|
Item 1.
|
Condensed
Financial Statements
|
RegeneRx Biopharmaceuticals, Inc.
Condensed Balance Sheets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(See Note 1)
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,608,958
|
|
|
$
|
317,627
|
|
Prepaid expenses and other current assets
|
|
|
25,563
|
|
|
|
24,300
|
|
Total current assets
|
|
|
1,634,521
|
|
|
|
341,927
|
|
Property and equipment, net of accumulated depreciation of $90,457 and $88,794
|
|
|
8,882
|
|
|
|
10,544
|
|
Other assets
|
|
|
5,752
|
|
|
|
5,752
|
|
Total assets
|
|
$
|
1,649,155
|
|
|
$
|
358,223
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
159,939
|
|
|
$
|
141,130
|
|
Unearned revenue
|
|
|
50,825
|
|
|
|
-
|
|
Accrued expenses
|
|
|
280,775
|
|
|
|
217,911
|
|
Total current liabilities
|
|
|
491,539
|
|
|
|
359,041
|
|
|
|
|
|
|
|
|
|
|
Long-Term liabilities
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
1,555,755
|
|
|
|
1,379,388
|
|
Convertible promisory note
|
|
|
300,000
|
|
|
|
300,000
|
|
Convertible promisory notes, net of derivative liability
|
|
|
450,100
|
|
|
|
388,854
|
|
Fair value of derivative liabilities
|
|
|
6,321,670
|
|
|
|
4,673,336
|
|
Total liabilities
|
|
|
9,119,064
|
|
|
|
7,100,619
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value per share, 1,000,000 shares authorized; no shares issued
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $.001 per share, 200,000,000 shares authorized, 106,787,151 and 101,640,092 issued and outstanding
|
|
|
106,787
|
|
|
|
101,640
|
|
Additional paid-in capital
|
|
|
98,552,746
|
|
|
|
98,230,802
|
|
Accumulated deficit
|
|
|
(106,129,442
|
)
|
|
|
(105,074,838
|
)
|
Total stockholders' deficit
|
|
|
(7,469,909
|
)
|
|
|
(6,742,396
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
1,649,155
|
|
|
$
|
358,223
|
|
The accompanying notes are an
integral part of these condensed financial statements.
RegeneRx Biopharmaceuticals, Inc.
Condensed Statements of Operations
|
|
Three Months ended June 30,
|
|
|
Six Months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,706
|
|
|
$
|
5,000
|
|
|
$
|
67,896
|
|
|
$
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
60,424
|
|
|
|
78,460
|
|
|
|
163,325
|
|
|
|
114,931
|
|
General and administrative
|
|
|
449,931
|
|
|
|
477,141
|
|
|
|
854,639
|
|
|
|
871,641
|
|
Total operating expenses
|
|
|
510,355
|
|
|
|
555,601
|
|
|
|
1,017,964
|
|
|
|
986,572
|
|
Loss from operations
|
|
|
(497,649
|
)
|
|
|
(550,601
|
)
|
|
|
(950,068
|
)
|
|
|
(941,572
|
)
|
Interest and other income
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
101
|
|
Interest expense
|
|
|
(43,101
|
)
|
|
|
(43,101
|
)
|
|
|
(86,202
|
)
|
|
|
(85,730
|
)
|
Change in fair value of derivative liabilities
|
|
|
2,865,000
|
|
|
|
(1,168,334
|
)
|
|
|
(18,334
|
)
|
|
|
(2,453,500
|
)
|
Net income (loss)
|
|
$
|
2,324,250
|
|
|
$
|
(1,762,012
|
)
|
|
$
|
(1,054,604
|
)
|
|
$
|
(3,480,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Diluted net income (loss) per common share
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
101,753,214
|
|
|
|
101,509,149
|
|
|
|
101,696,653
|
|
|
|
101,413,396
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
122,412,538
|
|
|
|
101,509,149
|
|
|
|
101,696,653
|
|
|
|
101,413,396
|
|
The accompanying notes are an integral part
of these condensed financial statements.
RegeneRx Biopharmaceuticals, Inc.
Condensed Statements of Cash Flows
|
|
For the six months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,054,604
|
)
|
|
$
|
(3,480,701
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,662
|
|
|
|
1,740
|
|
Share-based compensation
|
|
|
222,862
|
|
|
|
137,998
|
|
Shares issued as compensation to non-employees
|
|
|
-
|
|
|
|
8,100
|
|
Offering costs allocated to derivative liabilities
|
|
|
214,229
|
|
|
|
-
|
|
Non-cash interest expense
|
|
|
61,246
|
|
|
|
60,911
|
|
Change in fair value of derivative liabilities
|
|
|
18,334
|
|
|
|
2,453,500
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
227,192
|
|
|
|
495,000
|
|
Prepaid expenses and other current assets
|
|
|
(1,263
|
)
|
|
|
31,134
|
|
Accounts payable
|
|
|
18,809
|
|
|
|
(17,446
|
)
|
Accrued expenses
|
|
|
62,864
|
|
|
|
29,719
|
|
Net cash used in operating activities
|
|
|
(228,669
|
)
|
|
|
(280,045
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
-
|
|
|
|
(1,076
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(1,076
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock and issuance of warrants net of offering costs
|
|
|
1,520,000
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
1,520,000
|
|
|
|
-
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,291,331
|
|
|
|
(281,121
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
317,627
|
|
|
|
844,043
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,608,958
|
|
|
$
|
562,922
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Operating and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of warrants
|
|
$
|
-
|
|
|
$
|
294
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued to placement agent
|
|
$
|
83,799
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivative liabilities
|
|
$
|
1,630,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these condensed financial statements.
RegeneRx Biopharmaceuticals, Inc.
Notes to Condensed Financial Statements
For the three and six months ended June
30, 2016 and 2015 (Unaudited)
|
1.
|
organization,
business overview and basis of presentation
|
Organization and Nature of Operations.
RegeneRx Biopharmaceuticals, Inc. (“RegeneRx”,
the “Company”, “We”, “Us”, “Our”), a Delaware corporation, was incorporated in
1982. We are focused on the discovery and development of novel molecules to accelerate tissue and organ repair. Our operations
are confined to one business segment: the development and marketing of product candidates based on Thymosin Beta 4 (“Tβ4”),
an amino acid peptide.
Management Plans.
On June 27, 2016, we entered into a Securities
Purchase Agreement with Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund, Ltd. (collectively, “Sabby”)
pursuant to which we agreed to sell, and the purchasers agreed to purchase, an aggregate of 5,147,059 shares of common stock and
warrants to purchase 5,147,059 shares of common stock, which we refer to as the 2016 Offering. We received approximately $1,520,000
in net proceeds from the 2016 Offering. We believe our current resources including the proceeds from the 2016 Offering will fund
our planned operations into the 4
th
quarter of 2017.
In May 2016, we announced the top line
data from the Phase 2/3 clinical trial in patients with dry eye syndrome (“DES”), sponsored by our U.S. joint venture,
ReGenTree, LLC. Although the co-primary endpoints were not met, ReGenTree demonstrated RGN-259’s protective efficacy in improving
a sign and symptom of DES, which is in line with the results observed in the previous Phase 2a trial. Importantly, ReGenTree identified
what we believe to be approvable sign and symptom endpoints, which were met with statistical significance. ReGenTree expects to
meet with the FDA later this summer and plans to initiate a confirmatory Phase 3 trial around the beginning of the 4
th
quarter of 2016.
On January 28, 2015, we announced that
we had entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with GtreeBNT Co., Ltd., a Korean pharma
company (“GtreeBNT”) and shareholder of the Company. The Joint Venture Agreement provides for the creation of an entity,
ReGenTree, LLC (the “Joint Venture” or “ReGenTree”), jointly owned by us and GtreeBNT, that will commercialize
RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan indication in the United States. GtreeBNT is responsible
for funding all product development and commercialization efforts, and holds a majority interest of ReGenTree that varies depending
on development milestones achieved and eventual commercialization path, if successful.
RegeneRx’s initial ownership interest
in ReGenTree was 49% and was reduced to 42% after the clinical study report was filed for the Phase 2/3 dry eye clinical trial.
Based on when, and if, certain additional development milestones are achieved in the U.S. with RGN-259, our equity ownership may
be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon approval of an NDA for Dry Eye
Syndrome in the U.S. In the event the ReGenTree entity is acquired or there is a change of control that occurs following achievement
of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable and will forgo any future royalties.
In conjunction with the Joint Venture Agreement,
we also entered into a royalty-bearing license agreement (the “License Agreement”) with ReGenTree pursuant to which
we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United States. We received a total of
$1 million in two tranches under the terms of the License Agreement. The first tranche of $500,000 was received in March 2015 and
a second in the amount of $500,000 was received in September 2015. On April 6, 2016, we received $250,000 from ReGenTree and executed
an amendment to the license agreement on April 28, 2016. Under the amendment the territorial rights were expanded to include Canada.
We are also entitled to royalties as a percentage of net sales ranging from the single digits to the low-double digits based on
the medical indications approved and whether the Joint Venture commercializes products directly or through a third party. RegeneRx
possesses one of three board seats and certain major decisions and transactions within ReGenTree, such as commercialization strategy,
mergers, and acquisitions, require RegeneRx’s board designee’s consent.
In September 2015, ReGenTree began a Phase
2/3 clinical trial in patients with DES and a Phase 3 clinical trial in patients with neurotrophic keratopathy (“NK”),
both in the U.S. In January 2016, the DES completed enrollment of all patients in the trial. The last patient received the last
treatment in February. Top line data from the DES trial was released in early May 2016 and additional clinical work is being planned
for late 2016.
The study, which enrolled 317 subjects,
tested two doses of RGN-259 eye drops containing 0.05% and 0.1% concentrations of the Tβ4 four times daily for 28 days vs.
placebo. On the 28th and final day of dosing, patients were subject to the Controlled Adverse Environment (“CAE”) challenge.
Co-primary endpoints were total corneal fluorescein staining score change on the 28th day pre-CAE and post-CAE (sign) and total
ocular discomfort score change on the 28th day pre-CAE and post-CAE (symptom). Although the co-primary endpoints were not met,
we demonstrated RGN-259’s protective efficacy in improving a sign and symptom of DES, which is in line with the results observed
in the previous Phase 2a trial. Importantly, we identified approvable sign and symptom endpoints, which were met with statistical
significance. ReGenTree expects to meet with the FDA this summer and initiate a confirmatory Phase 3 trial before the end of 2016.
RGN-259 was safe and well-tolerated and
comfortable for the patients with no irritation upon instillation. There were no significant drug-related adverse events for both
concentrations. The safety profile is consistent with that observed in the previous Phase 2a trial, which had a twice daily instillation
regimen.
The NK trial, a smaller study in an orphan
population, has enrolled eight patients thus far with a goal of 46. Of the eight original clinical sites for the study, six are
enrolling patients, one has yet to receive IRB approval to begin enrolling patients, and one was unable to consummate a clinical
contract with ReGenTree. ReGenTree is considering adding additional sites to accelerate patient enrollment.
Currently, we have active partnerships
in three major territories: the U.S., China and Pan Asia. Our partners have been moving forward and making progress in each territory.
In each case, the cost of development is being borne by our partners with no financial obligation for RegeneRx.
Lee's Pharmaceutical Ltd. (“Lee’s”),
RegeneRx's licensee in China, Hong Kong, Macau and Taiwan, previously received notice from China's FDA (“CFDA”) declining
its investigational new drug (“IND”) application for a Phase 2b dry eye clinical trial because the API (active pharmaceutical
ingredient or Tß4) was manufactured outside of China. The API was manufactured in the U.S. and provided to Lee's by RegeneRx
pursuant to a license agreement to develop RGN-259 ophthalmic eye drops in the licensed territory. However, this year, the CFDA
modified its manufacturing regulations and will now allow Chinese companies to utilize API manufactured outside of China for Phase
1 and 2 clinical trials. We have not been informed of a projected starting date for Phase 2 trials.
GtreeBNT, RegeneRx's licensee in Korea,
Australia, Japan and a number of other countries in Asia, filed an IND with the Korean Ministry of Food and Drug Safety to conduct
a Phase 2/3 study with RGN-259 in patients with dry eye syndrome and in July 2015 received approval to conduct the trial. GtreeBNT
has informed us that given its immediate focus on the two U.S. trials, it is considering the best timing for the Korean trial.
We still have significant clinical assets
to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S., Pan Asia, and Europe,
and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic clinical trials before moving
into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset at that time. However, we
intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in the cardiovascular or central
nervous system fields or finding a suitable partner with the resources and capabilities to develop it as we have with RGN-259.
We anticipate incurring additional losses
in the future as we continue to explore the potential clinical benefits of Tß4-based product candidates over multiple indications.
We have entered into a series of strategic partnerships under licensing and joint venture agreements where our partners are responsible
to advance development of our product candidates with multiple clinical trials started in 2015 and additional trials to begin in
2016. We will need additional funds to continue operations during the fourth quarter of 2017 as well as substantial additional
funds in order to significantly advance development of our unlicensed programs. Accordingly, we will continue to evaluate opportunities
to raise additional capital and are in the process of exploring various alternatives, including, without limitation, a public or
private placement of our securities, debt financing, corporate collaboration and licensing arrangements, or the sale of our company
or certain of our intellectual property rights.
These factors raise substantial doubt about
our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue
as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of our liabilities in
the normal course of business.
Although we intend to continue to seek
additional financing or additional strategic partners, we may not be able to complete a financing or corporate transaction, either
on favorable terms or at all. If we are unable to complete a financing or strategic transaction, we may not be able to continue
as a going concern after our funds have been exhausted, and we could be required to significantly curtail or cease operations,
file for bankruptcy or liquidate and dissolve. There can be no assurance that we will be able to obtain any sources of funding.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should we be forced to take any such actions.
In addition to our current operational
requirements, we continually refine our operating strategy and evaluate alternative clinical uses of Tß4. However, substantial
additional resources will be needed before we will be able to achieve sustained profitability. Consequently, we continually evaluate
alternative sources of financing such as the sharing of development costs through strategic collaboration agreements. There can
be no assurance that our financing efforts will be successful and, if we are not able to obtain sufficient levels of financing,
we would delay certain clinical and/or research activities and our financial condition would be materially and adversely affected.
Even if we are able to obtain sufficient funding, other factors including competition, dependence on third parties, uncertainty
regarding patents, protection of proprietary rights, manufacturing of peptides, and technology obsolescence could have a significant
impact on us and our operations.
To achieve profitability we, and/or a partner,
must successfully conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture
and market those pharmaceuticals we wish to commercialize. The time required to reach profitability is highly uncertain, and there
can be no assurance that we will be able to achieve sustained profitability, if at all.
Basis of Presentation.
The accompanying unaudited interim financial
statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of our financial position, results of operations and cash flows for each period presented. These statements
have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the rules and
regulations of the SEC, for interim financial statements. Accordingly, they do not include all of the information and footnotes
required by GAAP. The accounting policies underlying our unaudited interim financial statements are consistent with those underlying
our audited annual financial statements. These unaudited interim financial statements should be read in conjunction with the audited
annual financial statements as of and for the year ended December 31, 2015, and related notes thereto, included in our Annual Report
on Form 10-K for the year ended December 31, 2015 (the “Annual Report”).
The accompanying December 31, 2015 financial
information was derived from our audited financial statements included in the Annual Report. Operating results for the three and
six month periods ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December
31, 2016 or any other future period.
References in this Quarterly Report on
Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification issued by the Financial Accounting
Standards Board (“FASB”).
Use of Estimates.
The preparation of financial statements
in conformity with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Critical accounting policies involved in applying our accounting policies are those that require management to make assumptions
about matters that are highly uncertain at the time the accounting estimate was made and those for which different estimates reasonably
could have been used for the current period. Critical accounting estimates are also those which are reasonably likely to change
from period to period, and would have a material impact on the presentation of our financial condition, changes in financial condition
or results of operations. Our most critical accounting estimates relate to accounting policies for fair value measurements in connection
with derivative liabilities, clinical trial accruals and share-based arrangements. Management bases its estimates on historical
experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ
from those estimates.
Convertible
Notes with Detachable Warrants.
In accordance with Accounting Standards
Codification (“ASC”) 470-20,
Debt with Conversion and Other Options
, the proceeds received from convertible
notes are allocated between the convertible notes and the detachable warrants based on the relative fair value of the convertible
notes without the warrants and the relative fair value of the warrants. The portion of the proceeds allocated to the warrants is
recognized as additional paid-in capital and a debt discount. The debt discount related to warrants is accreted into interest expense
through maturity of the notes.
Derivative Financial Instruments.
Derivative financial instruments consist
of financial instruments or other contracts that contain a notional amount and one or more underlying variables (e.g., interest
rate, security price or other variable), which require no initial net investment and permit net settlement. Derivative financial
instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially,
and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
The Company does not use derivative financial
instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments
including warrants that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to
host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances, these instruments are required to be
carried as derivative liabilities, at fair value, in the Company’s financial statements. In other instances these instruments
are classified as equity instruments in the Company’s financial statements.
The fair value of derivatives is estimated
using either the Black-Scholes option pricing model or a Monte Carlo simulation model depending on facts pertaining to the derivative
liability. Both option pricing models utilize a series of inputs and assumptions to arrive at a fair value at the date of inception
and each reporting period. Some of the key assumptions include the likelihood of future financing, stock price volatility and discount
rates Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates
that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.
In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of the Company’s
common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried
at fair values, the Company’s operating results reflect the volatility in these estimate and assumption changes in each reporting
period.
Revenue
Recognition.
We recognize revenue in accordance with
the authoritative guidance for revenue recognition. We recognize revenue when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been rendered, (iii) the seller's
price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. We also comply with the authoritative
guidance for revenue recognition regarding arrangements with multiple deliverables. Multiple-element arrangements are analyzed
to determine whether the deliverables, which may include a license together with performance obligations such as providing a clinical
supply of product and steering committee services, can be separated or whether they must be accounted for as a single unit of accounting.
Revenue associated with licensing agreements consists of non-refundable upfront license fees and milestone payments. Non-refundable
upfront license fees received under license agreements, whereby continued performance or future obligations are considered inconsequential
to the relevant license technology, are recognized as revenue upon delivery of the technology.
Whenever we determine that an arrangement
should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will
be performed and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method.
We recognize revenue using the relative performance method provided that the we can reasonably estimate the level of effort required
to complete our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis.
Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned,
as determined using the relative performance method, as of each reporting period.
If we cannot reasonably estimate the level
of effort required to complete our performance obligations under an arrangement, the performance obligations are provided on a
best-efforts basis and we can reasonably estimate when the performance obligation ceases or the remaining obligations become inconsequential
and perfunctory, then the total payments under the arrangement, excluding royalties and payments contingent upon achievement of
substantive milestones, would be recognized as revenue on a straight-line basis over the period we expect to complete our performance
obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue
earned, as determined using the straight-line basis, as of the period ending date.
If we cannot reasonably estimate when our
performance obligation either ceases or becomes inconsequential and perfunctory, then revenue is deferred until we can reasonably
estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated
period of performance.
We recognize consideration that is contingent
upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone
is substantive in its entirety. A milestone is considered substantive when it meets all of the following criteria:
|
·
|
The consideration is commensurate with either the entity's performance to achieve the milestone
or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity's performance
to achieve the milestone;
|
|
·
|
The consideration relates solely to past performance; and
|
|
·
|
The consideration is reasonable relative to all of the deliverables
and payment terms within the arrangement
.
|
A milestone is defined as an event (i)
that can only be achieved based in whole or in part on either the entity's performance or on the occurrence of a specific outcome
resulting from the entity's performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered
into that the event will be achieved and (iii) that would result in additional payments being due to us.
Amounts received prior to satisfying the
above revenue recognition criteria are recorded as deferred revenue in our accompanying condensed balance sheets.
Variable Interest Entities.
The Company has determined that the Joint
Venture is a “variable interest entity”, since the total equity investment at risk is not sufficient to permit the
Joint Venture to finance its activities without additional subordinated financial support. Further, because of GtreeBNT’s
majority equity stake in the Joint Venture, voting control, control of the board of directors, and substantive management rights,
and given that the Company does not have the power to direct the Joint Venture’s activities that most significantly impact
its economic performance, the Company determined that it is not the primary beneficiary of the Joint Venture and therefore is not
required to consolidate the Joint Venture. The Company reports its equity stake in the Joint Venture using the equity method of
accounting because, while it does not control the Joint Venture, the Company can exert significant influence over the Joint Ventures
activities by virtue of its board representation.
Because the Company is not obligated to
fund the Joint Venture, and has not provided any financial support and has no commitment to provide financial support in the future
to the Joint Venture, the carrying value of its investment in the Joint Venture is zero. As a result, the Company is not recognizing
its share (49%) of the Joint Venture’s operating losses and will not recognize any such losses until the Joint Venture produces
net income (as opposed to net losses) and at that point the Company will reduce its share of the Joint Venture’s net income
by its share of previously suspended net losses. As of June 30, 2016, because it has not provided any financial support, the Company
has no financial exposure as a result of its variable interest in the Joint Venture.
Research and Development
.
Research and development (“R&D”)
costs are expensed as incurred and include all of the wholly-allocable costs associated with our various clinical programs passed
through to us by our outsourced vendors. Those costs include: manufacturing Tβ4; formulation of Tβ4 into the various
product candidates; stability for both Tβ4 and the various formulations; pre-clinical toxicology; safety and pharmacokinetic
studies; clinical trial management; medical oversight; laboratory evaluations; statistical data analysis; regulatory compliance;
quality assurance; and other related activities. R&D includes cash and non-cash compensation, payroll taxes, travel and other
miscellaneous costs of our internal R&D personnel, part-time hourly employees and external consultants dedicated to R&D
efforts. R&D also includes an allocation of our common infrastructure costs for office space and communications.
Cost of Preclinical Studies and Clinical
Trials
.
We accrue estimated costs for preclinical
studies based on estimates of work performed. We estimate expenses incurred for clinical trials that are in process based on patient
enrollment and based on clinical data collection and management. Costs based on clinical data collection and management are recognized
based on estimates of unbilled goods and services received in the reporting period. We monitor the progress of the trials and their
related activities and adjust the accruals accordingly. Adjustments to accruals are charged to expense in the period in which the
facts that give rise to the adjustment become known. In the event of early termination of a clinical trial, we would accrue an
amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial.
Recent Accounting Pronouncements.
In August
2014, the FASB issued Accounting Standard Update (“ASU”) 2014-15,
Presentation
of Financial Statements – Going Concern
. The new standard requires management to evaluate on a regular basis whether
any conditions or events have arisen that could raise substantial doubt about the entity’s ability to continue as a going
concern. The guidance 1) provides a definition for the term “substantial doubt,” 2) requires an evaluation every reporting
period, interim periods included, 3) provides principles for considering the mitigating effect of management’s plans to alleviate
the substantial doubt, 4) requires certain disclosures if the substantial doubt is alleviated as a result of management’s
plans, 5) requires an express statement, as well as other disclosures, if the substantial doubt is not alleviated, and 6) requires
an assessment period of one year from the date the financial statements are issued. The standard is effective for the Company’s
reporting year beginning January 1, 2017 and early adoption is not permitted. The Company is currently evaluating the impact, if
any, that this new accounting pronouncement will have on its financial statements.
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers,
which provides guidance for
revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific
guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance
obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard
will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with
customers. In July 2015, the FASB delayed the effective date of this standard by one year. The new standard will be effective
for the Company’s reporting year beginning on January 1, 2018, and early adoption of the standard as of January 1, 2017
is permitted. In March 2016, the FASB issued an accounting standard update to clarify the implementation guidance on principal
versus agent considerations. In April 2016, the FASB issued an accounting standard update to clarify the identification of
performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.
In May 2016, the FASB issued an accounting standard update to clarify guidance in certain areas and add some practical expedients
to the guidance. The amendments in these 2016 updates do not change the core principle of the previously issued guidance
in May 2014. The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its
financial statements
.
In November 2015, the FASB issued new guidance
on the balance sheet classification of deferred taxes. To simplify presentation, the new guidance requires that all deferred tax
assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The
accounting standard is effective for public business entities for annual reporting periods (including interim reporting periods
within those periods) beginning after December 15, 2016. Early adoption is permitted. The adoption of this guidance did not have
an impact on our financial statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities
. The accounting standard
primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation
and disclosure requirements for financial instruments. In addition, it includes a clarification related to the valuation
allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities.
The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after
December 15, 2017. Early adoption is permitted for the provision to record fair value changes for financial liabilities under the
fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating
the impact, if any, that the pronouncement will have on its financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which supersedes ASC Topic 840,
Leases
, and creates a new topic, ASC Topic 842,
Leases
. ASU 2016-02
requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater
than 12 months on its balance sheet. ASU 2016-02 also expands the required quantitative and qualitative disclosures surrounding
leases. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company has determined
that the adoption of ASU 2016-02 will currently have no impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07,
Equity Method and Joint Ventures,
which affects all entities that have an investment that becomes qualified for the equity
method of accounting as a result of an increase in the level of ownership or degree of influence. ASU 2016-07 is effective
for the Company beginning on January 1, 2017, early adoption is permitted. The Company is currently evaluating the effect
this ASU will have on its consolidated financial statements.
In
March 2016, the FASB issued an accounting standard update which simplified several aspects of the accounting for employee
share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements,
as well as classification in the statement of cash flows. The standard is effective for annual reporting periods beginning after
December 15, 2016, including interim periods within those annual reporting periods. The Company is currently evaluating
the effect that the adoption of this ASU will have on its financial statements
.
|
2.
|
Net Income (loss)
per Common Share
|
Basic net income (loss) per common share
for the three and six month periods ended June 30, 2016 and 2015, respectively, is based on the weighted-average number of shares
of common stock outstanding during the periods. Diluted income (loss) per share is based on the weighted-average number of shares
of common stock outstanding during each period in which a loss is incurred. In periods where there is net income, diluted income
per share is based on the weighted-average number of shares of common stock outstanding plus dilutive securities with a purchase
or conversion price below the per share price of the Company’s common stock on the last day of the reporting period. The
potentially dilutive securities include 27,103,956 shares and 22,586,951 shares in 2016 and 2015, respectively, reserved for the
conversion of convertible debt or exercise of outstanding options and warrants. For the three month period ended June 30, 2016,
20,659,324 dilutive securities related to convertible debt, options and warrants were included in the diluted earnings per share
calculation.
|
3.
|
Stock-Based Compensation
|
We measure stock-based compensation expense
based on the grant date fair value of the awards, which is then recognized over the period which service is required to be provided.
We estimate the value of our stock option awards on the date of grant using the Black-Scholes option pricing model and amortize
that cost over the expected term of the grant. We recognized $51,294 and $109,859 in stock-based compensation expense for the three
months ended June 30, 2016 and 2015 and $222,862 and $137,998 for the six months of 2016 and 2015, respectively. We expect to recognize
the compensation cost related to non-vested options as of June 30, 2016 of $531,118 over the weighted average remaining recognition
period of 0.9 years.
We used the following forward-looking range
of assumptions to value the 940,000 stock options granted to employees, consultants and directors during the six months ended June
30, 2016 and the 1,635,000 stock options granted to employees, consultants and directors during the six months ended June 30, 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate of return
|
|
|
1.41
|
%
|
|
|
1.53-1.63
|
%
|
Expected life in years
|
|
|
4.5 - 7
|
|
|
|
4.5 - 4.75
|
|
Volatility
|
|
|
87-95
|
%
|
|
|
92-94
|
%
|
Forfeiture rate
|
|
|
2.6
|
%
|
|
|
2.6
|
%
|
As of June 30, 2016, there have been no
material changes to our uncertain tax positions disclosures as provided in Note 9 of the Annual Report. The tax returns for all
years in the Company’s major tax jurisdictions were not settled as of January 1, 2016; no changes in settled tax years have
occurred through June 30, 2016. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation
allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify
these attributes.
|
5.
|
Fair Value Measurements
|
The authoritative guidance for fair value
measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs,
of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the
following:
Level 1 — Quoted prices in
active markets for identical assets and liabilities.
Level 2 — Observable inputs
other than quoted prices in active markets for identical assets and liabilities.
Level 3 — Unobservable inputs.
As of June 30, 2016 and 2015, our only
qualifying assets that required measurement under the foregoing fair value hierarchy were money market funds included in Cash and
Cash Equivalents valued at $1,609,000 and $563,000, respectively, using Level 1 inputs. Our June 30, 2016 and December 31, 2015
balance sheets reflect qualifying liabilities resulting from the price protection provision in the convertible promissory notes
issued in March, July and September of 2013 and January 2014 (see Note 6). Our June 30, 2016 balance sheet also reflects qualifying
liabilities related to the issuance of common stock and warrants in our 2016 Offering. Certain price protection anti-dilution features
of the Securities Purchase Agreement and Warrants were determined to be embedded derivatives.
An
independent valuation expert calculated the fair value of the embedded derivatives using a complex, customized Monte Carlo simulation
model suitable to value path dependent American options.
We evaluated the derivative liability embedded in the series of
convertible notes to determine if an adjustment to the carrying value of the liability was required at June 30, 2016 using the
following assumptions.
|
|
March 2013
|
|
|
July 2013
|
|
|
Sept 2013
|
|
|
Jan 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free rate of return
|
|
|
0.58
|
%
|
|
|
0.58
|
%
|
|
|
0.58
|
%
|
|
|
0.71
|
%
|
Expected life in years
|
|
|
1.75
|
|
|
|
2
|
|
|
|
2.2
|
|
|
|
2.5
|
|
Volatility
|
|
|
83.6
|
%
|
|
|
82.8
|
%
|
|
|
80.1
|
%
|
|
|
122.6
|
%
|
Given the conditions surrounding the trading
of the Company’s equity securities, the Company values its derivative instruments related to embedded conversion features
from the issuance of convertible debentures in accordance with the Level 3 guidelines. For the period ended June 30,
2016, the following table reconciles the beginning and ending balances for financial instruments that are recognized at fair value
in these financial statements.
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
March 31,
|
|
|
New
|
|
|
Change in
|
|
|
June 30,
|
|
|
|
2016
|
|
|
Issuances
|
|
|
Fair Values
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion features
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013
|
|
$
|
2,400,000
|
|
|
$
|
-
|
|
|
$
|
(900,000
|
)
|
|
$
|
1,500,000
|
|
July 2013
|
|
|
1,083,334
|
|
|
|
-
|
|
|
|
(416,667
|
)
|
|
|
666,667
|
|
September 2013
|
|
|
3,477,500
|
|
|
|
-
|
|
|
|
(1,337,500
|
)
|
|
|
2,140,000
|
|
January 2014
|
|
|
595,836
|
|
|
|
-
|
|
|
|
(210,833
|
)
|
|
|
385,003
|
|
Anti-dilution Protection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Offering shares
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
60,000
|
|
2016 Offering warrants
|
|
|
-
|
|
|
|
1,570,000
|
|
|
|
-
|
|
|
|
1,570,000
|
|
Derivative instruments
|
|
$
|
7,556,670
|
|
|
$
|
1,630,000
|
|
|
$
|
(2,865,000
|
)
|
|
$
|
6,321,670
|
|
2012 Convertible
Note
On October 19, 2012 we
completed a private placement of convertible notes (the “2012 Notes”) raising an aggregate of $300,000 in gross proceeds.
The 2012 Notes were originally to mature after twenty-four (24) months from issuance. In order to conserve the Company’s
capital, in October 2014 the Investors agreed to extend the maturity date to October 19, 2017, all other terms were unchanged.
The 2012 Notes bear interest at a rate of five percent (5%) per annum and are convertible into shares of our common stock at a
conversion price of fifteen cents ($0.15) per share (subject to adjustment as described in the 2012 Notes) at any time prior to
repayment, at the election of the Investors. In the aggregate, the 2012 Notes are convertible into up to 2,000,000 shares of our
common stock excluding interest.
At any time prior to
maturity of the 2012 Notes, with the consent of the holders of a majority in interest of the 2012 Notes, we may prepay the outstanding
principal amount of the 2012 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of bankruptcy by
the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company
of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without
dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property
or assets of the Company, the outstanding principal and all accrued interest on the 2012 Notes will accelerate and automatically
become immediately due and payable.
In connection with
the issuance of the 2012 Notes we also issued warrants to each Investor. The warrants are exercisable for an aggregate of
400,000 shares of common stock with an exercise price of fifteen cents ($0.15) per share for a period of five years. The
relative fair value of the warrants issued is $27,097, calculated using the Black-Scholes-Merton valuation model value of
$0.07 with an expected and contractual life of 5 years, an assumed volatility of 74.36%, and a risk-free interest rate of
0.77%. The warrants were recorded as additional paid-in capital and a discount on the 2012 Notes of $27,097. Non-cash
interest expense related to the debt discount during the three and six months ended June 30, 2014 totaled $3,341 and $6,682,
respectively.
The investors, and the
principal amount of their respective 2012 Notes and number of shares of common stock issuable upon exercise of their respective
warrants, are as set forth below:
Investor
|
|
Note Principal
|
|
|
Warrants
|
|
Sinaf S.A.
|
|
$
|
200,000
|
|
|
|
266,667
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
|
|
66,667
|
|
Allan L. Goldstein
|
|
$
|
35,000
|
|
|
|
46,666
|
|
J.J. Finkelstein
|
|
$
|
15,000
|
|
|
|
20,000
|
|
Sinaf S. A. is a direct
wholly-owned subsidiary of Aptafin S.p.A., or Aptafin. Aptafin is owned directly by Paolo Cavazza and members of his family, who
directly and indirectly own 38% of Sigma-Tau, our largest stockholder. The other Investors are members of our Board of Directors
including Mr. Finkelstein who serves as our CEO and also the Chairman of our Board of Directors and Dr. Goldstein who also
serves as our Chief Scientific Advisor.
In the fourth quarter
of 2014, the Company amended the existing October 2012 convertible debt agreement with the lenders, solely to extend the due date
of the principal and accrued unpaid interest until October 19, 2017. No other terms of the original debt were amended or
modified, and the lenders did not reduce the borrowed amount or change the interest rate of the debt. The Company considered
the restructuring a troubled debt restructuring as a result of the Company’s financial condition. At the date of the
amendment, all existing debt discounts and deferred financing fees were fully amortized and the amendment did not involve any additional
fees paid to the lender or third parties; as such there was no gain recognized as a result of the amendment.
2013 Convertible
Notes
On March 29, 2013, we
completed a private placement of convertible notes (the “March 2013 Notes”) raising an aggregate of $225,000 in gross
proceeds. The March 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after their date
of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to
adjustment as described in the March 2013 Notes) at any time prior to repayment, at the election of the investor. In the aggregate,
the March 2013 Notes are initially convertible into up to 3,750,000 shares of our common stock.
At any time prior to
maturity of the March 2013 Notes, with the consent of the holders of a majority in interest of the March 2013 Notes, we may prepay
the outstanding principal amount of the March 2013 Notes plus unpaid accrued interest without penalty. Upon the commission of any
act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing
by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the continuation
of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take
possession of the property or assets of the Company, the outstanding principal and all accrued interest on the March 2013 Notes
will accelerate and automatically become immediately due and payable.
The investors in the
offering included two directors of the Company, Dr. Goldstein and Joseph C. McNay, an outside director. The principal amounts of
their respective March 2013 Notes are as set forth below:
Investor
|
|
Note Principal
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
Allan L. Goldstein
|
|
$
|
25,000
|
|
The Company has evaluated
the terms of the March 2013 Notes which contain a down round provision under which the conversion price could be decreased as a
result of future equity offerings, as defined in the March 2013 Notes. The adjustment would reduce the conversion price
of the March 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result,
the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should
be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related
March 2013 Notes have been settled. The bifurcated liability of $225,000 was recorded on the date of issuance which resulted
in a residual debt value of $0. The discount related to the embedded feature will be accreted back to debt through the maturity
of the notes.
On July 5, 2013, we completed
a private placement of convertible notes (the “July 2013 Notes”) raising an aggregate of $100,000 in gross proceeds.
The July 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after their date of issuance
and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment
as described in the July 2013 Notes) at any time prior to repayment, at the election of the investor. In the aggregate, the July
2013 Notes are initially convertible into up to 1,666,667 shares of our common stock.
At any time prior to
maturity of the July 2013 Notes, with the consent of the holders of a majority in interest of the July 2013 Notes, we may prepay
the outstanding principal amount of the July 2013 Notes plus unpaid accrued interest without penalty. Upon the commission of any
act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing
by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the continuation
of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take
possession of the property or assets of the Company, the outstanding principal and all accrued interest on the July 2013 Notes
will accelerate and automatically become immediately due and payable.
The investors in the
offering included four directors of the Company, Mr. Finkelstein, Dr. Goldstein, Mr. McNay and L. Thompson Bowles, an outside director.
The principal amounts of their respective July 2013 Notes are as set forth below:
Investor
|
|
Note Principal
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
Allan L. Goldstein
|
|
$
|
10,000
|
|
J.J. Finkelstein
|
|
$
|
5,000
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
The Company has evaluated
the terms of the July 2013 Notes which contain a down round provision under which the conversion price could be decreased as a
result of future equity offerings, as defined in the July 2013 Notes. The adjustment would reduce the conversion price
of the July 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result,
the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should
be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related
July 2013 Notes have been settled. The bifurcated liability of $66,667 was recorded on the date of issuance which resulted
in a residual debt value of $33,333. The discount related to the embedded feature will be accreted back to debt through the maturity
of the notes.
On September 11, 2013,
we completed a private placement of convertible notes raising an aggregate of $321,000 in gross proceeds (the “September
2013 Notes”). The September 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60)
months after their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06)
per share (subject to adjustment as described in the September 2013 Notes) at any time prior to repayment, at the election of the
investor. In the aggregate, the September 2013 Notes are initially convertible into up to 5,350,000 shares of our common
stock.
At any time prior to
maturity of the September 2013 Notes, with the consent of the holders of a majority in interest of the September 2013 Notes, we
may prepay the outstanding principal amount of the September 2013 Notes plus unpaid accrued interest without penalty. Upon
the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of
creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver
or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the
September 2013 Notes will accelerate and automatically become immediately due and payable.
The investors in the
offering included an affiliate and four directors of the Company. The principal amounts of the affiliate and directors respective
September 2013 Notes are as set forth below:
Investor
|
|
Note Principal
|
|
SINAF S.A.
|
|
$
|
150,000
|
|
Joseph C. McNay
|
|
$
|
100,000
|
|
Allan L. Goldstein
|
|
$
|
11,000
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
R. Don Elsey
|
|
$
|
5,000
|
|
The Company has evaluated
the terms of the September 2013 Notes which contain a down round provision under which the conversion price could be decreased
as a result of future equity offerings, as defined in the September 2013 Notes. The adjustment would reduce the conversion
price of the September 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related September 2013 Notes have been settled. The bifurcated liability of $267,500 was recorded on the date of
issuance which resulted in a residual debt value of $53,500. The discount related to the embedded feature will be accreted back
to debt through the maturity of the notes.
2014 Convertible
Notes
On January 7, 2014, we
completed a private placement of convertible notes raising an aggregate of $55,000 in gross proceeds (the “January 2014 Notes”).
The January 2014 Notes will pay interest at a rate of 5% per annum, mature 60 months after their date of issuance and are convertible
into shares of our common stock at a conversion price of $0.06 per share (subject to adjustment as described in the January 2014
Notes) at any time prior to repayment, at the election of the investor. In the aggregate, the Notes are initially convertible
into up to 916,667 shares of our common stock.
At any time prior to
maturity of the January 2014 Notes, with the consent of the holders of a majority in interest of the January 2014 Notes, we may
prepay the outstanding principal amount of the January 2014 Notes plus unpaid accrued interest without penalty. Upon
the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of
creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of 90 days or more, or the appointment of a receiver or
trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the
January 2014 Notes will accelerate and automatically become immediately due and payable.
The investors in the
offering included three directors of the Company. The principal amounts of their respective Notes are as set forth below:
Investor
|
|
Note Principal
|
|
Joseph C. McNay
|
|
$
|
25,000
|
|
Allan L. Goldstein
|
|
$
|
10,000
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
The Company has evaluated
the terms of the January 2014 Notes which contain a down round provision under which the conversion price could be decreased as
a result of future equity offerings, as defined in the January 2014 Notes. The adjustment would reduce the conversion
price of the January 2014 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related January 2014 Notes have been settled. The bifurcated liability of $55,000 was recorded on the date of issuance
which resulted in a residual debt value of $0. The discount related to the embedded feature will be accreted back to debt through
the maturity of the notes.
The Company recorded
interest expense and discount accretion as set forth below:
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Notes
|
|
$
|
3,738
|
|
|
$
|
3,738
|
|
|
$
|
7,476
|
|
|
$
|
7,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
|
14,024
|
|
|
|
14,024
|
|
|
|
28,048
|
|
|
|
27,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
4,571
|
|
|
|
4,571
|
|
|
|
9,142
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
17,340
|
|
|
|
17,340
|
|
|
|
34,680
|
|
|
|
34,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
3,428
|
|
|
|
3,428
|
|
|
|
6,856
|
|
|
|
6,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,101
|
|
|
$
|
43,101
|
|
|
$
|
86,202
|
|
|
$
|
85,730
|
|
The fair value of the
derivative liability is as follows:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
666,667
|
|
|
|
666,667
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
2,140,000
|
|
|
|
2,140,000
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
385,003
|
|
|
|
366,669
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
1,570,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Rights liability
|
|
|
60,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivative liability
|
|
$
|
6,321,670
|
|
|
$
|
4,673,336
|
|
The change in fair value
of derivative liability is as follows:
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
(900,000
|
)
|
|
$
|
375,000
|
|
|
$
|
-
|
|
|
$
|
787,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
(416,667
|
)
|
|
|
166,667
|
|
|
|
-
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
(1,337,500
|
)
|
|
|
535,000
|
|
|
|
-
|
|
|
|
1,123,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
(210,833
|
)
|
|
|
91,667
|
|
|
|
18,334
|
|
|
|
192,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in fair value of derivative
|
|
$
|
(2,865,000
|
)
|
|
$
|
1,168,334
|
|
|
$
|
18,334
|
|
|
$
|
2,453,500
|
|
Joint Venture Agreement
with GtreeBNT
On January 28, 2015, the Company entered
into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company. The Joint Venture Agreement provides for the creation
of the Joint Venture, jointly owned by the Company and GtreeBNT, which will commercialize RGN-259 for treatment of dry eye and
neurotrophic keratopathy in the United States.
GtreeBNT is solely responsible for funding
all the product development and commercialization efforts of the Joint Venture. GtreeBNT made an initial contribution of $3 million
in cash and received an initial equity stake of 51%. RegeneRx’s ownership interest in ReGenTree is 49% and will be reduced
to 42% when the Clinical Study Report is filed for the Phase 2/3 dry eye clinical trial. Based on when, and if, certain additional
development milestones are achieved in the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 42%
and 25%, with 25% being the final equity ownership upon approval of an NDA for DES in the U.S. In addition to our equity ownership,
RegeneRx retains a royalty on net sales that varies between single and low double digits, depending on whether commercial sales
are made by ReGenTree or a licensee. In the event ReGenTree is acquired or there is a change of control that occurs following achievement
of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable and will forgo any future royalties.
The Company is not required or otherwise obligated to provide financial support to the Joint Venture.
The Joint Venture is responsible for executing
all development and commercialization activities under the License Agreement, which activities will be directed by a joint development
committee comprised of representatives of the Company and GtreeBNT. The License Agreement has a term that extends to the later
of the expiration of the last patent covered by the License Agreement or 25 years from the first commercial sale under the License
Agreement. The License Agreement may be earlier terminated if the Joint Venture fails to meet certain commercialization milestones,
if either party breaches the License Agreement and fails to cure such breach, as a result of government action that limits the
ability of the Joint Venture to commercialize the product, as a result of a challenge to a licensed patent, following termination
of the license between the Company and certain agencies of the United States federal government, or upon the bankruptcy of either
party.
Under the License Agreement, the Company
received $1.0 million in up-front payments and is entitled to receive royalties on the Joint Venture’s future sales of products.
On April 6, 2016, we received $250,000 from ReGenTree and executed an amendment to the license agreement on April 28, 2016. Under
the amendment the territorial rights were expanded to include Canada. The Company is accounting for the License Agreement with
the Joint Venture as a revenue arrangement. The Company has determined that the deliverables within the License Agreement, including
a delivered element (providing the license) and an undelivered element (participation on the joint development committee), do not
have stand-alone value and, as such, are treated as a single unit of accounting. As a result, the Company is recognizing the up-front
milestone payments as revenue ratably over the anticipated life of the joint development committee, or 25 years. The joint development
committee commenced activities as of April 1, 2015 therefore the Company has begun recognizing the revenue for the license fee.
Revenue will be recognized for future royalty payments as they are earned.
On June 27, 2016, we entered into a Securities
Purchase Agreement with Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund, Ltd. (collectively, “Sabby”)
pursuant to which we agreed to sell, and the purchasers agreed to purchase, an aggregate of 5,147,059 shares of common stock and
warrants to purchase 5,147,059 shares of common stock, which we refer to as the 2016 Offering, and in conjunction with the closing
of such transaction we issued warrants to purchase 257,353 shares of common stock to our placement agent.
The purchase agreement contains customary
representations, warranties and covenants by the Company and the purchasers. In addition, the purchase agreement provides that
each purchaser has a right, subject to certain exceptions described in the agreement, to participate in future issuances of equity
and debt securities by us for a period of 12 months following the effective date of this registration statement, and certain price
protections that provide for the grant of additional shares of common stock if we sell shares for less than $0.34 per share (the
purchase price in the 2016 Offering) during such 12-month period. Moreover, we agreed, subject to certain exceptions, not to sell
or announce the sale of our securities for five months from the effective date of this registration statement.
The Company evaluated various features
of the Securities Purchase Agreement (“SPA”) and Warrant Agreements issued in the offering. The SPA includes certain
embedded features that have to be evaluated under the guidance in ASC 815,
Derivatives and Hedging,
including a “right”
to receive additional shares of common shares for no further consideration, and is a form of non-standard “down-round”
anti-dilution protection. The “right” was determined to be a “stand alone” derivative and also is considered
an “embedded derivative”, the “right” was required to be bifurcated from the host instrument and accounted
for as a mark-to-mark derivative liability until it lapses.
The investor warrants contain “non-standard”
adjustments (down round antidilution protection) for 12 months following issuance. The Company determined that the warrants contain
certain embedded features that have to be evaluated under the guidance in ASC 815 and determined that they are also “embedded
derivatives” that require bifurcation and are to be accounted for as a mark-to-mark derivative liability until it lapses.
In connection with the offering,
the Company incurred approximately $230,000 of direct and incremental issuance costs. The portion of these costs allocated
to liability-classified derivative financial instruments, approximately $214,000, was expensed in the quarter ended June 30,
2016 and is reflected under General and administrative expense in the accompanying statements of operations. The remainder
of the costs was allocated to the equity-classified common stock and recognized as a direct charge to additional paid in
capital.
The Company has concluded the following
accounting treatment for the various instruments and embedded features:
|
·
|
Common stock – equity classified
|
|
·
|
Placement agent warrants – equity
classified
|
|
·
|
Investor warrants – derivative liability
|
|
·
|
Right - derivative liability
|
The Company allocated
the total proceeds from the 2016 Offering as follows:
Investor warrants - based on fair value relative to the fair value of the “right
|
|
$
|
1,570,000
|
|
“Right” - based on fair value relative to the fair value of the investor warrants
|
|
|
60,000
|
|
Common stock and placement agent warrants – residual value (par and APIC)
|
|
|
120,000
|
|
|
|
$
|
1,750,000
|
|
An
independent valuation expert calculated the fair value of the embedded derivatives using a complex, customized Monte Carlo simulation
model suitable to value path dependent American options. The model uses the risk neutral methodology adapted to value corporate
securities. This model utilized subjective and theoretical assumptions that can materially affect fair values from period to period.
|
ITEM 2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
This Quarterly Report on Form 10-Q,
including this Part I., Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the words
“project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,”
“intend,” “should,” “would,” “could,” “will,” “may” or
other similar expressions.
In addition, any statements that refer to projections of our future financial performance,
our clinical development programs and schedules, our future capital resources and funding requirements, our expectations regarding
future licenses of our technology, our anticipated growth and trends in our business and other characterizations of future events
or circumstances are forward-looking statements. We cannot guarantee that we will achieve the plans, intentions or expectations
expressed or implied in our forward-looking statements. There are a number of important factors that could cause actual results,
levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements
we make, including those described under “Risk Factors” set forth below in Part II., Item 1A. In addition, any forward-looking
statements we make in this document speak only as of the date of this report, and we do not intend to update any such forward-looking
statements to reflect events or circumstances that occur after that date.
Business Overview
We are a biopharmaceutical company focused
on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and
regeneration. We have formulated Tß4 into three distinct product candidates in clinical development:
• RGN-259,
a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology
• RGN-352,
an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical indications
that may be treated by systemic administration; and
• RGN-137,
a topical gel for dermal wounds and reduction of scar tissue.
We are continuing strategic partnership
discussions with biotechnology and pharmaceutical companies regarding the further clinical development of all of our product candidates.
In addition to our three pharmaceutical
product candidates, we are also evaluating the potential use of peptide fragments and derivatives of Tß4 for cosmeceutical
and other personal care uses. These fragments are select amino acid sequences, and variations thereof, within the Tß4 molecule
that have demonstrated activity in several
in vitro
preclinical research studies that we have sponsored. We believe the
biological activities of these fragments may be useful, for example, in developing novel cosmeceutical products for the anti-aging
market. Our strategy is to collaborate with another company to develop cosmeceutical formulations based on these peptides.
Current Clinical Status
On January 28, 2015, we announced that
we had entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with GtreeBNT Co., Ltd., a Korean pharmaceutical
company (“GtreeBNT”) and shareholder of the Company. The Joint Venture Agreement provides for the creation of an entity,
ReGenTree, LLC (the “Joint Venture” or “ReGenTree”), jointly owned by us and GtreeBNT, that will commercialize
RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan indication in the United States. GtreeBNT will be responsible
for funding all product development and commercialization efforts, and holds a majority interest of ReGenTree that varies depending
on development milestones achieved and eventual commercialization path, if successful. In conjunction with the Joint Venture Agreement,
we also entered into a royalty-bearing license agreement (the “License Agreement”) with ReGenTree pursuant to which
we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United States. We received a total of
$1 million in two tranches under the terms of the License Agreement. The first tranche of $500,000 was received in March 2015 and
a second in the amount of $500,000, was received in September 2015. On April 6, 2016, we received $250,000 from ReGenTree and executed
an amendment to the license agreement on April 28, 2016. Under the amendment, the territorial rights were expanded to include Canada.
We are also entitled to royalties as a percentage of net sales ranging from the single digits to the low-double digits based on
the medical indications approved and whether the Joint Venture commercializes products directly or through a third party. RegeneRx
possesses one of three board seats and certain major decisions and transactions within ReGenTree, such as commercialization strategy,
mergers, and acquisitions, require RegeneRx’s board designee’s consent.
Our initial ownership interest in ReGenTree
was 49% and has been reduced to 42% after filing of the final clinical study report with the FDA for the Phase 2/3 trial for Dry
Eye Syndrome completed earlier in 2016. Based on when, and if, ReGenTree achieves certain additional development milestones in
the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity
ownership upon FDA approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a
royalty on net sales that varies between single and low double digits, depending on whether commercial sales are made by ReGenTree
or a licensee. In the event the ReGenTree entity is acquired, or there is a change of control that occurs following achievement
of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable and will forgo any future royalties.
In September 2015, ReGenTree began a Phase
2/3 clinical trial in patients with dry eye syndrome (“DES”) and a Phase 3 clinical trial in patients with neurotrophic
keratopathy (“NK”), both in the U.S. In May 2016, we reported the results of the 317-patient Phase 2/3 trial. In the
trial, RGN-259 demonstrated statistically significant improvements in both signs and symptoms of dry eye with 0.05% and 0.1% RGN-259
compared to placebo in a dose dependent manner during a 28-day dosing period. While the primary outcome measures were not met,
several key related pre-specified endpoints and subgroups of patients with more severe dry eye showed statistically significant
treatment effects. These results confirm the findings from the previous Phase 2 trial providing clear direction for the clinical
regulatory pathway and remaining registration trials for RGN-259.The NK trial, a smaller study in an orphan population, has enrolled
eight patients thus far with a goal of 46. Of the eight original clinical sites for the study, six are enrolling patients, one
has yet to receive IRB approval to begin enrolling patients, and one was unable to consummate a clinical contract with ReGenTree.
ReGenTree is considering adding additional sites to accelerate patient enrollment.
Currently, we have active partnerships
in three major territories: the U.S., China and Pan Asia. Our partners have been moving forward and making progress in each territory.
In each case, the cost of development is being borne by our partners with no financial obligation for RegeneRx. Patient recruitment,
treatment, and follow-up for these ophthalmic trials are, in general, relatively fast, as opposed to most other clinical efforts,
so preliminary data from the U.S. dry eye trial was released in early May 2016 with additional clinical work being planned for
late 2016 and data from the NK study toward the end of 2016 or possibly later.
We still have significant clinical assets
to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S., Pan Asia, and Europe,
and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic clinical trials before moving
into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset at that time. However, we
intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in the cardiovascular or central
nervous system fields or finding a suitable partner with the resources and capabilities to develop it as we have with RGN-259.
In addition to these RGN-259 development
activities, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic
product candidate for cardiac and central nervous system indications.
We anticipate incurring additional operating
losses in the future as we continue to explore the potential clinical benefits of Tß4-based product candidates over multiple
indications. To fund further development and clinical trials we have entered into a series of strategic partnerships under licensing
and joint venture agreements (see Note 7) where our partners are responsible for advancing development of our product candidates
with multiple clinical trials.
We will need additional funds to continue
operations through the fourth quarter of 2017 and will require substantial capital if we wish to internally advance development
of our unlicensed programs. Accordingly, we will continue to evaluate opportunities to raise additional capital and are in the
process of exploring various alternatives, including, without limitation, a public or private placement of our securities, debt
financing, corporate collaboration and licensing arrangements, government grants, or the sale of our company or certain of our
intellectual property rights.
Development of Product Candidates
RGN-259
RGN-259 is our proprietary
preservative-free eye drop formulation of Thymosin beta 4. In September 2011, we completed a Phase 2a exploratory clinical trial
evaluating the safety and efficacy of RGN-259 in 72 patients with moderate dry eye syndrome. Patients were randomly assigned to
receive either RGN-259 or placebo in this double-masked, placebo-controlled trial. All patients received either RGN-259 (0.1% concentration)
or placebo, twice daily for 30 days. Various signs and symptoms of dry eye, such as the degree of ocular surface damage, ocular
itching, burning and grittiness, among others, were graded periodically during and following the treatment period. The trial was
conducted by Ora Inc., an ophthalmic contract research organization that specializes in dry eye research and clinical trials, and
utilized Ora’s Controlled Adverse Environment (CAE
®
) chamber, which is a model that exacerbates and standardizes
signs and symptoms in the dry eye patient.
In November 2011, we
reported preliminary safety and efficacy results from the trial. RGN-259 was deemed safe and well-tolerated, with no observed drug-related
adverse events.
The co-primary outcome
measures evaluated in the trial were inferior corneal fluorescein staining and decreased ocular discomfort on day 29, 24 hours
after CAE
®
challenge. Various secondary outcome efficacy measures were also evaluated in the trial. These outcome
measures were based on the best available animal data at the time but without the benefit of any actual human clinical experience
in dry eye. While the study did not meet statistical significance for reducing inferior corneal fluorescein staining, it did show
a positive trend in this exploratory trial. RGN-259 did, however, show a statistically significant efficacy result in the other
co-primary endpoint of decreased ocular discomfort and also demonstrated statistical significance in several secondary endpoints
such as reduction of central corneal and superior corneal staining, important signs in dry eye patients and approvable endpoints
by the FDA.
Key outcome measures
were as follows:
|
·
|
Patients receiving RGN-259 experienced a 325% greater reduction from baseline in central corneal
fluorescein staining compared to placebo at the 24 hour recovery period (p = 0.0075). Reduction of fluorescein staining is indicative
of a reduction in ocular surface damage of the central cornea;
|
|
·
|
Patients receiving RGN-259 experienced a 257% greater reduction from baseline in exacerbation of
superior corneal fluorescein staining in the CAE
®
chamber as compared to the placebo (p = 0.0210); and
|
|
·
|
Patients receiving RGN-259 experienced a 27.3% greater reduction in exacerbation of ocular discomfort
at day 28 during a 75-minute challenge in the CAE chamber compared to the placebo group (p = 0.0244). Reduction indicates that
RGN-259 can slow progression of ocular symptoms in patients with dry eye syndrome.
|
|
·
|
Other CAE
®
-related findings, such as peripheral (combination of the average of superior
and inferior) corneal staining reduction, were observed having statistical significance, while others had positive trends after
treatment with RGN-259. These observations are in line with the known biological properties and mechanisms of action of RGN-259
reported in various nonclinical studies.
|
With respect to inferior
corneal fluorescein staining, we did see a positive trend toward improvement, at day 28 during exposure to adverse conditions in
the CAE
®
chamber in patients receiving RGN-259 compared to placebo, although this improvement was not deemed to
be statistically significant (p = 0.0968).
In June 2012, we reported
preliminary results from a double-masked, vehicle-controlled, physician-sponsored Phase 2 clinical trial evaluating RGN-259 for
the treatment of nine patients (18 eyes) with severe dry eye. RGN-259 was observed to be safe and well-tolerated and met key efficacy
objectives with statistically significant sign and symptom improvements, compared to vehicle control, at various time intervals,
including 28 days post-treatment.
In the trial, nine patients
with severe dry eye (18 eyes) were treated with RGN-259 or vehicle control six times daily over a period of 28 days. They were
evaluated upon entering the study after a two-week washout period, at weekly intervals during the treatment phase, at the end of
the 28-day treatment period, and at a follow-up visit 28 days after treatment. Statistically significant differences in sign and
symptom assessments, such as ocular discomfort and corneal fluorescein staining, were seen at various time points throughout the
study. Of particular note were the differences between RGN-259 and vehicle control 28 days post-treatment, or the follow-up period.
The RGN-259-treated group had a 35.1% reduction of ocular discomfort (symptom) compared to vehicle control (p = 0.0141), and a
59.1% reduction of total corneal fluorescein staining (sign) compared to vehicle control (p = 0.0108) at 28 days after treatment
showing that the repair was sustained long after treatment cessation.
Consistent with the reduction
of ocular discomfort and fluorescein staining at the 28-day follow-up visit, other improvements seen in the RGN-259-treated patients
included tear film breakup time and increased tear volume production. Likewise, these improvements were seen at other time points
in the study. These results were recently published in an appropriate medical journal.
Strategic Partnerships
Lee’s Pharmaceuticals.
In
July 2012, we entered into a License Agreement with Lee’s Pharmaceutical (HK) Limited (“Lee’s”), headquartered
in Hong Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product
candidates, in China, Hong Kong, Macau and Taiwan. Lee’s previously filed an investigational new drug application IND with
the Chinese FDA to conduct a Phase 2, randomized, double-masked, dose-response clinical trial with RGN-259 in China for dry-eye
syndrome. Lee's subsequently informed us that it received notice from China's FDA (CFDA) declining its investigational new drug
(IND) application for a Phase 2b dry eye clinical trial because the API (active pharmaceutical ingredient or Tß4) was manufactured
outside of China. The API was manufactured in the U.S. and provided to Lee's by RegeneRx pursuant to a license agreement to develop
RGN-259 ophthalmic eye drops in the licensed territory. However, this year, we were informed by Lee’s that the CFDA modified
its manufacturing regulations and will now allow Chinese companies to utilize API manufactured outside of China for Phase 1 and
2 clinical trials. We have not been informed of a projected starting date for Phase 2 trials.
GtreeBNT.
In March 2014,
we entered into a License Agreement with GtreeBNT for the license of RGN-259. GtreeBNT licensed certain development and commercialization
rights for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan). GtreeBNT is currently our second largest shareholder.
GtreeBNT filed an IND with the Korean Ministry of Food and Drug Safety to conduct a Phase 2/3 study with RGN-259 in patients with
dry eye syndrome and in July 2015 received approval to conduct the trial. GtreeBNT has informed us that given its immediate focus
on the two U.S. trials, it is considering the best timing for the Korean trial.
U.S. Joint Venture (ReGenTree, LLC).
On January 28, 2015, we announced that we entered into a Joint Venture Agreement (the “Joint Venture Agreement”)
with GtreeBNT. The Joint Venture Agreement provides for the creation of an entity (the “Joint Venture” or “ReGenTree”),
owned by us and GtreeBNT, that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy in the United States.
GtreeBNT will be responsible for funding product development and commercialization efforts and holds a majority interest of ReGenTree.
RegeneRx possesses one of three board seats and certain major decisions and transactions within ReGenTree, such as commercialization
strategy, mergers, and acquisitions, require RegeneRx’s board designee’s consent. In conjunction with the Joint Venture
Agreement, we also entered into a royalty-bearing license agreement (the “License Agreement”) with ReGenTree pursuant
to which we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United States. On April 6, 2016
we received $250,000 from ReGenTree and executed an amendment to the license agreement on April 28, 2016. Under the amendment the
territorial rights were expanded to include Canada.
Our initial ownership interest in ReGenTree
was 49% and has been reduced to 42% after filing of the final clinical study report with the FDA for the Phase 2/3 trial for Dry
Eye Syndrome completed earlier in 2016. Based on when, and if, ReGenTree achieves certain additional development milestones in
the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity
ownership upon FDA approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a
royalty on net sales that varies between single and low double digits, depending on whether commercial sales are made by ReGenTree
or a licensee. In the event the ReGenTree entity is acquired or there is a change of control that occurs following achievement
of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable and will forgo any future royalties.
In September 2015, ReGenTree began a multi-centered,
randomized, double-masked Phase 2/3 clinical trial in patients with dry eye syndrome (“DES”) and a multi-centered,
randomized, double-masked Phase 3 clinical trial in patients with neurotrophic keratopathy (“NK”), both in the U.S.
The DES trial has completed full enrollment, treatment and follow-up of all patients. Top line data from the DES trial was released
in early May and a Phase 3 clinical trial is being planned for initiation at the beginning of the 4
th
quarter of 2016.
The study, which enrolled 317 subjects,
tested two doses of RGN-259 eye drops containing 0.05% and 0.1% concentrations of the Tβ4 four times daily for 28 days vs.
placebo. On the 28th and final day of dosing, patients were subject to the Controlled Adverse Environment (CAE) challenge. Co-primary
endpoints were total corneal fluorescein staining score change on the 28th day pre-CAE and post-CAE (sign) and total ocular discomfort
score change on the 28th day pre-CAE and post-CAE (symptom). Although the co-primary endpoints were not met, we demonstrated RGN-259’s
protective efficacy in improving a sign and symptom of dry eye syndrome, which is in line with the results observed in the previous
Phase 2a trial. Importantly, we identified approvable sign and symptom endpoints, which were met with statistical significance.
ReGenTree expects to meet with the FDA this summer and initiate a confirmatory Phase 3 trial before the end of 2016.
RGN-259 was safe and well-tolerated and
comfortable for the patients with no irritation upon instillation. There were no significant drug-related adverse events for both
concentrations. The safety profile is consistent with that observed in the previous Phase 2a trial, which had a twice daily instillation
regimen.
The NK trial, a smaller study in an orphan
population, has enrolled seven patients thus far with a goal of 46. Of the eight original clinical sites for the study, six are
enrolling patients, one has yet to receive IRB approval to begin enrolling patients, and one was unable to consummate a clinical
contract with ReGenTree. ReGenTree is considering adding additional sites to accelerate patient enrollment.
GtreeBNT has developed the CMC (chemistry,
manufacturing and controls) dossier required for Phase 3 clinical trials and commercialization in the U.S. and in Korea. This comprehensive
and critical effort ensures that final drug product manufacturing, packaging, stability, purity, reproducibility, etc., meets regulatory
guidelines and product specifications. The product of this activity is the current product format being utilized in the U.S. trials
being conducted by ReGenTree and will also be utilized in the planned clinical activity to be conducted by GtreeBNT under the RGN-259
license agreement for Pan Asia.
RGN-352
During 2009, we completed
a Phase 1a and Phase 1b clinical trial evaluating the safety, tolerability and pharmacokinetics of the intravenous administration
of RGN-352 in 60 healthy subjects (40 in each group, 20 of whom participated in both Phases). Based on the results of these Phase
1 trials and extensive preclinical efficacy data published in peer-reviewed journals, in the second half of 2010, we began start-up
activities for a Phase 2 study to evaluate RGN-352 (Tß4 Injectable Solution) in patients who had suffered an AMI. We had
planned to begin enrolling patients in this clinical trial in the second quarter of 2011. However, in March 2011, we were notified
by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply
with the current Good Manufacturing Practice (cGMP) regulations. We have since learned that the manufacturer has closed its manufacturing
facility and filed for bankruptcy protection. The FDA prohibited us from using any of the active drug or placebo formulated by
this manufacturer in human trials; consequently, we must have study drug (RGN-352 and RGN-352 placebo) manufactured by a new cGMP-compliant
manufacturer in the event we seek to move forward with this trial. While we have identified a qualified manufacturer for RGN-352,
we have elected to postpone activities on this trial until the requisite funding or a partner is secured.
In addition to the potential
application of RGN-352 for the treatment of cardiovascular disease, preclinical research published in the scientific journals
Neuroscience
and the
Journal of Neurosurgery,
among others, indicates that RGN-352 may also prove useful for patients with multiple sclerosis,
or MS, as well as patients suffering a stroke, traumatic brain injury, peripheral neuropathy, or spinal cord injury. In these preclinical
studies, the administration of Tß4 resulted in regeneration of neuronal tissue by promoting remyelination of axons and stimulating
oligodendrogenesis, resulting in improvement of neurological functional activity. In 2012, researchers studying Tß4 under
a material transfer agreement (MTA) found that Tß4 had beneficial effects in animal models of peripheral neuropathy, one
of the major complications of diabetes. This research was published in the journal of Neurobiology of Disease in 2012 and appears
to corroborate previous findings using Tß4 for repair of central nervous system disorders. We are discussing possible partnership
opportunities with companies interested in developing RGN-352 for this indication.
Based on our Phase 1
data and the preclinical research discussed above, we are evaluating various opportunities for government funding for a Phase 2a
clinical trial to show proof-of-concept in each case while also talking with prospective strategic partners with the interest,
capabilities and resources to further develop product candidate in these fields.
RGN-137
Clinical Development —
Epidermolysis Bullosa (EB).
In 2005, we began enrolling patients in a Phase 2 clinical trial designed to assess
the safety and effectiveness of RGN-137 for the treatment of patients with EB. EB is a genetic disease of approximately 10 gene
mutations that results in fragile skin and other epithelial structures (e.g., cornea and GI tract) that can blister spontaneously
or separate at the slightest trauma or friction, creating a wound that at times does not heal or heals poorly. In severe cases,
recurrent blistering and tissue loss may be life threatening. EB has been designated as an “orphan” indication by the
FDA’s Office of Orphan Drugs. A portion of this trial was funded by a grant of $681,000 received from the FDA. In this randomized,
double-blind, placebo-controlled, dose-response trial, nine U.S. clinical sites evaluated the safety, tolerability, and wound healing
effectiveness of three different concentrations of RGN-137 compared to placebo. RGN-137 was applied topically to the skin, once
daily for up to 56 consecutive days. We completed enrollment of 30 out of the original target of 36 patients and closed the Phase
2 trial in late 2011 as the availability of eligible patients had been exhausted. We submitted the final report to the FDA in 2014.
Clinical Development —
Pressure Ulcers.
In late 2005, we began enrolling patients in a Phase 2 clinical trial designed to assess the
safety and effectiveness of RGN-137 for the treatment of patients with chronic pressure ulcers, commonly known as bedsores. In
this randomized, double-blind, placebo-controlled, dose-response trial, 15 clinical sites in the United States enrolled a total
of 72 patients to evaluate the safety, tolerability, and wound healing effectiveness of three different concentrations of RGN-137
compared to placebo. RGN-137 was applied topically to patients’ ulcers, once daily for up to 84 consecutive days. Patients
in the trial were between 19 and 85 years old and had at least one stable Stage III or IV pressure ulcer with a surface area between
5 and 70 cm
2
. Stage III and IV pressure ulcers are full thickness wounds that penetrate through the skin and muscle,
sometimes completely to the bone.
In January 2009, we reported final data
from this trial. RGN-137 was well-tolerated at all three dose levels studied, with no dose-limiting adverse events, which achieved
the primary objective of the study. As for efficacy, all Tß4 doses performed similarly compared to placebo, with no statistically
significant efficacy results. However, patients treated with the middle dose showed a 17% improvement of wound healing, which was
the highest rate among the three active doses evaluated. The improvement in ulcer healing in this middle dose group following nine
weeks of treatment was equal to the improvement in patients treated with placebo after 12 weeks of treatment. A follow-on evaluation,
reported at the 3rd International Symposium on the Thymosins in Health and Disease in March 2012, showed that for those pressure
ulcer patients’ wounds that healed, RGN-137 mid dose (0.02% Tβ4 gel product) accelerated wound closure with a median
time to healing of 22 days as compared to 57 days for the placebo. Although those results are clinically significant, they were
not statistically significant.
Clinical Development —
Venous Stasis Ulcers.
In mid-2006 we began enrolling patients in a Phase 2 clinical trial designed to assess the safety
and effectiveness of RGN-137 for the treatment of patients with venous stasis ulcers. Venous stasis ulcers are a common type of
chronic wound that develops on the ankle or lower leg in patients with chronic vascular disease. In these patients blood flow in
the lower extremities is impaired leading to venous hypertension, edema (swelling) and mild redness and scaling of the skin that
gradually progresses to ulceration. In this double-blind, placebo-controlled, dose-response study, 8 European sites in Italy (N=5)
and Poland (N=3) make up the 72 patients randomized to receive three different concentrations of RGN-137 or placebo. RGN-137 or
placebo was applied topically to patients’ ulcers once daily for consecutive days. A patient’s ulcer size and ulcer
stability for enrollment were between 3 and 30 cm
2
and at least 6 weeks in duration, respectively.
In 2009, we reported final data from that
trial. All doses of RGN-137 were well tolerated. More patients achieved healing in the RGN-137 mid dose (0.03% Tβ4 gel product)
than in any other dose group. The mid dose showed both an increased incidence of wound healing and a faster healing time compared
to placebo. The mid dose decreased the median time to healing by 45% among those wounds that completely healed. A follow-on evaluation,
reported at the 3rd International Symposium on the Thymosins in Health and Disease in March 2012, showed that for those venous
stasis ulcer patients’ wounds greater than 3 cm
2
that healed, the RGN-137 mid dose (0.03% Tβ4 gel product)
accelerated wound closure with a median time to healing of 49 days as compared to 78 days for the placebo. Those results were both
clinically and statistically significant.
GtreeBNT.
In March 2014, we entered
into a License Agreement with GtreeBNT to license certain development and commercialization rights for RGN-137 in the U.S.
Our Strategy
We seek to maximize the value of our product
candidates by advancing their clinical development and then identifying suitable partners for further development, regulatory approval,
and marketing. We intend to engage in strategic partnerships with companies with clinical development and commercialization strengths
in desired pharmaceutical therapeutic fields. We are actively seeking partners with suitable infrastructure, expertise and a long-term
initiative in our medical fields of interest. To that end, we have entered several important licensing and joint venture agreements
with pharmaceutical companies to develop our product candidates.
Our initial ownership interest in ReGenTree
was 49% and has been reduced to 42% upon filing of the final clinical study report with the FDA for the Phase 2b trial for Dry
Eye Syndrome completed earlier in 2016. Based on when, and if, ReGenTree achieves certain additional development milestones in
the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity
ownership upon FDA approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a
royalty on net sales that varies between single and low double digits, depending on whether commercial sales are made by ReGenTree
or a licensee. In the event the ReGenTree entity is acquired or there is a change of control that occurs following achievement
of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable and will forgo any future royalties.
The Joint Venture with GtreeBNT follows
two previous transactions with GtreeBNT signed in March 2014 when we had entered into License Agreements for the license of our
RGN-259 and RGN-137 product candidates. GtreeBNT licensed the development and commercialization rights for RGN-259 in Asia (excluding
China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization rights for RGN-137 in the U.S.
We have entered into a License Agreement
with Lee’s Pharmaceutical (HK) Limited, headquartered in Hong Kong, for the license of Thymosin Beta 4 in any pharmaceutical
form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. Lee’s is an affiliate
of Sigma-Tau, which collectively with its affiliates is our largest stockholder.
We previously entered into a strategic
partnership with Defiante Farmaceutica S.A., (“Defiante”), formerly a wholly-owned subsidiary of Sigma-Tau Group, a
leading international pharmaceutical company, which collectively comprise our largest shareholder, or Sigma-Tau, for development
and marketing of RGN-137 and RGN-352 for specified indications in Europe and other contiguous countries. Defiante merged with Sigma-Tau
Industrie Farmaceutiche Riunite S.p.A. in 2013 and Sigma-Tau recently merged with Alfa Wasserman S.p.A., an Italian pharmaceutical
company. Currently, there is no ongoing development of our products by Alfa Wasserman.
Financial Operations Overview
We have never generated
product revenues, and we do not expect to generate product revenues until the FDA approves one of our product candidates, if ever,
and we, or a partner or licensee, begin marketing and selling it. Subject to the availability of financing, we expect to invest
increasingly significant amounts in the furtherance of our current clinical stage programs and may add additional nonclinical studies
and new clinical trials as we explore the potential of our current product candidates in target indications and explore the potential
use of our Tß4-based product candidates in rare disease and orphan indications. As we expand our clinical development initiatives,
we expect to incur substantial and increasing losses. Accordingly, we will need to generate significant product revenues in order
to ultimately achieve and then maintain profitability. Also, we expect that we will need to raise substantial additional capital
in order to meet product development requirements. We cannot assure investors that such capital will be available when needed,
on acceptable terms, or at all.
Most of our expenditures
to date have been for research and development, or R&D, activities and general and administrative, or G&A, activities.
R&D costs include all of the wholly-allocable costs associated with our various clinical programs passed through to us by our
outsourced vendors. Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product
candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology, safety and pharmacokinetic
studies, clinical trial management, medical oversight, laboratory evaluations, statistical data analysis, regulatory compliance,
quality assurance and other related activities. R&D includes cash and non-cash compensation, payroll taxes, travel and other
miscellaneous costs of our internal R&D personnel, three persons in total, who are dedicated on a part-time hourly basis to
R&D efforts. R&D also includes an allocation of our common infrastructure costs for office space and communications. We
expense our R&D costs as they are incurred.
R&D expenditures are subject to the
risks and uncertainties associated with clinical trials and the FDA review and approval process. As a result, these expenses could
exceed our expectations, possibly materially. We are uncertain as to what we will incur in future research and development costs
for our clinical studies, as these amounts are subject to, management's continuing assessment of the economics of each individual
research and development project and the internal competition for project funding.
G&A costs include outside professional
fees for legal, business development, audit and accounting services. G&A also includes cash and non-cash compensation, travel
and other miscellaneous costs of our internal G&A personnel, two in total, who are wholly dedicated to G&A efforts. G&A
also includes an allocation of our common infrastructure costs for office space and communications. Our G&A expenses also include
costs to maintain our intellectual property portfolio. Historically we have expanded our patent prosecution activities and in some
cases, we have filed patent applications for non-critical strategic purposes intended to prevent others from filing similar patent
claims. We continue to closely monitor our patent applications in the United States, Europe and other countries with the advice
of outside legal counsel to determine if they will continue to provide strategic benefits. In cases where we believe the benefit
has been realized or it becomes unnecessary due to the issuance of other patents, or for other reasons that will not affect the
strength of our intellectual property portfolio, we have and will continue to abandon these patent applications in order to reduce
our costs of continued prosecution or maintenance.
Critical Accounting Policies
In Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year
ended December 31, 2015, which was filed with the SEC on April 11, 2016, which we refer to as the Annual Report, we included a
discussion of the most significant accounting policies and estimates used in the preparation of our financial statements. There
has been no material change in the policies and estimates used in the preparation of our financial statements since the filing
of our Annual Report.
Results of Operations
Comparison of the three months ended
June 30, 2016 and 2015
Revenues.
For
the
three months ended June 30, 2016, we recorded revenue in the amount of $12,706 which reflects
the amortization of the upfront license fees over the life of the ReGenTree license agreement and related amendments of 25 years.
For the
three months ended June 30, 2015, we recorded revenue in the amount of $5,000 which reflects
the amortization of the upfront license fee over the life of the ReGenTree license agreement of 25 years.
R&D Expenses
.
For the
three months ended June 30, 2016, our R&D expenses decreased by approximately $18,000,
or 23%, to $60,000 from $78,000 for the same period in 2015. The decrease from 2015 reflects the execution of our strategy to out
license or partner our development programs, primarily our entry into the ReGenTree joint venture agreement in 2015. The 2016 decrease
is reflected in personnel (decrease of $3,000), insurance (decrease of $5,000) and R&D consulting (decrease of $5,000) stock
option compensation (decrease of $5,000). We expect our R&D expenses will remain at low levels unless we decide to reinitiate
internal R&D efforts for our unpartnered programs.
G&A Expenses. For the three months ended June 30, 2016, our G&A expenses decreased by approximately $27,000, or 6%,
to $450,000, from $477,000 for the same period in 2015. The decrease reflects the absence of the legal costs incurred in association
with completing the ReGenTree joint venture agreement in 2015. Decreases are reflected in professional services ($159,000),
travel ($24,000), miscellaneous ($5,000) and stock option expense ($53,000). These decreases are largely offset by offering
expenses related to our 2016 Offering of approximately $214,000. We believe that our G&A expenses will remain at current
levels, net of offering expenses, as we wait for data from the upcoming clinical trials being conducted by our partners. If
we enter into additional partnerships or other business transactions we will incur additional legal and transaction related
expenses.
Net Loss.
Our
Statement of Operations reflects net income of $2,324,250 for the quarter ended June 30, 2016, as opposed to a net loss
of $1,762,012 recorded in the quarter ended June 30, 2015. In the 2016 period, the income resulted primarily from net our
evaluation of the derivative liability associated with the conversion feature of the debt instruments issued by the company
from March 2013 through January 2014. The value of this conversion feature is indexed to the share price of our common stock
and increases as our share price increases and decreases as our share price decreases. The share price of our common
stock decreased from $0.70 on March 31, 2016 to $0.46 on June 30, 2016, which resulted in a decrease in the fair value of
our convertible debt derivative component and the recording of an unrealized gain of $2,865,000 for the three months ended
June 30, 2016. In the prior year period the share price of our common stock increased from $0.26 on March 31, 2015 to $0.36
on June 30, 2015, which resulted in an increase in the fair value of our convertible debt derivative component and the
recording increase in fair value of $1,168,334 for the three months ended June 30, 2015.
Comparison of the six months ended
June 30, 2016 and 2015
Revenues.
For
the
six months ended June 30, 2016, we recorded revenue in the amount of $67,896, which reflects
the amortization of the upfront license fee over the life of the ReGenTree license agreement of 25 years. For the
six months ended June 30, 2015, we recorded revenue in the amount of $45,000, $40,000 of this revenue related to the sale
of unformulated Tß4 to GtreeBNT for use in their product development work in Korea. There were no associated costs with this
transaction as the cost of Tß4 had been expensed in a prior period. We also recorded revenue in the amount of $5,000 which
reflects the amortization of the upfront license fee over the life of the ReGenTree license agreement of 25 years.
R&D Expenses
.
For the
six months ended June 30, 2016, our R&D expenses increased by approximately $48,000,
or 42%, to $163,000 from $115,000 for the same period in 2015. The increase is attributable to the level of stock option compensation
recognized in the 6 month period which represents a $65,000 increase versus the prior year. This was partially offset by decreases
from 2015 insurance (decrease of $10,000) and R&D consulting (decrease of $7,000). We expect our R&D expenses will remain
at low levels unless we decide to reinitiate internal R&D efforts for our unpartnered programs.
G&A Expenses.
For the six months ended June 30, 2016, our G&A expenses decreased by approximately $17,000, or 2%, to $855,000, from
$872,000 for the same period in 2015. The decrease reflects the absence of the legal costs incurred in association with completing
the ReGenTree joint venture agreement in 2015. Decreases are reflected in professional services ($239,000) and travel ($27,000)
and personnel and facility ($3,000). These decreases were partially offset by increases in insurance ($12,000), investor relations
($6,000), stock option expense ($19,000) and offering expenses related to our 2016 Offering of approximately $214,000. We believe
that our G&A expenses, net of offering expenses, will remain at current levels as we wait for data from the upcoming clinical
trials being conducted by our partners. If we enter into additional partnerships or other business transactions we will incur
additional legal and transaction related expenses.
Net Loss.
We
incurred a net loss of $1,054,604 for the six months ended June 30. 2016, a decrease from the net loss of $3,480,701 recorded in
the six months ended June, 2015. The 2016 net loss was minimally impacted by the change in the value of the conversion feature
related to the derivative liability related to our convertible debt, increase of $18,334 while the 2015 period a significant portion
of the net loss resulted from our evaluation of the derivative liability associated with the conversion feature of the debt instruments
issued by the company from March 2013 through January 2014. The value of this conversion feature is indexed to the share price
of our common stock and increases as our share price increases and decreases as our share price decreases. The share price of our
common stock increased from $0.44 on December 31, 2015 to $0.46 on June 30, 2016, which resulted in an increase in the fair value
of our convertible debt derivative component and the recording of an unrealized loss of $18,334 for the six months ended June 30,
2016. In the prior year period the share price of our common stock increased from $0.14 on December 31, 2014 to $0.36 on June 30,
2015, which resulted in an increase in the fair value of our convertible debt derivative component and the recording of an unrealized
loss of $2,453,500 for the six months ended June 30, 2015.
Liquidity and Capital Resources
Overview
We have not commercialized
any of our product candidates to date and have incurred significant losses since inception. Over the past couple of years we have
primarily financed our operations through the sale of a series of convertible promissory notes through private placements with
accredited investors and the March and August 2014 private placements of common stock with GTreeBNT as well as our entry into the
joint venture with ReGenTree in early 2015. The report of our independent registered public accounting firm regarding our financial
statements for the year ended December 31, 2015 contained an explanatory paragraph regarding our ability to continue as a going
concern based upon our history of net losses and dependence on future financing in order to meet our planned operating activities.
We had cash and cash equivalents of approximately
$1,608,958 at June 30, 2016. This amount primarily reflects the net proceeds of our 2016 Offering of approximately $1,520,000.
Our current cash and cash equivalents should fund our planned operations into the fourth quarter of 2017. This estimate also does
not include receipt of any funds from grants, new partnerships or the raising of additional capital if the market climate warrants.
Additionally, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic
product candidate for cardiac and central nervous system indications.
Cash Flows for the Six Months Ended
June 30, 2016 and 2015
Net cash used in operating activities was approximately $229,000 for the six months ended June 30, 2016 compared to approximately
$280,000 used in operating activities for the six months ended June 30, 2015. In June 2016 we received net proceeds of approximately
$1,520,000 from the sale of common stock and warrants to institutional investors. During the first half of 2015 we received
$500,000 from ReGenTree pursuant to the license agreement with ReGenTree, our joint venture, which served to reduce the net
cash used in operations.
Future Funding
Requirements
The expenditures that
will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and
capital resources. Currently, RegeneRx has active partnerships in three major territories: the U.S., China and Pan Asia. Our partners
have been moving forward and making progress in each territory. In each case, the cost of development is being borne by our partners
with no financial obligation for RegeneRx. Patient accrual, treatment, and follow-up for ophthalmic trials are, in general, relatively
fast, as opposed to most other clinical efforts, top line data from the U.S. dry eye trial was released in early May and data from
the NK study toward the end of 2016 or possibly later.
We still have significant
clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S.,
Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic clinical
trials before moving into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset at that
time. However, we intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in the cardiovascular
or central nervous system fields or finding a suitable partner with the resources and capabilities to develop it as we have with
RGN-259.
Our current capital resources
coupled with the $250,000 received on April 6, 2016 pursuant to the amendment of the license agreement with ReGenTree are only
sufficient to fund operations into the fourth quarter of 2017. A sale of common stock and warrants, a convertible instrument or
additional partnering of licensed rights are possible sources of operating capital in the future.
In addition, the length
of time required for clinical trials varies substantially according to the type, complexity, novelty and intended use of a product
candidate. Some of the factors that could impact our liquidity and capital needs include, but are not limited to:
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the progress of our clinical trials;
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the progress of our research activities;
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the number and scope of our research programs;
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the progress of our preclinical development activities;
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the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent
and other intellectual property claims;
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the costs related to development and manufacture of preclinical, clinical and validation lots for
regulatory purposes and commercialization of drug supply associated with our product candidates;
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our ability to enter into corporate collaborations and the terms and success of these collaborations;
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the costs and timing of regulatory approvals; and
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the costs of establishing manufacturing, sales and distribution capabilities.
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Moreover, the duration
and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the
clinical trial protocol, including, among others, the following:
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the number of patients that ultimately participate in the trial;
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the duration of patient follow-up that seems appropriate in view of the results;
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the number of clinical sites included in the trials; and
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the length of time required to enroll suitable patient subjects.
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Also, we test our product
candidates in numerous preclinical studies to identify indications for which they may be efficacious. We may conduct multiple clinical
trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue
clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product
candidates or indications.
Our proprietary product
candidates have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products.
In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that
our clinical data establish safety and efficacy. Historically, the results from preclinical studies and early clinical trials have
often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising
results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory
approvals.
We were previously committed
under an office space lease through January 2013 and continued to occupy the space on a month to month basis through May 2014.
Beginning in June 2014 we consolidated our office space and amended our lease agreement for the reduced space. The new lease commitment
is for 36 months and our rental payments for this period will be approximately $4,500 per month.
Sources of Liquidity
We have not commercialized
any of our product candidates to date and have primarily financed our operations through the issuance of common stock and common
stock warrants in private and public financings in addition to a series of five convertible debt placements from October 2012 to
January 2014. Most recently, on June 27, 2016, we entered into a Securities Purchase Agreement with Sabby Healthcare Master Fund,
Ltd., and Sabby Volatility Warrant Master Fund, Ltd., pursuant to which we agreed to sell, and the purchasers agreed to purchase,
an aggregate of 5,147,059 shares of common stock and warrants to purchase 5,147,059 shares of common stock, which we refer to as
the 2016 Offering. We received approximately $1,520,000 in net proceeds from the 2016 Offering and have resources to fund our planned
operations into the fourth quarter of 2017. We believe our current capital resources, including the proceeds from the 2016 Offering,
will fund our operations into the fourth quarter of 2017. On January 28, 2015, we announced that we had entered into a Joint Venture
Agreement with GtreeBNT, a shareholder of the Company. The Joint Venture Agreement provides for the creation of an entity, ReGenTree,
LLC, jointly owned by us and GtreeBNT, which will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy,
an orphan indication in the United States. On April 28, 2016 the license agreement with ReGenTree was amended to expand the territory
to include Canada. GtreeBNT is responsible for funding all product development and commercialization efforts.
RegeneRx's initial ownership interest in ReGenTree was 49% and has been reduced to 42% when the clinical study report was
filed with the FDA for the Phase 3 dry eye clinical trial. Based on when, and if, certain additional development milestones
are achieved in the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 42% and 25%, with 25%
being the final equity ownership upon approval of an NDA for Dry Eye Syndrome in the U.S. In conjunction with the Joint Venture
Agreement, we also entered into a royalty-bearing license agreement (the "License Agreement") with ReGenTree pursuant to which
we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United States. We received a total
of $1,000,000 in two tranches under the terms of the License Agreement. The first tranche of $500,000 was received in March
2015 and a second in the amount of $500,000 was received in September 2015. On April 6, 2016, we received $250,000 from ReGenTree
and executed an amendment to the license agreement on April 28, 2016. Under the amendment the territorial rights were expanded
to include Canada.
We are also entitled
to royalties as a percentage of net sales ranging from the single digits to the low-double digits based on the medical indications
approved and whether the Joint Venture commercializes products directly or through a third party. In the event the ReGenTree entity
is acquired or there is a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled to 40% of all
change of control proceeds paid or payable and will forgo any future royalties. RegeneRx possesses one of three board seats and
certain major decisions and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions, require
RegeneRx’s board designee’s consent. Additionally, we intend to continue to pursue additional partnering activities,
particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.
Licensing Agreements
As noted above, we have
entered into two strategic agreements with GtreeBNT. GtreeBNT licensed the development and commercialization rights for RGN-259,
in Asia (excluding China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization rights for RGN-137
in the U.S. In January 2015 we entered into a joint venture and licensing agreement with GtreeBNT that will commercialize RGN-259
for treatment of dry eye and neurotrophic keratitis in the United States, as well as any other indications within the field of
ophthalmology. The license agreements provide for the opportunity for us to receive milestone payments upon specified commercial
events and royalty payments in connection with any commercial sales of the licensed products in the respective territories. However,
there are no assurances that we will be able to attain any such milestones or generate any such royalty payments under the agreements.
We have a license agreement
with Sigma-Tau/Alfa Wassermann that provides the opportunity for us to receive milestone payments upon specified events and royalty
payments in connection with commercial sales of Tß4 in Europe. However, we have not received any milestone payments to date,
and there can be no assurance that we will be able to attain such milestones and generate any such payments under the agreement.
We also have entered
into a license agreement with Lee’s Pharmaceuticals that provides for the opportunity for us to receive milestone payments
upon specified events and royalty payments in connection with any commercial sales of Tß4-based products in China, Hong Kong,
Macau and Taiwan. However, there are no assurances that we will be able to attain any such milestones or generate any such royalty
payments under the agreement.
Government Grants
We have pursued, and
continue to pursue, government funding for both RGN-259 and RGN-352.
Other Financing
Sources
Other potential sources
of outside capital include entering into additional strategic business relationships, additional issuances of equity securities
or debt financing or other similar financial instruments, and the exercise of our outstanding warrants. If we raise additional
capital through a strategic business relationship, we may have to give up valuable rights to our intellectual property. If we raise
funds by selling additional shares of our common stock or securities convertible into our common stock, the ownership interest
of our existing stockholders may be significantly diluted. In addition, if additional funds are raised through the issuance of
preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common
stock and may involve significant fees, interest expense, restrictive covenants and the granting of security interests in our assets.
Our failure to successfully
address liquidity requirements could have a materially negative impact on our business, including the possibility of surrendering
our rights to some technologies or product opportunities, delaying our clinical trials, or ceasing operations. There can be no
assurance that we will be able to obtain additional capital in sufficient amounts, on acceptable terms, or at all.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements,
as such term is defined in Item 303(a)(4) of Regulation S-K.