaluated the Note Amendment transaction in accordance with ASC
470-50 and determined the Note Amendment did not constitute a
substantive modification of the Promissory Note and that the
transaction should be accounted for as a debt modification with no
accounting treatment required.
During
the year ended December 31, 2020, the Company recognized
approximately $4.9 million of interest expense related to these
Promissory Notes, including amortization of debt discount related
to the value of the Note Warrants of approximately $1.5 million,
amortization of the beneficial conversion feature of approximately
$2.3 million, amortization of debt discount related to debt
issuance costs of approximately $0.8 million, and accrued interest
expense of approximately $0.3 million.
During
the year ended December 31, 2019, the Company recognized
approximately $115,000 of interest expense related to these
Promissory Notes, including amortization of debt discount related
to the value of the Note Warrants of approximately $34,000,
amortization of the beneficial conversion feature of approximately
$52,000, amortization of debt discount related to debt issuance
costs of approximately $21,000, and accrued interest expense of
approximately $8,000.
Exchange of Promissory Notes into Series B Convertible Preferred
Stock
As more
fully discussed in Note 11, on July 16, 2020, in connection with
the Series B Private Placement,
approximately
937.00 shares of Series B
Preferred Stock, Series B Warrants to purchase 4,684,991 shares of
Common Stock, and Exchange Warrants to purchase 1,772,937 shares of
Common Stock were issued to certain holders of the Promissory Notes
in exchange for such Promissory Notes for aggregate consideration
of approximately $7.2 million consisting of approximately $6.9
million aggregate outstanding principal amount, together with
accrued and unpaid interest thereon through the date of the Series
B Private Placement of approximately $0.3 million.
The
Company prepaid the remaining outstanding balance of $25,000
aggregate principal amount of Promissory Notes, together with
accrued and unpaid interest thereon through the prepayment date of
approximately $1,000, held by those holders who did not participate
in the Exchange. Following these transactions, no Promissory Notes
remain outstanding.
Accounting for the Exchange of Promissory Notes into Series B
Private Placement
The Company determined the Exchange of the Promissory Notes into
Series B Preferred Stock and related warrants should be recognized
as an extinguishment of the Promissory Notes
,
which resulted in a
loss on extinguishment of approximately $0.6
million. Additionally, the Company recorded interest expense
of approximately $0.8 million related to the remaining unamortized
discount resulting from initial beneficial conversion feature of
the Promissory Notes on closing date of the
Exchange.
Convertible
debt consisted of the following:
|
|
Total
December 31, 2020
|
Promissory Notes
December 31, 2020
|
ADEC Notes
December 31, 2020
|
Total
December 31, 2019
|
|
Convertible
debt
|
$
-
|
$
-
|
$
-
|
$
3,836,300
|
|
Unamortized
debt discount - revalued warrants
|
-
|
-
|
-
|
(118,356
)
|
|
Unamortized
debt discount - warrants
|
-
|
-
|
-
|
(878,979
)
|
|
Unamortized
debt discount - BCF
|
-
|
-
|
-
|
(1,307,755
)
|
|
Unamortized
debt discount - debt issuance costs
|
-
|
-
|
-
|
(566,815
)
|
|
Accrued
interest
|
-
|
-
|
-
|
112,543
|
|
Total
convertible debt
|
$
-
|
$
-
|
$
-
|
$
1,076,938
|
Note 10 – Other Liabilities
Other
liabilities consisted of the following:
|
|
December 31,
|
|
|
Current
|
2020
|
2019
|
|
Due
to Mayoly
|
$
-
|
$
392,989
|
|
Lease
liabilities
|
57,417
|
83,235
|
|
Total
current liabilities
|
$
57,417
|
$
476,224
|
|
|
December 31,
|
|
|
Long-term
|
2020
|
2019
|
|
Lease
liabilities
|
$
19,123
|
$
-
|
|
Total
long-term liabilities
|
$
19,123
|
$
-
|
Note 11 –
Equity
Our certificate
of incorporation, as amended and restated on December 20, 2019 (the
“
Charter
”)
authorized the issuance of up to 150,000,000 shares of Common
Stock, par value $0.0001 per share, and 10,000,000 shares of
preferred stock, par value $0.0001 per share.
On
February 24, 2021 the Company held a Special Meeting of
Stockholders (the “
Special
Meeting
”), whereby, the shareholders approved, among
others, the following proposals: (i) amending the Company’s
Certificate of Incorporation to increase the authorized shares of
its Common Stock to 250,000,000 shares from 150,000,000 shares, and
(ii) amending the Company’s Charter to authorize the Board to
effect a reverse stock split of both the issued and outstanding and
authorized shares of Common Stock, at a specific ratio, ranging
from one-for-five (1:5) to one-for-ten (1:10), any time prior to
the one-year anniversary date of the Special Meeting, with the
exact ratio to be determined by the Board (the “
Reverse Split
”).
As
of the date hereof, the Board had not elected to effect a Reverse
Split. The authorization for the Reverse Split will expire on
February 24, 2022.
Common Stock
The
Company had 31,150,309 and 26,800,519 shares of its Common Stock
issued and outstanding at December 31, 2020 and 2019,
respectively.
Each holder of Common Stock is entitled to one vote for each share
of Common Stock held on all matters submitted to a vote of the
stockholders. Our Charter and Amended and Restated Bylaws (the
“
Bylaws
”) do not provide for cumulative voting
rights.
In
addition, the holders of our Common Stock will be entitled to
receive ratably such dividends, if any, as may be declared by the
Board out of legally available funds; however, the current policy
of our Board is to retain earnings, if any, for operations and
growth. Upon liquidation, dissolution or winding-up, the holders of
our Common Stock will be entitled to share ratably in all assets
that are legally available for distribution.
Holders of our Common Stock have no preemptive, conversion or
subscription rights, and there are no redemption or sinking fund
provisions applicable to the Common Stock. The rights, preferences
and privileges of the holders of Common Stock are subject to, and
may be adversely affected by, the rights of the holders of shares
of any series of our preferred stock that we may designate and
issue in the future.
Preferred Stock
We have 10,000,000 shares of preferred stock, par value $0.0001 per
share, authorized and available for issuance in one or more series.
The Board is authorized to divide the preferred stock into any
number of series, fix the designation and number of each such
series, and determine or change the designation, relative rights,
preferences, and limitations of any series of preferred stock. The
Board of may increase or decrease the number of shares initially
fixed for any series, but no decrease may reduce the number below
the shares then outstanding and duly reserved for
issuance.
On July 16, 2020, we authorized 5,194.805195 shares as Series B
Preferred Stock and issued approximately 2,912.58 shares
of Series B Preferred Stock, with
approximately 2,282.22 shares of Series B Preferred Stock remaining
authorized but unissued. At December 31, 2020, the Company had
approximately 2,773.62 shares of preferred stock issued and
outstanding with approximately 9,997,226.38 shares of preferred
stock remaining authorized but unissued.
Series B Convertible Preferred Stock
Pursuant to the Certificate of Designation of Rights and
Preferences of the Series B Preferred Stock (the
“
Series B Certificate of
Designation
”), the terms
of the Series B Preferred Stock are as follows:
Ranking
The Series B Preferred Stock will rank senior to the Common Stock
with respect to distributions of assets upon the liquidation,
dissolution or winding up of the Company.
Stated Value
Each share of Series B Preferred Stock has a stated value of
$7,700, subject to adjustment for stock splits, combinations and
similar events (the “
Series B Stated
Value
”).
Dividends
Each holder of shares of Series B Preferred Stock, in preference
and priority to the holders of all other classes or series of stock
of the Company, is entitled to receive dividends, commencing from
the date of issuance. Such dividends may be paid by the Company
only when, as and if declared by the Board, out of assets legally
available therefor, semiannually in arrears on the last day of June
and December in each year, commencing December 31, 2020, at the
dividend rate of 9.0% per year, which is cumulative and continues
to accrue on a daily basis whether or not declared and whether or
not the Company has assets legally available therefor. The Company
may pay such dividends at its option either in cash or in kind in
additional shares of Series B Preferred Stock (rounded down to the
nearest whole share), provided the Company must pay in cash the
fair value of any such fractional shares in excess of $100.00.
During the year ended December 31, 2020, the Company issued a total
of approximately 117.62 shares of Series B Preferred Stock for
payment of dividends amounting to approximately
$906,000.
Liquidation Preference; Liquidation Rights
Under the Certificate of Designations, each share of Series B
Preferred Stock carries a liquidation preference equal to the
Series B Stated Value (as adjusted thereunder) plus accrued and
unpaid dividends thereon (the “
Liquidation
Preference
”).
If the Company voluntarily or involuntarily liquidates, dissolves
or winds up its affairs, each holder of the Series B Preferred
Stock will be entitled to receive out of the Company’s assets
available for distribution to stockholders, after satisfaction of
liabilities to creditors, if any, but before any distribution of
assets is made on the Common Stock or any of the Company’s
shares of stock ranking junior as to such a distribution to the
Series B Preferred Stock, a liquidating distribution in the amount
of the Stated Value of all such holder’s Series B Preferred
Stock plus all accrued and unpaid dividends thereon. At December
31, 2020, the value of the liquidation preference of the Series B
Preferred stocks aggregated to approximately $21.4
million.
Conversion
Each share of Series B Preferred Stock will be convertible at the
holder’s option at any time, into Common Stock at a
conversion rate equal to the quotient of (i) the Series B Stated
Value divided by (ii) the initial conversion price of $0.77,
subject to specified adjustments for stock splits, cash or stock
dividends, reorganizations, reclassifications other similar events
as set forth in the Series B Certificate of Designations. In
addition, at any time after the six month anniversary of the Series
B Closing Date, if the closing sale price per share of Common Stock
exceeds 250% of the initial conversion price, or $1.925, for 20
consecutive trading days, then all of the outstanding shares of
Series B Preferred Stock will automatically convert (the
“
Automatic
Conversion
”) into such
number of shares of Common Stock as is obtained by multiplying the
number of shares of Series B Preferred Stock to be so converted,
plus the amount of any accrued and unpaid dividends thereon, by the
Series B Stated Value per share and dividing the result by the then
applicable conversion price. The Series B Preferred Stock contains
limitations that prevent the holder thereof from acquiring shares
of Common Stock upon conversion (including pursuant to the
Automatic Conversion) that would result in the number of shares
beneficially owned by such holder and its affiliates exceeding
9.99% of the total number of shares of Common Stock outstanding
immediately after giving effect to the conversion, which percentage
may be increased or decreased at the holder’s election not to
exceed 19.99%.
Most Favored Nations Exchange Right
In the event the Company effects any issuance by the Company or any
of its subsidiaries of Common Stock or Common Stock equivalents for
cash consideration, or a combination of units thereof (a
“
Subsequent
Financing
”), each holder
of the Series B Preferred Stock has the right, subject to certain
exceptions set forth in the Series B Certificate of Designations,
at its option, to exchange (in lieu of cash subscription payments)
all or some of the Series B Preferred Stock then held (with a value
per share of Series B Preferred Stock equal to the stated value,
plus accrued and unpaid dividends thereon, of the Series B
Preferred Stock (the “
Exchange
Amount
”)) for any
securities or units issued in a Subsequent Financing on
dollar-for-dollar basis (the “
Exchange
Right
”).
As of
March 30, 2021, holders of approximately 1,266.92 shares of Series
B Preferred Stock with an aggregate Exchange Amount of
approximately $9.8 had previously elected to exercise their Series
B Exchange Rights into Series C Preferred Stock, convertible into
an aggregate of 13,087,843 shares of Common Stock (which conversion
the Company has elected to make in full), and additional Investor
Warrants exercisable for up to an aggregate of 13,087,843 shares of
Common Stock.
In
addition, as of March 30, 2021, approximately 1,248.89 shares of
Series B Preferred Stock with an aggregate Exchange Amount of
approximately $9.7 million currently remain outstanding, which are
currently exchangeable for Series C Preferred Stock convertible
into an aggregate of up to
13,168,280
shares of Common Stock and
additional Investor Warrants exercisable for up to an aggregate of
13,168,280
shares of Common
Stock.
Any shares of Series C
Preferred Stock to be issued pursuant to the Exchange Right would,
upon issuance, be immediately converted into underlying shares of
Common Stock.
Voting
The holders of the Series B Preferred Stock, voting as a separate
class, will have customary consent rights with respect to certain
corporate actions of the Company. The Company may not take the
following actions without the prior consent of the holders of at
least a majority of the Series B Preferred Stock then outstanding:
(a) authorize, create, designate, establish, issue or sell an
increased number of shares of Series B Preferred Stock or any other
class or series of capital stock ranking senior to or on parity
with the Series B Preferred Stock as to dividends or upon
liquidation; (b) reclassify any shares of Common Stock or any other
class or series of capital stock into shares having any preference
or priority as to dividends or upon liquidation superior to or on
parity with any such preference or priority of Series B Preferred
Stock; (c) amend, alter or repeal the Certificate of Incorporation
or Bylaws of the Company and the powers, preferences, privileges,
relative, participating, optional and other special rights and
qualifications, limitations and restrictions thereof, which would
adversely affect any right, preference, privilege or voting power
of the Series B Preferred Stock; (d) issue any indebtedness or debt
security, other than trade accounts payable, insurance premium
financings and/or letters of credit, performance bonds or other
similar credit support incurred in the ordinary course of business,
or amend, renew, increase, or otherwise alter in any material
respect the terms of any such indebtedness existing as of the date
of first issuance of shares of Series B Preferred Stock; (e)
redeem, purchase, or otherwise acquire or pay or declare any
dividend or other distribution on (or pay into or set aside for a
sinking fund for any such purpose) any capital stock of the
Company; (f) declare bankruptcy, dissolve, liquidate, or wind up
the affairs of the Company; (g) effect, or enter into any agreement
to effect, a Change of Control (as defined in the Certificate of
Designations); or (h) materially modify or change the nature of the
Company’s business.
2014 Equity Incentive Plan
The
Company’s Board and stockholders adopted and approved the
Amended and Restated 2014 Omnibus Equity Incentive Plan (the
“
2014 Plan
”),
which took effect on May 12, 2014. From the adoption and approval
of the 2020 Plan on September 11, 2020, no new awards have been or
will be made under the 2014 Plan.
The
2014 Plan allowed for the issuance of securities, including stock
options to employees, Board members and consultants. The number of
shares of Common Stock reserved for issuance under the 2014 Plan
could not exceed ten percent (10%) of the issued and outstanding
shares of Common Stock on an as converted basis (the
“
As Converted
Shares
”) on a rolling basis. For calculation purposes,
the As Converted Shares included all shares of Common Stock and all
shares of Common Stock issuable upon the conversion of outstanding
preferred stock and other convertible securities but did not
include any shares of Common Stock issuable upon the exercise of
options, or other convertible securities issued pursuant to the
2014 Plan. The number of authorized shares of Common Stock reserved
for issuance under the 2014 Plan was automatically be increased
concurrently with the Company’s issuance of fully paid and
non- assessable shares of As Converted Shares. Shares were deemed
to have been issued under the 2014 Plan solely to the extent
actually issued and delivered pursuant to an award.
On July 16, 2020, the Board approved an amendment to the 2014 Plan.
The amendment eliminates individual grant limits under the 2014
Plan that were intended to comply with the exemption for
“performance-based compensation” under
Section 162(m) of the Internal Revenue Code, which section has
been repealed.
The
Company issued an aggregate of 2,870,012 and 1,193,500 stock
options, during the years ended December 31, 2020 and 2019,
respectively, under the 2014 Plan (see Note 13). As of December 31,
2020, there were an aggregate of 5,888,632 total shares available
under the 2014 Plan, of which 4,060,284 are issued and outstanding,
and 387,000 shares are reserved subject to issuance of restricted
stock and RSUs. Upon adoption of the 2020 Omnibus Equity Incentive
Plan on September 11, 2020, the Company will no longer make grants
under the 2014 Plan.
As of
December 31, 2019, there were an aggregate of 3,584,986 total
shares available under the 2014 Plan, of which 1,677,500 are issued
and outstanding, 632,667 shares are reserved subject to issuance of
restricted stock and RSUs and 1,274,819 shares are available for
potential issuances.
2020 Equity Incentive Plan
The
Company’s Board and stockholders adopted and approved the
2020 Omnibus Equity Incentive Plan (the “
2020 Plan
”), which took effect on
September 11 ,2020. The 2020 Plan allows for the issuance of
securities, including stock options to employees, Board members and
consultants. The
initial number of
shares of Common Stock available for issuance under the 2020 Plan
is 10,000,000 shares, which will, on January 1 of each calendar
year, unless the Board decides otherwise, automatically increase to
equal ten percent (10%) of the total number of shares of Common
Stock outstanding on December 31 of the immediately preceding
calendar year, calculated on an As Converted Basis. As Converted
Shares include all outstanding shares of Common Stock and all
shares of Common Stock issuable upon the conversion of outstanding
preferred stock, warrants and other convertible securities, but
will not include any shares of Common Stock issuable upon the
exercise of options and other convertible securities issued
pursuant to either the 2014 Plan or the 2020 Plan. The number of
shares permitted to be issued as “incentive stock
options” (“I
SOs
”) from is 15,000,000 under the 2020
Plan.
The
Company issued an aggregate of 10,000 stock options under the 2020
Plan during the year ended December 31, 2020. As of December 31,
2020, 10,000,000 total shares were available under the 2020 Plan,
of which 10,000 were issued and outstanding and 9,990,000 shares
were available for potential issuances.
Equity Line with Lincoln Park
In
November 2019, the Company entered into a purchase agreement (the
“
Equity Line
Agreement
”), together with a registration rights
agreement (the “
Lincoln Park
Registration Rights Agreement
”), with Lincoln Park.
Under the terms of the Equity Line Agreement, Lincoln Park has
committed to purchase up to $15,000,000 of our Common Stock (the
“
Equity Line
”).
Upon execution of the Equity Line Agreement, the Company issued
Lincoln Park 487,168 shares of Common Stock (the
“
Commitment
Shares
”) as a fee for its commitment to purchase
shares of our Common Stock under the Equity Line Agreement. The
Commitment Shares had a grant date fair value of approximately
$297,000 and had no effect on expenses or stockholders’
equity.
The
remaining shares of our Common Stock that may be issued under the
Equity Line Agreement may be sold by the Company to Lincoln Park at
our discretion from time-to-time over a 30-month period commencing
after the satisfaction of certain conditions set forth in the
Equity Line Agreement, subject to the continued effectiveness of a
registration statement covering such shares of Common Stock sold to
Lincoln Park by the Company. The registration statement was filed
with the SEC on December 31, 2019 and was declared effective on
January 14, 2020.
U
nder
the
Equity Line Agreement, on
any business day over the term of the
Equity Line Agreement, the Company has the right,
in its sole discretion, to present
Lincoln Park with a purchase notice (each, a
“
Purchase
Notice
”) directing
Lincoln Park to purchase up to 150,000
shares of Common Stock per business day (the
“
Regular
Purchase
”). In each
case,
Lincoln Park’s
maximum commitment in any single Regular Purchase may not exceed
$1,000,000. The
Equity Line
Agreement provides for a purchase price per Purchase Share (the
“
Purchase
Price
”) equal to the
lesser of:
●
the
lowest sale price of Common Stock on the purchase date;
and;
●
the
average of the three lowest closing sale prices for the Common
Stock during the ten consecutive business days ending on the
business day immediately preceding the purchase date of such
shares.
In addition, on any date on which the Company submits a Purchase
Notice to
Lincoln Park, the
Company also has the right, in its sole discretion, to
present
Lincoln Park with an
accelerated purchase notice (each, an “
Accelerated Purchase
Notice
”) directing
Lincoln Park to purchase an amount of
stock (the “
Accelerated
Purchase
”) equal to up to
the lesser of (i) three times the number of shares purchased
pursuant to such Regular Purchase; and (ii) 30% of the aggregate
shares of Common Stock traded during all or, if certain trading
volume or market price thresholds specified in the
Equity Line Agreement are crossed on
the applicable Accelerated Purchase date, the portion of the normal
trading hours on the applicable Accelerated Purchase date prior to
such time that any one of such thresholds is crossed (such period
of time on the applicable Accelerated Purchase Date, the
“
Accelerated Purchase
Measurement Period
”),
provided that
Lincoln Park will
not be required to buy shares pursuant to an Accelerated Purchase
Notice that was received by
Lincoln Park on any business day on which the last
closing trade price of Common Stock on the Nasdaq Capital Market
(or alternative national exchange) is below $0.25 per share. The
purchase price per share for each such Accelerated Purchase will be
equal to the lesser of:
●
97%
of the volume weighted average price of the Company’s common
stock during the applicable Accelerated Purchase Measurement Period
on the applicable Accelerated Purchase date; and;
●
the
closing sale price of Common Stock on the applicable Accelerated
Purchase Date.
The Company may also direct
Lincoln Park on any business day on which an
Accelerated Purchase has been completed and all of the shares to be
purchased thereunder have been properly delivered to
Lincoln Park in accordance with
the
Equity Line Agreement, to
purchase an amount of stock (the “
Additional Accelerated
Purchase
”) equal to up to
the lesser of (i) three times the number of shares purchased
pursuant to such Regular Purchase; and (ii) 30% of the aggregate
number of shares of Common Stock traded during a certain portion of
the normal trading hours on the applicable Additional Accelerated
Purchase date as determined in accordance with the Purchase
Agreement (such period of time on the applicable Additional
Accelerated Purchase date, the “
Additional Accelerated
Purchase Measurement Period
”), provided that the closing price of the
Company’s common stock on the business day immediately
preceding such business day is not below $0.25 per share.
Additional Accelerated Purchases will be equal to the lower
of:
●
97%
of the volume weighted average price of the Company’s common
stock during the applicable Additional Accelerated Purchase
Measurement Period on the applicable Additional Accelerated
Purchase; and;
●
the
closing sale price of Common Stock on the applicable Additional
Accelerated Purchase.
Pursuant
to the terms of the Equity Line Agreement, without first obtaining
stockholder approval, the aggregate number of shares that the
Company is permitted to sell to Lincoln Park thereunder, when
aggregated with certain other private offerings of Common Stock, as
applicable, may not exceed 19.99% of the Common Stock outstanding
immediately prior to the execution of the Equity Line Agreement on
November 13, 2019, unless the average price of all applicable sales
thereunder exceeds $0.70 per share calculated by reference to the
“Minimum Price” under Nasdaq Listing Rule 5635(d). On
September 11, 2020, the Company received stockholder approval for
the issuances of the full $15 million available under the Equity
Line Agreement. There is approximately $14.0 million of
availability left for issuance pursuant to the Equity Line
Agreement.
The
Company issued an aggregate of 1,495,199, and 0 shares of Common
Stock, d
uring the years ended December
31, 2020 and 2019,
respectively, in connection with the
Equity Line Agreement, resulting in net proceeds to the Company of
approximately $1.0 million, and $0, respectively.
Common Stock Issuances
2020 Issuances
During
the year ended December 31, 2020
,
holders of shares of Series B Preferred Stock converted
approximately 254.54 shares of Series B Preferred Stock into an
aggregate of 2,565,813 shares of Common Stock at the stated
conversion price of $0.77 per share.
During
the year ended December 31, 2020, the Company issued an aggregate
of 182,841
shares of its
Common Stock to consultants with a total grant date fair value of
approximately
$144,000
for investor
relations services provided, which was recorded
as stock-based compensation and included as part
of general and administrative expense.
During the
year ended December 31, 2020
, the Company issued 62,518 restricted shares of
Common Stock to a consultant as payment of $135,000 of accounts
payable for investor relations services.
During
the year ended December 31, 2020, the Company issued an aggregate
of 105,937 shares of its Common Stock to outside Board members as
payment of Board fees with an aggregate grant date fair value of
approximately $131,000
that was recorded as stock-based
compensation, included as part of general and administrative
expense. The aggregate effective settlement price was $1.24 per
share, and each individual stock issuance was based on the closing
stock price of the Common Stock on the initial date the payable was
accrued.
2019 Issuances
During
the year ended December 31, 2019, pursuant to the Asset Purchase
Agreement and associated Assignment Agreement and Delegation and
Set-off Agreement by and between the Company and Mayoly (together,
the “
Mayoly
APA
”), the Company issued Mayoly 400,481 shares of
Common Stock as part of the closing payment in March 2019 with a
grant date fair value of approximately $917,000, that was
recognized as part of stockholders’ equity.
During
the year ended December 31, 2019, pursuant to the Mayoly APA, the
Company issued 200,240 shares of Common Stock to be released form
escrow on December 31, 2019, and 175,210 shares of restricted
Common Stock to be released form escrow on December 31, 2020.
During the year ended December 31, 2019, the Company recognized
approximately $824,000 as part of stockholders’
equity.
During
the year ended December 31, 2019, the Company issued an aggregate
of 92,995 shares of its Common Stock to consultants as payment of
$135,000 of accounts payable and 97,403 shares of its Common Stock
to a consultant with a grant date fair value of $75,000 for
services provided.
During
the year ended December 31, 2019, the Company issued an aggregate
of 120,000 shares of its Common Stock to outside members of its
Board as payment of Board fees with an aggregate grant date fair
value of approximately $173,000, that was recorded as part of
general and administrative expense.
During
the year ended December 31, 2019, the Company issued an aggregate
of 7,522,097 shares of its Common Stock in our public offerings of
Common Stock that occurred in April 2019, May 2019, and July 2019
for aggregate net proceeds of approximately $9.5
million.
During
the year ended December 31, 2019, the Company issued 487,168 of
Common Stock as a commitment fee pursuant to entering into the
Equity Line Agreement with grant date fair value of approximately
$297,000 and had no effect on expenses or stockholders’
equity.
Restricted Stock and Restricted Stock Units
Restricted
stock refers to shares of Common Stock subject to vesting based on
certain service, performance, and market conditions. Restricted
stock unit awards (“
RSUs
”) refer to an award under
the 2014 Plan, which constitutes a promise to grant shares of
Common Stock at the end of a specified restriction
period.
During
the year ended December 31, 2020
, an aggregate of 10,080 restricted shares of
Common Stock,
subject to service conditions,
vested with a total grant date fair value of
approximately $36,000 and was recorded as stock-based compensation,
included as part of general and administrative
expense.
During the
year ended December 31, 2020
, an aggregate 4,000 unvested restricted shares of
Common Stock
were forfeited.
During the year ended December 31, 2019, the Company issued James
Sapirstein, its new Chief Executive Officer a restricted stock unit
(“
RSU
”) for 200,000 shares of Common Stock
subject to milestone-based vesting with a grant date fair value of
$104,000. These RSUs will vest as follows: (i) 100,000 shares upon
the first commercial sale in the U.S. of MS1819, and (ii) 100,000
shares upon the total market capitalization of the Company
exceeding $1.0 billion for 20 consecutive trading days. The Company
will recognize the expense related to these milestones when vesting
of the milestones becomes probable.
During
the year ended December 31, 2019, an aggregate of 188,333 unvested
shares of restricted Common Stock that were issued to former
executives were canceled with a total grant date fair value of
approximately $500,000 due to their resignations from the
Company.
During
the year ended December 31, 2019
, an
aggregate of 223,417 restricted shares of Common Stock
vested with a total grant date fair
value of approximately $557,000. 33,334 of these restricted shares
with a total grant date fair value of approximately $101,000 vested
due to the Company achieving certain clinical milestones. 41,250 of
these restricted shares with a total grant date fair value of
approximately $135,000 vested due to the satisfaction of service
conditions. 30,000 of these restricted shares were issued to
certain our directors as a part of Board compensation with a total
grant date fair value of approximately
$142,000.
During
the year ended December 31, 2019, an aggregate of 48,668 shares of
restricted Common Stock, subject to time-based vesting, vested with
a total grant date fair value of
approximately
$154,000
and was recorded as stock-based compensation,
included as part of general and administrative
expense
.
As of December 31, 2020, the Company had an aggregate unrecognized
restricted Common Stock expense of approximately $393,000, which
will be recognized when vesting of certain milestones will be
become probable.
The Series B Private Placement and the Exchange
On July 16, 2020 (the “
Series B Closing
Date
”), the
Company consummated a private placement offering (the
“
Series B Private
Placement
”) whereby the
Company entered into a Convertible Preferred Stock and Warrant
Securities Purchase Agreement (the “
Series B Purchase
Agreement
”) with certain
accredited and institutional investors (the
“
Series B
Investors
”). Pursuant to
the Series B Purchase Agreement, the Company issued an aggregate of
2,912.583005 shares of Series B Convertible Preferred Stock, par
value $0.0001 per share (the “
Series B Preferred
Stock
”), at a price of
$7,700.00 per share, initially convertible into an aggregate of
29,125,756 shares of Common Stock at $0.77 per share, together with
warrants (the “
Series B
Warrants
”) to purchase an
aggregate of 14,562,826 shares of Common Stock at an exercise price
of $0.85 per share. The amount of the Series B Warrants is equal to
50% of the shares of Common Stock into which the Series B Preferred
Stock is initially convertible
In connection with the Series B Private Placement, an aggregate of
approximately 1,975.58 shares of Series B Preferred Stock initially
convertible into 19,755,748 shares of Common Stock and related
9,877,835 Series B Warrants were issued for cash consideration,
resulting in
aggregate
gross
proceeds of approximately $15.2 million and aggregate
net proceeds to the Company of
approximately $13.2 million after deducting placement agent
compensation and offering expenses.
An aggregate of approximately 937.00 shares of Series B Preferred
Stock initially convertible into 9,370,008 shares of Common Stock
and related Series B Warrants to purchase 4,684,991 shares of
Common Stock were issued to certain Series B Investors (the
“
Exchange
Investors
”) in exchange
for consideration consisting of approximately $6.9 million
aggregate outstanding principal amount, together with accrued and
unpaid interest thereon through the Series B Closing Date of
approximately $0.3 million, of certain Senior Convertible
Promissory Notes (the “
Promissory
Notes
”) issued between
December 20, 2019 and January 9, 2020 (the
“
Exchange
”), pursuant to an Exchange Addendum (the
“
Exchange
Addendum
”) executed by
the Company and the Exchange Investors. As additional consideration
to the Exchange Investors, the Company also issued certain
additional warrants (the “
Exchange
Warrants
”) to purchase an
aggregate of 1,772,937 shares of Common Stock at an exercise price
of $0.85 per share. The amount of the Exchange Warrants is equal to
25% of the shares of Common Stock into which such Promissory Notes
were originally convertible upon the initial issuance
thereof.
Pursuant to the Series B Private Placement and the Series B
Purchase Agreement, for purposes of complying with Nasdaq Listing
Rule 5635(c) and 5635(d), the Company was required to hold a
meeting of its stockholders not later than 60 days following the
Series B Closing Date to seek approval (the
“
Stockholder
Approval
”) for, among
other things, the issuance of shares of Common Stock upon (i) full
conversion of the Series B Preferred Stock; and (ii) full exercise
of the Series B Warrants and the Exchange Warrants. In the event
the Stockholder Approval was not received on or prior to the 90th
day following the Series B Closing Date, subject to extension upon
the prior written approval of the holders of at least a majority of
the Series B Preferred Stock then outstanding, the Company would
have been required to repurchase all of the then outstanding shares
of Series B Preferred Stock at a price equal to 150% of the stated
value
thereof plus accrued and
unpaid dividends thereon, in cash. On September 11, 2020, the
Company received Stockholder Approval.
The
Company prepaid the remaining outstanding balance of $25,000
aggregate principal amount of Promissory Notes, together with
accrued and unpaid interest thereon through the prepayment date of
approximately $1,000, held by those holders who did not participate
in the Exchange. Following these transactions, no Promissory Notes
remain outstanding.
In
connection with the Series B Private Placement, the Company paid
the placement agent 9.0% of the gross cash proceeds received by the
Company from investors introduced by the placement agent and 4.0%
of the gross cash proceeds received by the Company for all other
investors, or approximately $1.3 million. The Company also paid the
placement agent a non-accountable cash fee equal to 1.0% of the
gross cash proceeds and a cash financial advisory fee equal to 3.0%
of the outstanding principal balance of the Promissory Notes that
were submitted in the Exchange, or approximately $0.3 million in
additional cash fees in the aggregate. In addition, the Company
issued to the placement agent warrants to purchase up to 1,377,458
shares of Common Stock (the “
July
Placement Agent Warrants
”). The
July Placement Agent Warrants have substantially the same terms as
the Series B Warrants, except the July Placement Agent Warrants
have an exercise price of $0.96 per share, are not callable,
provide for cashless exercise and are not exercisable until the
earlier of stockholder approval of the Series B Private Placement
and the date that is six months following the issuance
thereof.
Accounting for the Series B Private Placement
Upon receiving Shareholder Approval on September 11, 2020, the
Company classified the Series B Preferred Stock as permanent equity
because no features provide for redemption by the holders of the
Series B Preferred Stock or conditional redemption, which is not
solely within the Company’s control, and there are no
unconditional obligations in that (1) the Company must or may
settle in a variable number of its equity shares and (2) the
monetary value is predominantly fixed, varying with something other
than the fair value of the Company’s equity shares or varying
inversely in relation to the Company’s equity
shares.
Because the Series B Preferred Stock contain certain embedded
features that could affect the ultimate settlement of the Series B
Preferred Stock, the Company analyzed the instrument for embedded
derivatives that require bifurcation. The Company’s analysis
began with determining whether the Series B Preferred Stock is more
akin to equity or debt. The Company evaluated the
following criteria/features in this determination: redemption,
voting rights, collateral requirements, covenant provisions,
creditor and liquidation rights, dividends, conversion rights and
exchange rights. The Company determined that the Series B Preferred
Stock was more akin to equity than to debt when evaluating the
economic characteristics and risks of the entire Series B Preferred
Stock, including the embedded features. The Company then evaluated
the embedded features to determine whether their economic
characteristics and risks were clearly and closely related to the
economic characteristics and risks of the Series B Preferred Stock.
Since the Series B Preferred Stock was determined to be more akin
to equity than debt, and the underlying that causes the value of
the embedded features to fluctuate would be the value of the
Company’s common stock, the embedded features were considered
clearly and closely related to the Series B Preferred Stock. As a
result, the embedded features would not need to be bifurcated from
the Series B Preferred Stock.
Any beneficial conversion features related to the exercise of the
Most Favored Nation exchange right or the application of the
Mandatory Conversion provision will be recognized upon the
occurrence of the contingent events based on its intrinsic value at
the commitment date.
The Company concluded the freestanding Series B Warrants did not
contain any provision that would require liability classification
and therefore should be classified in stockholder’s equity,
based on their relative fair value.
The proceeds from the Series B Private Placement were allocated to
the Series B Preferred Stock and Series B Warrants based on their
relative fair values. The
total
proceeds of approximately $22.4 million were allocated as follows:
approximately $16.5 million to the Series B Preferred Stock, and
approximately $5.9 million to the Series B Warrants.
After
allocation of the proceeds, the effective conversion price of the
Series B Preferred Stock was determined to be beneficial and, as a
result, the Company recorded a deemed dividend of
approximately
$8.2 million equal to
the intrinsic value of the beneficial conversion feature and
recognized on the closing date and recorded as a reduction of
income available to common stockholders in computing basic and
diluted loss per share.
The total offering
costs of approximately $2.0 million were recognized in
equity.
Registered Direct Offering and Private Placement
On December 31, 2020, the Company entered into a securities
purchase agreement (the “
Series C Purchase
Agreement
”), pursuant to
which the Company agreed to sell in a registered direct offering
5,333.333 shares of Series C Preferred Stock, at a price of $750
per share, initially convertible into an aggregate of 5,333,334
shares of Common Stock, at an initial stated value of $750.00 per
share and a conversion price of $0.75 per share (the
“
Registered Direct
Offering
”).
Concurrently with the Registered Direct Offering, in a private
placement offering pursuant to the Series C Purchase Agreement (the
“
Private
Placement
”), the Company
agreed to sell an additional 5,333.3333 shares of Series C
Preferred Stock at the same price as the Series C Preferred Stock
offered in the Registered Direct Offering and convertible on the
same terms and warrants (the “
Investor
Warrants
”) to purchase up
to an aggregate of 10,666,668 shares of Common Stock, with an
exercise price of $0.80 per share and an expiration term of five
and one-half years from the date of issuance.
In connection with the Private Placement, we entered into a
registration rights agreement, dated as of December 31, 2020,
pursuant to which we filed a registration statement on Form S-1
(File No. 333-252087) to register the shares of Common Stock
issuable upon the conversion of the Series C Preferred Stock sold
in the Private Placement and the exercise of the Investor Warrants.
The registration statement was declared effective by the SEC on
January 21, 2021.
The aggregate gross proceeds from the Registered Direct Offering
and the Private Placement, excluding the net proceeds, if any, from
the exercise of the Investor Warrants, was approximately $8.0
million.
The net proceeds to the Company from the Registered Direct Offering
and the Private Placement, after deducting the placement
agent’s fees and expenses and estimated offering expenses,
was approximately $6.8 million. The Company used the net proceeds
to fund the payment of cash consideration to First Wave under the
First Wave License Agreement, and for other general corporate
purposes.
The Company paid the placement agent a cash fee equal to 8.0% and a
management fee equal to 1.0% of the aggregate gross proceeds
received by the Company in the Registered Direct Offering and the
Private Placement, or approximately $700,000. The Company also
agreed to issue to the placement agent or its designees warrants
(the “
December 2020 Placement Agent
Warrants
”) exercisable
for up to 746,667 shares of Common Stock, which is equal to 7.0% of
the amount determined by dividing the gross proceeds of the
Registered Direct Offering and Private Placement by the offering
price per share of Common Stock, or $0.75. The December 2020
Placement Agent Warrants have substantially the same terms as the
Investor Warrants, except they are exercisable at $0.9375 per
share, or 125% of the effective purchase price per share of the
Series C Preferred Stock issued. The Company also reimbursed the
placement agent $35,000 for non-accountable expenses, up to
$125,000 for legal fees and expenses and other out-of-pocket
expenses and $12,900 for clearing fees.
On February 24, 2021, the Company’s stockholders approved
certain proposals related to the Registered Direct Offering and the
Private Placement and all outstanding shares of Series C Preferred
Stock were converted to Common Stock.
Note 12 - Warrants
For the
year ended December 31,
20
20
, in connection with the
January 2020 closings of the Promissory Note Offering, the Company
issued Note Warrants to investors to purchase an aggregate of
1,813,257 shares of Common Stock with the issuance of the
Promissory Notes (See Note 9). These Note Warrants were issued in
January 2020, became exercisable commencing six (6) months
following issuance at $1.07 per share and expire five years from
issuance. The total grant date fair value of these warrants was
determined to be approximately $1.6 million, as calculated using
the Black-Scholes model, and were recorded as a debt discount based
on their relative fair value.
Additionally, in connection with the January 2020 closings of the
Promissory Note Offering, the Company issued the placement agent
warrants to purchase an aggregate of 199,732 shares of Common Stock
to the placement agent and/or their designees (See Note 9). These
warrants were issued in January 2020, were immediately exercisable,
and expire five years from issuance. 41,495 of these warrants are
exercisable at $1.21 per share and 158,237 of these warrants are
exercisable at $1.42 per share. The total grant date fair value of
these warrants was determined to be approximately $174,000, as
calculated using the Black-Scholes model, and was charged to debt
discount and amortized over the life of the debt.
For the
year ended December 31,
20
20
, in connection with the
closing of the Exchange (See Note 11), the Company issued Exchange
Warrants to certain investors to purchase an aggregate of 1,772,937
shares of Common Stock with the issuance of the Series B Preferred
Stock as referenced in Note 11. These Exchange Warrants were issued
on July 16, 2020, are exercisable commencing six (6) months
following the issuance date at $0.85 per share and expire five
years from issuance. The total grant date fair value of the
Exchange warrants was determined to be approximately $987,000, as
calculated using the Black-Scholes model, and were recorded as part
of the loss on extinguishment (See Note 9).
For the
year ended December 31,
20
20
, in connection with the
closing of the Series B Private Placement, the Company issued
placement agent warrants to purchase an aggregate of
1,377,458
shares of Common Stock to
the placement agent and/or their designees. These warrants were
issued in July 2020, became exercisable commencing six (6) months
following issuance at $0.96 per share and expire five years from
issuance. The total grant date fair value of these warrants was
determined to be approximately $745,000, as calculated using the
Black-Scholes model, and were recorded as
equity.
For the
year ended December 31,
20
20, i
n connection with the
Spoor Settlement and Release in July 2020, the Company granted Mr.
Spoor warrants to purchase an aggregate of 150,000 shares of Common
Stock. The warrants were immediately exercisable, have an exercise
price equal to $1.00 per share, a five-year term and may be
exercised pursuant to a cashless exercise provision commencing six
months from the issuance date. The total grant date fair value of
these warrants was determined to be approximately $86,000, as
calculated using the Black-Scholes model, and were included in the
gain on settlement (See Note 18).
During year ended December 31, 20
20
, warrants to purchase an aggregate of 80,750
shares of Common Stock expired with exercise prices ranging between
$3.25 and $7.37 per share.
For the year ended December 31, 2019, in connection with the
December 2019 closings of the Promissory Note Offering, the Company
issued Note Warrants to investors to purchase an aggregate of
1,745,538 shares of Common Stock with the issuance of the
Promissory Notes (See Note 9). These Note Warrants were issued in
December 2019, became exercisable commencing six (6) months
following issuance at $1.07 per share and expire five years from
issuance. The total grant date fair value of these warrants was
determined to be approximately $1.3 million, as calculated using
the Black-Scholes model, and were recorded as a debt discount based
on their relative fair value.
Additionally, in connection with the December 2019 closings of the
Promissory Note Offering, the Company issued placement agent
warrants to purchase an aggregate of 244,372 shares of Common
Stock. These placement agent warrants were issued in December 2019,
were immediately exercisable, are exercisable at $1.21 per share
and expire five years from issuance. The total grant date fair
value of these placement agent warrants was determined to be
approximately $169,000, as calculated using the Black-Scholes
model, and was charged to debt discount that will be amortized over
the life of the debt.
During the year ended December 31, 2019, in connection with the
public offerings in April 2019, and May 2019, the Company issued
selling agent warrants to purchase an aggregate of 75,663 shares of
Common Stock. These selling agent warrants will become exercisable
one year following issuance, expire five years from issuance, and
have an exercise prices of ranging from $2.55 to $2.82 per share.
The total grant date fair value of these investment banking
warrants was determined to be approximately $117,000, as calculated
using the Black-Scholes model, and had no effect on expenses or
stockholders’ equity.
During the year ended December 31, 2019, in connection with the
public offerings July 2019, the Company issued the underwriting
warrants to purchase an aggregate of 200,000 shares of Common
Stock. These underwriting warrants are exercisable immediately,
expire five years from issuance, and have an exercise price of
$1.25 per share. The total grant date fair value of these
investment banking warrants was determined to be approximately
$116,600, as calculated using the Black-Scholes model, and had no
effect on expenses or stockholders’ equity.
In
February 2019, as additional consideration for issuing the ADEC
Notes and pursuant to the ADEC Warrant Amendment, the Company
agreed to reduce the exercise price of certain outstanding warrants
previously issued by the Company to ADEC and its affiliates (see
Note 9).
Warrant
transactions for the years ending December 31, 2020 and 2019 were
as follows:
|
|
Warrants
|
Exercise Price Per Share
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
Warrants outstanding and exercisable at January 1,
2019
|
3,112,715
|
$
2.55 - 7.37
|
$
4.83
|
|
|
|
|
|
|
Granted
during the period
|
2,265,573
|
$
1.07 - 2.82
|
$
1.15
|
|
Expired
during the period
|
-
|
-
|
-
|
|
Exercised
during the period
|
-
|
-
|
-
|
|
Warrants outstanding and exercisable at December 31,
2019
|
5,378,288
|
$
1.07 - 7.37
|
$
2.53
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding and exercisable at January 1,
2020
|
5,378,288
|
$
1.07 - 7.37
|
$
2.53
|
|
|
|
|
|
|
Granted
during the period
|
19,881,654
|
$
0.85 - 1.42
|
$
0.88
|
|
Expired
during the period
|
(80,750
)
|
$
3.25 - 7.37-
|
$
4.11
|
|
Exercised
during the period
|
-
|
-
|
-
|
|
Warrants outstanding and exercisable at December 31,
2020
|
25,179,192
|
$
0.85 - 7.37
|
$
1.22
|
Warrants
exercisable at December 31, 2020 were as follows:
|
|
Exercise Price
|
Number of Shares Under Warrants
|
Weighted Average Remaining Contract Life in Years
|
Weighted Average Exercise Price
|
|
|
$
0.00 - 0.99
|
17,718,665
|
4.54
|
|
|
|
$
1.00 - 1.99
|
5,362,464
|
3.41
|
|
|
|
$
2.00 - 2.99
|
320,063
|
2.56
|
|
|
|
$
3.00 - 3.99
|
635,019
|
1.32
|
|
|
|
$
4.00 - 4.99
|
164,256
|
1.27
|
|
|
|
$
5.00 - 5.99
|
778,116
|
1.18
|
|
|
|
$
6.00 - 6.99
|
187,750
|
0.76
|
|
|
|
$
7.00 - 7.37
|
12,859
|
0.18
|
|
|
Totals
|
|
25,179,192
|
4.04
|
$1.22
|
The weighted average fair value of warrants granted during the
years ended December 31, 2020 and 2019, was $0.59 and $0.71 per
share, respectively. The grant date fair values were calculated
using the Black-Scholes model with the following weighted average
assumptions:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Expected
life (in years)
|
5
|
5
|
|
Volatility
|
81- 85
%
|
71 - 80
%
|
|
Risk-free
interest rate
|
0.28 – 1.67
%
|
1.64 - 2.37
%
|
|
Dividend
yield
|
-
%
|
-
%
|
Note 13 – Stock Options
Under the 2014 Plan and the 2020 Plan, the fair value of options
granted is estimated on the grant date using the Black-Scholes
option valuation model. This valuation model for stock-based
compensation expense requires the Company to make assumptions and
judgments about the variables used in the calculation, including
the expected term (weighted-average period of time that the options
granted are expected to be outstanding), the volatility of the
common stock price and the assumed risk-free interest rate. The
Company recognizes stock-based compensation expense for only those
shares expected to vest over the requisite service period of the
award. No compensation cost is recorded for options that do not
vest and the compensation cost from vested options, whether
forfeited or not, is not reversed.
During the year ended December 31, 2020, the Company issued
stock options under the 2014 Plan to
purchase an aggregate of
335,006
shares of Common Stock with a strike price of
$1.03 per share and a term of ten years to its chief financial
officer that vest in equal monthly installments over three years.
These options had a total grant date fair value of approximately
$281,000, as calculated using the Black-Scholes
model.
During the year ended December 31, 2020, the Board approved an
amended and restated option grant to its chief financial officer,
amending and restating a grant previously made on January 2, 2020,
to reduce the amount of shares issuable upon exercise of such
option to be the maximum number of shares Mr. Schneiderman was
eligible to receive under the 2014 Plan on the original grant date,
or 300,000 shares, due to the 2014 Plan provisions relating to the
individual grant limits that were intended to comply with the
exemption for “performance-based compensation” under
Section 162(m) of the Internal Revenue Code, which section has
been repealed. The Board also approved the issuance of a
replacement option covering the balance of shares intended to be
issued at that time, or 35,006 shares. The original stock option
has an exercise price of $1.03, the closing sale price of Common
Stock on January 2, 2020, which was the date of its original grant,
and the replacement stock option has an exercise price of $0.85,
the closing sale price of the Common Stock on its date of grant.
Both the original stock option and the replacement stock option
vest over a term of three years, in 36 equal monthly installments
on each monthly anniversary of January 2, 2020. On the issuance
date, 6,336 shares had vested, and 28,670 shares were unvested with
approximately $24,000 of unrecognized expense. The Company
determined the cancellation and reissue of these stock options
resulted in an effective repricing of the stock options and
modification accounting should be applied under ASC 718. The fair
value of the original stock options immediately prior to the
modification was approximately $23,000 and the grant date fair
value of the replacement stock options was approximately $24,000.
The Company will recognize a total of approximately $25,000 over
the remaining requisite service period through January 1,
2023.
During the year ended December 31, 2020, the Company issued stock
options under the 2014 Plan to purchase an aggregate of 460,000
shares of Common Stock with a strike price of $0.97 per share and a
term of ten years to certain Board members that vested in equal
installments over 2020. These options had a total grant date fair
value of approximately $210,000, as calculated using the
Black-Scholes model.
During the year ended December 31, 2020, the Company issued stock
options under the 2014 Plan to purchase an aggregate of 2,040,000
shares of Common Stock with a strike price of $0.85 per share and a
term of ten years to its employees. 600,000 of these stock options
are subject to performance-based milestone vesting conditions and
1,440,000 of these stock options vest in equal monthly installments
over three years. These options had a total grant date fair value
of approximately $1.4 million, as calculated using the
Black-Scholes model.
During the year ended December 31, 2020, the Company issued stock
options under the 2020 Plan to purchase an aggregate of 10,000
shares of Common Stock with a strike price of $0.97 per share and a
term of ten years to a consultant that are subject to
performance-based milestone vesting conditions. These options had a
total grant date fair value of approximately $8,000, as calculated
using the Black-Scholes model.
During the year ended December 31, 2020, stock options under the
2014 Plan to purchase an aggregate of 600,086 shares of Common
Stock, subject to
service-based milestone
vesting
conditions
, vested with a total grant date fair value of
approximately $361,000 and recorded as stock-based compensation, of
which approximately $341,00 was included as part of general and
administrative expense and approximately $20,000 was included as
part of research and development expense.
During the year ended December 31, 2020, stock options under the
2014 Plan to purchase an aggregate of 50,000 shares of Common
Stock, subject to performance-based vesting conditions, vested with
a total grant date fair value of approximately $20,000 and were
recorded as stock-based compensation, and included as part of
general and administrative expense due to the Company achieving
clinical milestones.
During the year ended December 31, 2020, stock options under the
2014 Plan to purchase an aggregate of 487,228 shares of Common
Stock were cancelled with strike prices ranging between $0.85 and
$4.48 per share.
The weighted average fair value of stock options granted during the
year ended December 31, 2020 was $0.89 per share.
During the year ended December 31, 2019, the Company issued stock
options under the 2014 Plan to purchase an aggregate of 120,000
shares of Common Stock with a strike price of $1.75 per share and a
term of five years to certain Board members that vested quarterly
over one (1) year. These options had a total fair value of
approximately $126,000, as calculated using the Black-Scholes model
and were recorded as stock-based compensation, and included as part
of general and administrative expense.
During the year ended December 31, 2019, the Company issued stock
options under the 2014 Plan to purchase an aggregate of 250,000
shares of Common Stock with a strike price of $1.75 per share and a
term of five years to its former chief executive officer and former
chief financial officer, and were subject to performance-based
milestone vesting conditions. These stock options had a grant date
fair value of approximately $253,000, as calculated using the
Black-Scholes model. These unvested stock options were cancelled as
a result of the former executives’ resignations.
During the year ended December 31, 2019, the Company issued stock
options under the 2014 Plan to purchase an aggregate of 300,000
shares of Common Stock with a strike price of $0.56 per share and a
term of 10 years to its chief executive officer with
performance-based milestone vesting conditions. These options had a
total grant date fair value of approximately $121,000, as
calculated using the Black-Scholes model. The Company will
recognize the expense related to these performance-based milestones
when the milestones become probable.
During the year ended December 31, 2019, the Company issued stock
options under the 2014 Plan to purchase an aggregate of 523,500
shares of Common Stock with a strike price of $1.75 per share and a
term of five years to certain employees with performance-based
milestone vesting conditions. These options had a total grant date
fair value of approximately $550,000, as calculated using the
Black-Scholes model. The Company will recognize the expense related
to these performance-based milestones when the milestones become
probable.
During the year ended December 31, 2019, stock options under the
2014 Plan to purchase an aggregate of 304,500 shares of Common
Stock, subject to performance-based vesting conditions, vested with
a total grant date fair value of approximately $574,000 and
recorded as stock-based compensation.
During the year ended December 31, 2019, stock options under the
2014 Plan to purchase an aggregate of 510,000 shares of Common
Stock were canceled with strike prices ranging from of $1.75 to
$4.48 per share.
The weighted average fair value of stock options granted during the
year ended December 31, 2019 was $0.89 per
share.
The fair values were estimated on the grant dates using the
Black-Scholes option-pricing model with the following
weighted-average assumptions:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Contractual
term (in years)
|
5 - 10
|
5 - 10
|
|
Volatility
|
81-85
%
|
72-75
%
|
|
Risk-free
interest rate
|
0.62-1.88
%
|
1.54-1.84
%
|
|
Dividend
yield
|
-
%
|
-
%
|
The
expected term of the options is based on expected future employee
exercise behavior. Volatility is based on the historical volatility
of the Company’s Common Stock if available or of several
public entities that are similar to the Company. The Company bases
volatility this way because it may not have sufficient historical
transactions in its own shares on which to solely base expected
volatility. The risk-free interest rate is based on the U.S.
Treasury rates at the date of grant with maturity dates
approximately equal to the expected term at the grant date. The
Company has not historically declared any dividends and does not
expect to in the future.
The Company realized no income tax benefit from stock option
exercises in each of the periods presented due to recurring losses
and valuation allowances.
During the years ended December 31, 2020 and 2019, stock option
activity under the 2014 Plan and 2020 Plan was as
follows:
|
|
Number
of Shares
|
Average Exercise Price
|
Remaining Contract Life in Years
|
Intrinsic
Value
|
|
|
|
|
|
|
|
Stock options outstanding at January 1, 2019
|
994,000
|
$
3.58
|
5.42
|
$
-
|
|
|
|
|
|
|
|
Granted
during the period
|
1,193,500
|
$
1.44
|
5.79
|
$
-
|
|
Expired
during the period
|
-
|
-
|
|
|
|
Canceled
during the period
|
(510,000
)
|
$
2.80
|
4.50
|
$
-
|
|
Exercised
during the period
|
-
|
-
|
|
|
|
Stock options outstanding at December 31, 2019
|
1,677,500
|
$
2.17
|
5.37
|
$
-
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
794,000
|
$
3.36
|
4.04
|
$
-
|
|
|
|
|
|
|
|
Non-vested stock options outstanding at January 1,
2019
|
244,500
|
$
3.05
|
4.53
|
$
-
|
|
|
|
|
|
|
|
Granted
during the period
|
1,193,500
|
$
1.44
|
5.79
|
$
-
|
|
Vested
during the period
|
(304,500
)
|
$
2.79
|
3.72
|
$
-
|
|
Expired
during the period
|
-
|
-
|
|
|
|
Canceled
during the period
|
(250,000
)
|
$
1.75
|
4.45
|
$
-
|
|
Exercised
during the period
|
-
|
-
|
|
|
|
Non-vested stock options outstanding at December 31,
2019
|
883,500
|
$
1.33
|
6.26
|
$
-
|
|
Stock options outstanding at January 1, 2020
|
1,667,550
|
$
2.17
|
5.37
|
$
-
|
|
|
|
|
|
|
|
Granted
during the period
|
2,880,012
|
$
0.89
|
9.06
|
$
-
|
|
Expired
during the period
|
-
|
-
|
|
|
|
Canceled
during the period
|
(487,228
)
|
$
2.77
|
|
$
-
|
|
Exercised
during the period
|
-
|
-
|
|
|
|
Stock options outstanding at December 31, 2020
|
4,070,284
|
$
1.38
|
7.94
|
$
-
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
1,329,627
|
$
1.78
|
6.67
|
$
-
|
|
|
|
|
|
|
|
Non-vested stock options outstanding at January 1,
2020
|
883,500
|
$
1.33
|
6.26
|
$
-
|
|
|
|
|
|
|
|
Granted
during the period
|
2,880,012
|
$
0.89
|
9.06
|
$
-
|
|
Vested
during the period
|
(840,627
)
|
$
0.98
|
|
$
-
|
|
Expired
during the period
|
-
|
-
|
|
|
|
Canceled
during the period
|
(182,228
)
|
$
1.75
|
|
$
-
|
|
Exercised
during the period
|
-
|
-
|
|
|
|
Non-vested stock options outstanding at December 31,
2020
|
2,740,657
|
$
0.99
|
8.42
|
$
-
|
As of December 31, 2020, the Company had unrecognized stock-based
compensation expense of approximately $2.0 million. Approximately
$1.0 million of this unrecognized expense will be recognized over
the average remaining vesting term of the stock options of 8.42
years.
Approximately $440,000 of this unrecognized expense will vest upon
enrollment completion
of the
ongoing
OPTION
2 Trial. Approximately $41,000 of this unrecognized expense will
vest upon enrollment completion of the ongoing Combination Trial.
Approximately $168,000 of this unrecognized expense will vest upon
the public release of topline data of the complete OPTION 2 Trial
results . Approximately $40,000 of this unrecognized expense will
vest upon initiating a Phase 3 clinical trial in the U.S. for
MS1819. Approximately $40,000 of this unrecognized expense will
vest upon initiating a U.S. Phase 1 clinical trial for any product
other than MS1819. Approximately, $140,000 of this unrecognized
expense will vest upon the public release of topline data of the
complete Combination Trial results. Approximately, $140,000 of this
unrecognized expense will vest upon signing of a definitive term
sheet with Board approval for either (i) a strategic licensing,
distribution or commercialization agreement for MS1819 with a bona
fide partner, or (ii) the substantial sale of the Company or the
MS1819 asset, on or before December 31, 2021. The Company will
recognize the expense related to these milestones when the
milestones become probable.
Note 14
–
Agreements
License Agreement with First Wave Bio, Inc.
On December 31, 2020, we entered into the First Wave License
Agreement, pursuant to which First Wave granted us a worldwide,
exclusive right to develop, manufacture, and commercialize First
Wave’s proprietary immediate release and enema formulations
of niclosamide (the “
Niclosamide
Product
”) for the fields
of treating ICI-AC and COVID-19 in humans.
In consideration of the license and other rights granted by First
Wave, we agreed to pay First Wave a $9.0 million upfront cash
payment due within 10 days, which was paid in January 2021 and are
obligated to make an additional payment of $1.25 million due on
June 30, 2021. In addition, we are obligated to pay potential
milestone payments to First Wave totaling up to $37.0 million for
each indication, based upon the achievement of specified
development and regulatory milestones. Under the First Wave License
Agreement we are obligated to pay First Wave royalties as a
mid-single digit percentage of net sales of the Niclosamide
Product, subject to specified reductions. We are also obligated to
issue to First Wave junior convertible preferred stock, initially
convertible into $3.0 million worth of Common Stock based upon the
volume weighted average price of the Common Stock for the five-day
period immediately preceding the date of the First Wave License
Agreement, or $0.9118 per share, convertible into an aggregate of
3,290,196 shares of Common Stock. This was classified as a
liability in the consolidated balance sheet because of certain
NASDAQ restrictions and the requirement to obtain stockholder
approval.
On January 8, 2021, we entered into a securities purchase agreement
with First Wave (the “
First Wave Purchase
Agreement
”) to issue the
junior convertible preferred stock to the First Wave License
Agreement. Pursuant to the First Wave Purchase Agreement, we issued
to First Wave 3,290.1960 shares of Series C Preferred Stock, at an
initial stated value of $750.00 per share and a conversion price of
$0.75 per share, which is convertible into an aggregate of
3,290,196 shares of Common Stock. The shares of Series C Preferred
Stock automatically converted into Common Stock upon the
stockholder approval on February 24, 2021.The First Wave Purchase
Agreement contains demand and piggyback registration rights with
respect to the Common Stock issuable upon
conversion.
The Company is now solely responsible, and has agreed to use
commercially reasonable efforts, for all development, regulatory
and commercial activities related to the Niclosamide Products in
the ICI-AC and COVID-19 fields. The Company may sublicense its
rights under the First Wave License Agreement and, if it does so,
will be obligated to pay milestone payments and royalties to First
Wave based on the sublicensee’s development and
commercialization of the licensed Niclosamide
Products.
Pursuant to the First Wave License Agreement, First Wave retains
rights to develop and commercialize the licensed niclosamide
formulations outside the ICI-AC and COVID-19 fields, and to develop
and commercialize other niclosamide formulations that are not
licensed to Company. However, if prior to April 30, 2021, First
Wave seeks to outlicense, sell to or otherwise grant rights to a
third party related to any products containing niclosamide for use
outside the ICI-AC or COVID-19 fields to develop or commercialize a
product containing niclosamide for use outside of the Field then
First Wave shall provide to AzurRx written notice of such proposal,
in reasonable detail and AzurRx shall have the right and option to
negotiate with First Wave with respect to a definitive agreement
for the acquisition of First Wave. Pursuant to the First Wave
License Agreement, the Company grants First Wave a worldwide,
non-exclusive, royalty-free, perpetual, irrevocable license for use
outside the ICI-AC and COVID-19 fields, with the right to grant
sublicenses, under any Program IP and other intellectual property
owned by the Company and incorporated into the Niclosamide
Product.
The First Wave License Agreement terminates on a country-by-country
basis and product-by-product basis upon the expiration of the
royalty term for such product in such country. Each royalty term
begins on the date of the first commercial sale of the licensed
product in the applicable country and ends on date of expiration of
the last to expire royalty term with respect to the country. The
First Wave License Agreement may be terminated earlier in specified
situations, including termination for uncured material breach of
the First Wave License Agreement by either party, termination by
the Company in specified circumstances, termination by First Wave
in specified circumstances, termination by the Company for
convenience with advance notice, and termination upon a
party’s insolvency or bankruptcy. After expiration of the
royalty term, the Company shall have a non-exclusive, fully-paid,
perpetual, royalty-free right and irrevocable license with respect
to any Product in any country within the territory.
In certain circumstances set forth in the First Wave License
Agreement, in the event that First Wave seeks to outlicense, sell
or otherwise grant to a third party rights relating to its
proprietary formulations of niclosamide (or any products containing
niclosamide) for use outside the ICI-AC and the COVID-19 field,
then First Wave must provide the Company written notice and engage
in good faith negotiations with the Company for a period of time to
try to reach agreement on the terms of an acquisition of First Wave
by the Company. In the event that First Wave and the Company fail
to reach an agreement, then First Wave shall be free to negotiate a
transaction, and the right of first refusal shall be of no further
force or effect.
The First Wave License Agreement also contains customary
representations, warranties and covenants by both parties, as well
as customary provisions relating to indemnification,
confidentiality and other matters.
Mayoly Agreement
On March 27, 2019, the Company and
Laboratories Mayoly
Spinder
(“
Mayoly
”) entered into an Asset Purchase Agreement
(the “
Mayoly APA
”), pursuant
to which the Company purchased
substantially all remaining
rights, title and interest in and to
MS1819. Further, upon execution of the Mayoly APA, the Joint
Development and License Agreement (the “
JDLA
”) previously executed by AzurRx SAS and
Mayoly was assumed by the Company. In addition, the Company granted
to Mayoly an exclusive, royalty-bearing right to revenue received
from commercialization of MS1819 within certain
territories.
During
the year ended December 31, 2019, the Company charged approximately
$403,000 to Mayoly under the JDLA that was in effect during such
period.
TransChem Sublicense
In
August 2017, the Company entered into a sublicense agreement with
TransChem, pursuant to which TransChem granted the Company an
exclusive license to patents and patent applications relating to
Helicobacter pylori 5’methylthioadenosine nucleosidase
inhibitors (the
“TransChem
Licensed Patents”
) currently held
by TransChem (the
“TransChem
Sublicense Agreement”
). The Company may terminate the
TransChem Sublicense Agreement and the licenses granted therein for
any reason and without further liability on 60 days’ notice.
Unless terminated earlier, the TransChem Sublicense Agreement will
expire upon the expiration of the last TransChem Licensed Patents.
Upon execution, the Company paid an upfront fee to TransChem and
agreed to reimburse TransChem for certain expenses previously
incurred in connection with the preparation, filing, and
maintenance of the TransChem Licensed Patents. The Company also
agreed to pay TransChem certain future periodic sublicense
maintenance fees, which fees may be credited against future
royalties. The Company may also be required to pay TransChem
additional payments and royalties in the event certain
performance-based milestones and commercial sales involving the
TransChem Licensed Patents are achieved. The TransChem Licensed
Patents allowed the Company to develop compounds for treating
gastrointestinal and other infections which are specific to
individual bacterial species. H. pylori bacterial infections are a
major cause of chronic gastritis, peptic ulcer disease, gastric
cancer and other diseases.
Amounts
paid under the TransChem Sublicense Agreement during the years
ended December 31, 2020 and 2019 were approximately $0 and $50,000,
respectively, and were included in research and development
expense.
In March 2020, the Company provided TransChem with sixty (60) days
prior written notice of its intent to terminate the TransChem
Sublicense Agreement. As of December 31, 2020, this agreement has
been terminated.
Employment Agreements
James Sapirstein
Effective
October 8, 2019, the Company entered into an employment agreement
with Mr. Sapirstein to serve as its President and Chief Executive
Officer for a term of three years, subject to further renewal upon
agreement of the parties. The employment agreement with Mr.
Sapirstein originally provided for a base salary of $450,000 per
year, which was subsequently increased to $480,000 per year during
the year ended December 31, 2020. In addition to the base salary,
Mr. Sapirstein is eligible to receive (i) a cash bonus of up to 40%
of his base salary on an annual basis, based on certain milestones
that are yet to be determined; (ii) 1% of net fees received by the
Company upon entering into license agreements with any third-party
with respect to any product current in development or upon the sale
of all or substantially all assets of the Company; (iii) an award
grant of 200,000 restricted stock units (“
RSUs
”) which are scheduled to
vest as follows (a) 100,000 shares upon the first commercial sale
of MS1819 in the U.S. and (b) 100,000 shares upon the total market
capitalization of the Company exceeding $1.0 billion for 20
consecutive trading days; (iv) a grant of 300,000 10-year stock
options to purchase shares of common stock with an exercise price
equal to $0.56 per share, which are scheduled to vest as follows
(a) 50,000 shares upon the Company initiating its next Phase 2
clinical trial in the U.S. for MS1819, (b) 50,000 shares upon the
Company completing its next or subsequent Phase 2 clinical trial in
the U.S. for MS1819, (c) 100,000 shares upon the Company initiating
a Phase 3 clinical trial in the U.S. for MS1819, and (d) 100,000
shares upon the Company initiating a Phase 1 clinical trial in the
U.S. for any product other than MS1819. Mr. Sapirstein is entitled
to receive 20 days of paid vacation, participate in full employee
health benefits and receive reimbursement for all reasonable
expenses incurred in connection with his services to the
Company.
In the
event that Mr. Sapirstein’s employment is terminated by the
Company for Cause, as defined in his employment agreement, or by
Mr. Sapirstein voluntarily, then he will not be entitled to receive
any payments beyond amounts already earned, and any unvested equity
awards will terminate. In the event that Mr. Sapirstein’s
employment is terminated as a result of an Involuntary Termination
Other than for Cause, as defined in his employment agreement, Mr.
Sapirstein will be entitled to receive the following compensation:
(i) severance in the form of continuation of his salary (at the
base salary rate in effect at the time of termination, but prior to
any reduction triggering Good Reason (as such term is defined in
Mr. Sapirstein’s employment agreement) for a period of twelve
months following the termination date; (ii) payment of Mr.
Sapirstein’s premiums to cover COBRA for a period of twelve
months following the termination date; and (iii) a prorated annual
bonus.
Daniel Schneiderman
Effective
January 2, 2020, the Company entered into an employment agreement
with Mr. Schneiderman to serve as the Company’s Chief
Financial Officer for a term of three years, subject to further
renewal upon agreement of the parties. The employment agreement
with Mr. Schneiderman provides for a base salary of $285,000 per
year. In addition to the base salary, Mr. Schneiderman is eligible
to receive (a) an annual milestone cash bonus based on certain
milestones that will be established by the Company’s Board or
the Compensation Committee, and (b) a grant of stock options to
purchase 335,006 shares of common stock with an exercise price of
$1.03 per share, which shall vest in three equal portions on each
anniversary date of the execution of Mr. Schneiderman’s
employment agreement, commencing on January 2, 2021, the first
anniversary date of the agreement. Mr. Schneiderman is
entitled to receive 20 days of paid vacation, participate in full
employee health benefits and receive reimbursement for all
reasonable expenses incurred in connection with his service to the
Company. The Company may terminate Mr. Schneiderman’s
employment agreement at any time, with or without Cause, as such
term is defined in his employment agreement.
In the
event that Mr. Schneiderman’s employment is terminated by the
Company for Cause, as defined in Mr. Schneiderman’s
employment agreement, or by Mr. Schneiderman voluntarily, then he
will not be entitled to receive any payments beyond amounts already
earned, and any unvested equity awards will terminate. If the
Company terminates his employment agreement without Cause, not in
connection with a Change of Control, as such term is defined in Mr.
Schneiderman’s employment agreement, he will be entitled to
(i) all salary owed through the date of termination; (ii) any
unpaid annual milestone bonus; (iii) severance in the form of
continuation of his salary for the greater of a period of six
months following the termination date or the remaining term of the
employment agreement; (iv) payment of premiums to cover COBRA for a
period of six months following the termination date; (v) a prorated
annual bonus equal to the target annual milestone bonus, if any,
for the year of termination multiplied by the formula set forth in
the agreement. If the Company terminates Mr. Schneiderman’s
employment agreement without Cause, in connection with a Change of
Control, he will be entitled to the above and immediate accelerated
vesting of any unvested options or other unvested
awards.
Dr. James E. Pennington
Effective
May 28, 2018, the Company entered into an employment agreement with
Dr. Pennington to serve as its Chief Medical Officer. The
employment agreement with Dr. Pennington provides for a base annual
salary of $250,000. In addition to his salary, Dr. Pennington is
eligible to receive an annual milestone bonus, awarded at the sole
discretion of the Board based on his attainment of certain
financial, clinical development, and/or business milestones
established annually by the Board or Compensation Committee. The
Company may terminate Dr. Pennington’s employment agreement
at any time, with or without Cause, as such term is defined in Dr.
Pennington’s employment agreement. In the event of
termination by the Company other than for Cause, Dr. Pennington is
entitled to three months’ severance payable over such period.
In the event of termination by the Company other than for Cause in
connection with a Change of Control as such term is defined in Dr.
Pennington’s employment agreement, Dr. Pennington will
receive six months’ severance payable over such
period.
Note 15 - Leases
The
Company adopted ASU 2016-02, Leases, as of January 1, 2019, using
the modified retrospective approach. Prior year financial
statements were not recast under the new standard.
The
Company leases its offices and research facilities under operating
leases which are subject to various rent provisions and escalation
clauses.
During the year ended December 31, 2020, the Company entered into a
month-to-month lease for office space in Delray Beach, FL, a
one-year residential lease in Delray Beach, FL and a two-year lease
extension (amendment) to is Hayward, CA office. During the year
ended December 31, 2020, the Company’s lease for its
research laboratory in France expired and was not
renewed.
The Company determined that the modification to the Hayward, CA
lease did not grant an additional right of use and concluded that
the modification was not a separate new lease, but rather that it
should reassess and remeasure the entire modified lease on the
effective date of the modification. The Company accounted for the
lease amendment prospectively.
The
Company’s leases expire at various dates through 2022. The
escalation clauses are indeterminable and considered not material
and have been excluded from minimum future annual rental
payments.
Lease
expense amounted to approximately $205,000 and $198,000 for the
years ended December 31, 2020 and 2019, respectively.
The
weighted-average remaining lease term and weighted-average discount
rate under operating leases at December 31, 2020 were:
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
|
Lease term and discount rate
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
1.42 years
|
|
|
|
Weighted-average discount rate
|
|
|
6.0%
|
|
Maturities
of operating lease liabilities at December 31, 2020 were as
follows:
|
2021
|
55,420
|
|
2022
|
23,375
|
|
Total
lease payments
|
78,795
|
|
Less
imputed interest
|
-
|
|
Present
value of lease liabilities
|
$
78,795
|
Note 16 - Income Taxes
The
Company is subject to taxation at the federal level in both the
United States and France and at the state level in the United
States. At December 31, 2020 and 2019, the Company had no tax
provision for either jurisdictions.
At
December 31, 2020 and 2019, the Company had gross deferred tax
assets of approximately $26.1 million and $16.4 million,
respectively. As the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the
deferred tax asset, a valuation allowance of approximately $26.1
million and $16.4 million has been established at December 31, 2020
and 2019, respectively. The change in the valuation allowance was
approximately $9.7 million and $3.9 million in 2020 and 2019,
respectively.
The
significant components of the Company’s net deferred tax
assets consisted of:
|
|
December
31,
|
|
|
|
2020
|
2019
|
|
Gross
deferred tax assets:
|
|
|
|
Net
operating loss carry-forwards
|
$
24,269,000
|
$
16,197,000
|
|
Temporary
differences:
|
|
|
|
Stock
compensation
|
1,408,000
|
199,000
|
|
Accruals
|
76,000
|
136,000
|
|
Other
|
639,000
|
131,000
|
|
Amortization
|
(319,000
)
|
(291,000
)
|
|
Deferred
tax asset valuation allowance
|
(26,073,000
)
|
(16,372,000
)
|
|
Net
deferred tax asset
|
$
-
|
$
-
|
Income
taxes computed using the federal statutory income tax rate differs
from the Company’s effective tax rate primarily due to the
following:
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Income
taxes benefit (expense) at statutory rate
|
21
%
|
21
%
|
|
State
income tax
|
14
%
|
14
%
|
|
Non-deductible
expense
|
(12
%)
|
(6
%)
|
|
Change
in valuation allowance
|
(23
%)
|
(29
%)
|
|
|
0
%
|
0
%
|
The
Company has gross net operating loss (“
NOL
”) carryforwards for U.S.
federal and state income tax purposes of approximately $51.4
million and $29.3 million, at December 31, 2020 and 2019,
respectively. The NOL’s expire between the years 2034 and
2039. The Company’s ability to use its NOL carryforwards may
be limited if it experiences an “ownership change” as
defined in Section 382 (“
Section 382
”) of the Internal
Revenue Code of 1986, as amended. An ownership change generally
occurs if certain stockholders increase their aggregate percentage
ownership of a corporation’s stock by more than 50 percentage
points over their lowest percentage ownership at any time during
the testing period, which is generally the three-year period
preceding any potential ownership change.
The
Company had approximately $23.0 million and $19.5 million in net
operating losses, at December 31, 2020 and 2019, respectively,
which it can carryforward indefinitely to offset against future
French income.
The
Company had taken no uncertain tax positions that would require
disclosure under ASC 740, Accounting for Income Taxes, at December
31, 2020 and 2019, respectively.
Note 17 - Net Loss per Common Share
Basic
net loss per share is computed by dividing net loss available to
Common Stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflect,
in periods in which they have a dilutive effect, the impact of
common shares issuable upon exercise of stock options and warrants
and conversion of convertible debt that are not deemed to be
anti-dilutive. The dilutive effect of the outstanding stock options
and warrants is computed using the treasury stock
method.
At
December 31, 2020, diluted net loss per share did not include the
effect of 27,736,019 shares of Common Stock issuable upon the
conversion of Series B preferred stock, 25,179,192 shares of Common
Stock issuable upon the exercise of outstanding warrants, 112,000
shares of restricted stock not yet issued, and 4,070,284 shares of
Common Stock issuable upon the exercise of outstanding options as
their effect would be antidilutive during the periods prior to
conversion. Also excluded from the diluted net loss per are the
potentially dilutive effect of 3
,290,196 shares of Common Stock
from the
First Wave License Agreement, and the potentially dilutive effect
10,666,668 shares of Common Stock
underlying the Series C Preferred Stock and 10,666,668 shares of
Common Stock issuable upon exercise of Investor Warrants
potentially issuable pursuant the Registered Direct Offering and
Private Placement entered into on December 31,
2020.
At
December 31, 2019, diluted net loss per share did not include the
effect of 3,671,055 shares of Common Stock issuable upon the
conversion of convertible debt, 5,378,288 shares of Common Stock
issuable upon the exercise of outstanding warrants, 632,667 shares
of restricted stock not yet issued, and 1,677,500 shares of Common
Stock issuable upon the exercise of outstanding options as their
effect would be antidilutive during the periods prior to
conversion.
Note 18 - Related Party Transactions
Johan (Thijs) Spoor
During
the year ended December 31, 2015, the Company employed the services
of JIST Consulting (“
JIST
”), a company controlled by
Johan (Thijs) Spoor, the Company’s former Chief Executive
Officer and President, as a consultant for business strategy,
financial modeling, and fundraising. Approximately $348,000 was
included in accounts payable at December 31, 2019 for JIST relating
to Mr. Spoor’s services. Mr. Spoor received no other
compensation from the Company other than as specified in his
employment agreement. On October 8, 2019, Mr. Spoor resigned as
Chief Executive Officer and President of the Company.
In addition, Mr. Spoor resigned as a member of the
Board on April 29, 2020.
In June
2019, the Company accrued an incentive bonus in the amount of
$255,000 payable to Mr. Spoor. Subsequent to Mr. Spoor’s
resignation, the Compensation Committee reviewed the accrued bonus
and determined that such amount was not owed by the Company, which
determination is being challenged by Mr. Spoor. As a result of
management’s determination, the Company reversed the accrual
in the quarter ended December 31, 2019.
All unvested shares of restricted stock and stock options subject
to time and other performance-based vesting conditions have been
forfeited in connection with Mr. Spoor's resignation as the
Company’s President and Chief Executive Officer. Mr.
Spoor also declined the right to receive 241,667 earned, but
unissued shares of restricted stock on April 29, 2020 in connection
with his resignation from the Board.
The Company and Mr. Spoor entered into a settlement and general
release (the “
Spoor Settlement and
Release
”), effective July
9, 2020 (the “
Spoor Settlement
Date
”), of certain claims
relating to Mr. Spoor's separation from the Company on October 8,
2019. In connection with the Spoor Settlement and Release, on July
14, 2020 the Company granted Mr. Spoor warrants to purchase an
aggregate of 150,000 shares of Common Stock, which had a grant date
fair value of $85,770 (See Note 12). In addition, Mr. Spoor legally
released all claims to a discretionary bonus in the amount of
$255,000, which was originally accrued by the Company in June 2019
but was subsequently reversed during the quarter ended December 31,
2019, legally released all claims to $348,400 due to JIST
Consulting, a company controlled by Mr. Spoor and the
Company
also paid Mr. Spoor's
legal expenses in the amount
of approximately
$51,000.
During the year ended December 31,
2020, the Company recognized a gain on settlement of approximately
$211,000 in connection with the Spoor Settlement and
Release.
Maged Shenouda
From October 1, 2016 until his appointment as the Company’s
Chief Financial Officer on September 25, 2017, the Company employed
the services of Maged Shenouda as a financial consultant.
Approximately $50,000 was included in accounts payable at December
31, 2019 for Mr. Shenouda’s services. On November 1, 2019,
Mr. Shenouda submitted his resignation as Chief Financial Officer
of the Company, effective November 30, 2019.
In June 2019, the Company accrued an incentive bonus in the amount
of $100,000 payable to Mr. Shenouda. Subsequent to Mr.
Shenouda’s resignation, the Compensation Committee reviewed
the accrued bonus and determined that such amount should not be
paid, and the Company reversed the accrual in the quarter ended
December 31, 2019.
On July
2, 2020, the Company and Mr. Shenouda, also entered into a
settlement and general release (the “
Shenouda Settlement and
Release
”), of certain claims relating to Mr.
Shenouda’s s separation from the Company effective November
30, 2019. In connection with the Shenouda Settlement and Release,
the Company paid a total of $15,000 to Mr. Shenouda, which amount
included $10,000 of accounts payable of the Company due to Mr.
Shenouda for services provided and $5,000 for legal expenses, and
Mr. Shenouda
legally released
all claims to
a discretionary
bonus in the amount of $100,000 originally accrued by the Company
in June 2019,
but was subsequently
reversed during the quarter ended December 31,
2019
.
Insider Participation in the Private Placement and
Exchange
On July 16, 2020, in connection with the Private Placement and the
Exchange, James Sapirstein, President, Chief Executive Officer and
Chair of the Board purchased $100,000 worth of Series B Preferred
Stock and related Series B Warrants for cash. Mr. Sapirstein
received 12.987013 shares of Series B Preferred Stock convertible
into 129,871 shares of Common Stock and Series B Warrants for
64,936 shares of Common Stock. Edward J. Borkowski, lead
independent director, purchased $250,000 worth of Series B
Preferred Stock and related Series B Warrants for cash and
exchanged $105,129 of Promissory Notes (including outstanding
principal amount and accrued and unpaid interest thereon) for
Series B Preferred Stock and related Series B Warrants and Exchange
Warrants in the Exchange.
Note 19 - Employee Benefit Plans
401(k) Plan
Since
2015, the Company has sponsored a multiple employer defined
contribution benefit plan, which complies with Section 401(k) of
the Internal Revenue Code covering substantially all employees of
the Company.
All
employees are eligible to participate in the plan. Employees may
contribute from 1% to 100% of their compensation and the Company
matches an amount equal to 100% on the first 6% of the employee
contribution and may also make discretionary profit-sharing
contributions.
Employer
contributions under this 401(k) plan amounted to approximately
$92,000 and $92,000 for the years ended December 31, 2020 and 2019,
respectively.
Note 20 – Subsequent Events
Amendment to Charter and Approved Reverse Stock Split
On February 24, 2021, at the Special Meeting of Stockholders
(“
Special
Meeting
”), the
stockholders approved
an amendment to the Amended and
Restated Certificate of Incorporation (the “
Charter
”) to increase the number
of authorized shares of Common Stock by 100,000,000 shares to
250,000,000 shares, and to authorize the Board of Directors (the
“
Board
”) to
effect a reverse stock split of both the issued and outstanding and
authorized shares of Common Stock, at a specific ratio, ranging
from one-for-five (1:5) to one-for-ten (1:10), any time prior to
the one-year anniversary date of the Special Meeting, with the
exact ratio to be determined by the Board.
The Company filed a Certificate of Amendment to its Charter with
the Secretary of State of the State of Delaware on February 24,
2021, to increase the number of authorized shares of Common Stock
to 250,000,000 shares.
March 2021 Common Stock and Warrant Offering
On March 7, 2021, the Company entered into a securities purchase
agreement (the “
March 2021 Purchase
Agreement
”) with a single
institutional investor, pursuant to which the Company agreed to
sell, in a registered direct offering (the
“
March 2021
Offering
”) priced at the
market under Nasdaq rules, (i) 5,800,000 shares of Common Stock,
(ii) pre-funded warrants (the “
March 2021 Pre-Funded
Warrants
”) to purchase up
to 2,058,548 shares of Common Stock, with an exercise price of
$0.01 per share and no expiration term and (iii) warrants (the
“
March 2021
Warrants
”) to purchase an
aggregate of 3,929,274 shares of Common Stock with an exercise
price of $1.21 per share and an expiration term of five years from
the date of issuance. The aggregate price per of the March 2021
Offering share was $1.2725.
The aggregate gross proceeds from the March 2021 Offering, which
closed on March 10, 2021 (the “
March 2021
Closing
Date
”), excluding the net
proceeds, if any, from the exercise of the March 2021 Warrants was
approximately $10.0 million.
The net proceeds to the Company from the March 2021 Offering, after
deducting the placement agent’s fees and expenses and
estimated offering expenses, was approximately $9.1 million. The
Company intends to use the net proceeds to initiate the two
niclosamide clinical programs in the first half of 2021, a Phase 2
clinical trial for COVID-19 GI infections and a Phase 1b/2a trial
for ICI-AC, respectively, and for other general corporate
purposes.
The Company paid the placement agent a cash fee equal to 8.0% of
the aggregate gross proceeds received by us in the March 2021
Offering, or approximately $800,000. The Company also agreed to
issue to the placement agent or its designees warrants (the
“
March 2021 Placement Agent
Warrants
”) exercisable
for up to 550,099 shares of Common Stock, which is equal to 7.0% of
the aggregate number of shares of Common Stock placed in the March
2021 Offering. The March 2021 Placement Agent Warrants have
substantially the same terms as the March 2021 Warrants, except
they are exercisable at $1.5906 per share, or 125% of the effective
purchase price per share of Common Stock issued in the March 2021
Offering. The Company also reimbursed the placement agent $35,000
for non-accountable expenses, up to $50,000 for legal fees and
expenses and other out-of-pocket expenses and approximately $16,000
for clearing fees.
In the March 2021 Purchase Agreement, the Company agreed not to
issue, enter into any agreement to issue or announce the issuance
or proposed issuance of, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for
shares of Common Stock or file any registration statement or
prospectus, or any amendment or supplement thereto for 50 days
after the March 2021 Closing Date. In addition, the Company agreed
not to effect or enter into an agreement to effect any issuance of
Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock involving a variable rate
transaction (as defined in the March 2021 Purchase Agreement) until
the one-year anniversary of the date of the March 2021 Purchase
Agreement, subject to certain exceptions
Series B Most Favored Nations (MFN) Exchanges
Under the Certificate of Designations for the Series B Convertible
Preferred Stock (the “
Series B Certificate of
Designations
”), in the
event the Company effects any issuance of Common Stock or Common
Stock equivalents for cash consideration, or a combination of units
thereof (a “
Subsequent
Financing
”), each holder
of the Series B Convertible Preferred Stock, par value $0.0001 per
share (the “
Series B Preferred
Stock
”), has the right to
exchange the stated value, plus accrued and unpaid dividends (the
“
Exchange
Amount
”), of the Series B
Preferred Stock for any securities issued in the Subsequent
Financing, in lieu of any cash subscription payments therefor (the
“
Exchange
Right
”).
On
December 31, 2020, the Company entered into the Series C Purchase
Agreement as part of the Registered Direct Offering and Private
Placement, and the holders of the Series B Preferred Stock became
entitled to exercise their Exchange Right to exchange into the
Series C Preferred Stock and related Investor Warrants. As of March
30, 2021, holders of approximately 1,266.92 shares of Series B
Preferred Stock with an aggregate Exchange Amount of approximately
$9.8 million had previously elected to exercise their Series B
Exchange Rights into Series C Preferred Stock, convertible into an
aggregate of 13,087,843 shares of Common Stock (which conversion
the Company has elected to make in full on February 24, 2021, upon
receipt of certain stockholder approvals), and additional Investor
Warrants exercisable for up to an aggregate of 13,087,843 shares of
Common Stock.
As a result, as of March
30, 2021, the Company may be required to issue up to 13,168.280
additional shares of Series C Preferred Stock that are currently
convertible up to 13,168,280 underlying shares of Common Stock,
together with Investor Warrants to purchase up to an additional
13,168,280 shares of Common Stock, to any holders of Series B
Preferred Stock who elect to exercise their Exchange Right. Any
shares of Series C Preferred Stock to be issued pursuant to the
Exchange Right would, upon issuance, be immediately converted into
underlying shares of Common Stock.
Exercises of Warrants
From January 1, 2021 through March 29, 2021, the Company received
gross proceeds of approximately $4.6 million from the exercise of
warrants to purchase an aggregate of 6,640,588 shares of Common
Stock, with exercise prices ranging from $0.001 to $1.42 per share.
As of March 29, 201, the Company had 44,930,105 shares of Common
Stock issuable upon exercise of outstanding warrants, with a
weighted average exercise price of $1.02 per share.
F-39
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial StatementsItem 8. FinancialItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. ExhibitsItem 16: Form 10-k SummaryNote 1 - The Company and Basis Of PresentationNote 2 - Significant Accounting Policies and Recent Accounting PronouncementsNote 3 - Fair Value DisclosuresNote 4 - Other ReceivablesNote 5 - Property, Equipment and Leasehold ImprovementsNote 6 - Intangible Assets and GoodwillNote 7 - Accounts Payable and Accrued ExpenseNote 8 - Note PayableNote 9 Convertible DebtNote 10 Other LiabilitiesNote 11 EquityNote 12 - WarrantsNote 13 Stock OptionsNote 14 AgreementsNote 15 - LeasesNote 16 - Income TaxesNote 17 - Net Loss Per Common ShareNote 18 - Related Party TransactionsNote 19 - Employee Benefit PlansNote 20 Subsequent Events