NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business Overview
ContraVir Pharmaceuticals Inc. ("ContraVir" or the "Company") is a biopharmaceutical company focused primarily on the clinical development of Tenofovir Exalidex
("TXL") (formerly CMX157) and CRV431 to treat Hepatitis B (HBV), and Valnivudine (formerly FV-100) to treat herpes zoster (HZ), or shingles, which is an infection caused by the
reactivation of varicella zoster virus (VZV) or "chickenpox"
On
June 10, 2016, the Company, through a wholly-owned subsidiary now known as ContraVir Research Inc., acquired Ciclofilin Pharmaceuticals, Inc. a biopharmaceutical
company incorporated on January 13, 2014 in California and reincorporated in Delaware on October 15, 2014. Ciclofilin Pharmaceuticals, Inc. had one wholly-owned subsidiary,
Ciclofilin Pharmaceuticals Corp., incorporated in Canada on January 24, 2014. Together, Ciclofilin Pharmaceuticals, Inc. and Ciclofilin Pharmaceuticals Corp ("Ciclofilin") are a
wholly-owned subsidiary known as ContraVir Research Inc. that specializes in the development of cyclophilin inhibitors, an emerging class of drugs for infectious, inflammatory, and degenerative
diseases. Ciclofilin's lead drug candidate, CRV431, is a potent cyclophilin inhibitor that blocks multiple HBV activities including entry into cells and replication, and is currently in pre-clinical
development.
2. Basis of Presentation and Going Concern
These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission ("SEC") and United States generally
accepted accounting principles ("GAAP") for interim reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which
include only normal recurring adjustments, necessary to present fairly the Company's interim financial information. The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements as of and for the year ended June 30, 2016 contained in the Company's Annual Report on Form 10-K ("Form 10-K") filed with
the Securities and Exchange Commission ("SEC") on September 28, 2016.
Going Concern
As of December 31, 2016, ContraVir had $10.6 million in cash. Net cash used in operating activities was $9.7 million for
the six months ended December 31, 2016. Net loss for the six months ended December 31, 2016 was $9.3 million. As of December 31, 2016, ContraVir had working capital of
$7.7 million.
These
unaudited financial statements have been prepared under the assumption that the Company will continue as a going concern within one year of the issuance of these financial
statements without additional capital becoming available to attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The
Company will be required to raise additional capital within the next year to continue the development and commercialization of its current product candidate and to continue to fund
operations at its current cash expenditure levels. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. Any debt financing, if available, may involve
restrictive
5
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Basis of Presentation and Going Concern (Continued)
covenants
that impact the Company's ability to conduct business. If the Company is unable to raise additional capital when required or on acceptable terms, it may have to (i) significantly
delay, scale back or discontinue the development and/or commercialization of its product candidate; (ii) seek collaborators for product its candidate at an earlier stage than otherwise would be
desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize ourselves on unfavorable terms.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting
period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates.
Cash
As of December 31, 2016 and June 30, 2016, the amount of cash was approximately $10.6 million and $7.4 million,
respectively, consisting of checking accounts held at a U.S. commercial bank and a Canadian commercial bank. Cash is maintained at financial institutions and, at times, balances may exceed federally
insured limits. The Company has never experienced losses related to these balances.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes
between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the
asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect assumptions about the inputs that market participants would use in
pricing the asset or liability, and are developed based on the best information available in the circumstances.
ASC
820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that
distinguishes among the following:
-
-
Level 1Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company
has the ability to access.
-
-
Level 2Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
6
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Basis of Presentation and Going Concern (Continued)
-
-
Level 3Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
To
the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is
based on the lowest level of any input that is significant to the fair value measurement.
Financial
instruments consist of cash and accounts payable. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to
their short term nature.
Derivative financial instruments
The Company has issued common stock warrants in connection with the execution of certain equity financings. The fair value of the warrants,
which were deemed to be derivative instruments based on certain contingent put features, was recorded as a derivative liability under the provisions of ASC Topic 815 Derivatives and Hedging ("ASC
815") upon issuance. Subsequently, the liability is adjusted to fair value as of the end of each reporting period and the changes in fair value of derivative liabilities are recorded in the statements
of operations under the caption "Change in fair value of derivative financial instrumentswarrants." See Note 6 for additional information.
Research and Development
Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and
staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, license costs, regulatory and scientific consulting fees, as well as
contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730, Research and Development, ("ASC 730"). Also, as prescribed by this guidance, patent filing and
maintenance expenses are considered legal in nature and therefore classified as general and administrative expense, if any.
ContraVir
does not currently have any commercial biopharmaceutical products, and does not expect to have such for several years if at all. Accordingly, our research and development costs
are expensed as
incurred. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures is predicated on the fact that ContraVir has
no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited.
Also
as prescribed by ASC 730, non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and
capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an
expense. At December 31, 2016 and June 30, 2016, ContraVir had prepaid research and development costs of approximately $173,782 and $354,542, respectively.
7
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Basis of Presentation and Going Concern (Continued)
Share-based payments
ASC Topic 718 "CompensationStock Compensation" ("ASC 718") requires companies to measure the cost of employee services received in
exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required
to provide services in exchange for the award. Generally, the Company issues stock options with only service based vesting conditions and records the expense for these awards using the straight-line
method.
The
fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. ContraVir has a limited trading history in its common stock and
lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer
companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company's stock options
has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. The expected term of stock options granted to non-employees is equal to the contractual term
of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the
expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The
Company accounts for stock options issued to non-employees in accordance with ASC Topic 505-50 "Equity-Based Payment to Non-Employees" and accordingly the value of the stock
compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the
necessary performance to earn the equity instruments is complete. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using
the then-current fair value of the Company's common stock and updated assumption inputs in the Black-Scholes option-pricing model.
ASC
718 requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash
inflows from financing activities and cash outflows from operating activities. Due to ContraVir's accumulated deficit position, no excess tax benefits have been recognized.
3. Recent Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which amends the accounting for
share-based payment transactions. These changes, which are designed for simplification, involve several aspects of the accounting for share-based transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. Adoption and implementation of the guidance is not required by the Company until the
beginning of fiscal 2018, although early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and
footnote disclosures.
8
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Recent Accounting Pronouncements (Continued)
In
January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) Clarifying the Definition of a Business". The amendments in this Update is to clarify the definition of a
business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of
a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. The Company is currently assessing the impact that adopting this new accounting guidance will have on its financial statements and footnote disclosures.
On
September 25, 2015, the FASB issued Accounting Standards Update 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, that eliminates the requirement to
restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior
periods) be recognized in the reporting period in which the adjustment is identified. The amendments are effective for public business entities for fiscal years, and for interim periods within those
fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim
periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is assessing the impact that adopting this new accounting guidance will have on its
financial statements and footnote disclosures.
4. Business Combination
Acquisition of Ciclofilin Pharmaceuticals, Inc.
On June 10, 2016, ContraVir completed its acquisition of 100% of the common stock of Ciclofilin. The transaction provided ContraVir with
a product candidate, CRV431, that is in
pre-clinical stage development, targeted at treating hepatitis B. CRV431 belongs to a known drug class of cyclophilin inhibitors derived from cyclosporine A, and was designed specifically to optimize
potency and selectivity against HBV.
The
acquisition-date fair value of the consideration transferred was as follows:
|
|
|
|
|
|
|
At June 10,
2016
|
|
Cash
|
|
$
|
300,000
|
|
Notes receivable settled upon closing of transaction
|
|
|
200,000
|
|
Contingent consideration
|
|
|
3,320,000
|
|
|
|
|
|
|
Total consideration
|
|
$
|
3,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
April 12, 2016, Ciclofilin issued $200,000 of convertible 1% Notes payable to ContraVir with a maturity date of October 12, 2016. This Note was to be repaid upon the
earlier of i) a change in control
event or ii) October 12, 2016. In the event of a change of control event in which ContraVir was the acquirer, any amount due from ContraVir to Ciclofilin at closing would be set-off by
the principal amount. The Note was effectively settled upon closing of the transaction, with the settlement amount equal to the carrying amount. There was no impact to ContraVir's consolidated
statements of
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Business Combination (Continued)
operations
as a result of the settlement and the settlement amount is included in total consideration above.
The
contingent consideration represents the acquisition date fair value of potential future payments, to be paid in cash and Company stock, upon the achievement of certain milestones as
described below. The contingent consideration was estimated based on a probability-weighted discounted cash flow model, which is an income approach.
|
|
|
Milestone Event under the ContraVir Merger Agreement
|
|
Milestone Payment to Stockholders
|
Upon receipt of Phase I Positive Data from the Phase I trial of CRV431 in humans
|
|
(1) Such number of validly issued, fully paid and non-assessable shares of Buyer Common Stock equal to 2.5% of the issued and outstanding Buyer Common Stock on the Closing Date and (2) $1,000,000 by wire transfer of
immediately available funds.
|
Upon receipt of Phase II Positive Data from a proof of concept clinical trial (whether an HBV-positive Phase I clinical trial
or a separate Phase II clinical trial, or otherwise) of CRV431 in humans
|
|
(1) Such number of validly issued, fully paid and non-assessable shares of Buyer Common Stock equal to 7.5% of the issued and outstanding
Buyer Common Stock on the Closing Date and (2) $3,000,000 by wire transfer of immediately available funds.
|
Upon initiation of a Phase III trial of CRV431
|
|
$5,000,000
|
Upon the acceptance by the U.S. Food and Drug Administration of a new drug application for CRV431
|
|
$8,000,000
|
The
transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and
liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill. Goodwill is not deductible for tax purposes.
10
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Business Combination (Continued)
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
At June 10,
2016
|
|
Cash
|
|
$
|
4,397
|
|
Tax receivable
|
|
|
5,504
|
|
Prepaid rent
|
|
|
1,769
|
|
Property, plant and equipment, net
|
|
|
14,329
|
|
Other assets
|
|
|
13,107
|
|
In-process research and development
|
|
|
3,190,000
|
|
Current portion of capital lease
|
|
|
(10,410
|
)
|
Deferred tax liability
|
|
|
(1,269,620
|
)
|
|
|
|
|
|
Total net assets acquired
|
|
$
|
1,949,076
|
|
Goodwill
|
|
|
1,870,924
|
|
|
|
|
|
|
Total consideration
|
|
$
|
3,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
were no measurement period adjustments recorded in the six months ended December 31, 2016.
Acquired IPR&D is the estimated fair value of the CRV431 asset at the acquisition date. The Company determined that the estimated fair value of
CRV431 was $3,190,000 as of the acquisition date using the Multi-Period Excess Earnings Method, or MPEEM, which is a form of the income approach. Under the MPEEM, the fair value of an intangible asset
is equal to the present value of the asset's projected incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory
assets (contributory charge) over its remaining useful life.
To
calculate fair value of CRV431 under the MPEEM, the Company used probability-weighted, projected cash flows discounted at a rate considered appropriate given the significant inherent
risks associated with drug development by clinical-stage companies. Cash flows were calculated based on estimated projections of revenues and expenses related to CRV431 and then reduced by a
contributory charge on requisite assets employed. Contributory assets included working capital, net fixed assets and assembled workforce. Rates of return on the contributory assets were based on rates
used for comparable market participants. Cash flows were assumed to extend through 2040. The resultant cash flows were then discounted to present value using a weighted-average cost of capital for
companies with profiles substantially similar to that of ContraVir, which the Company believes represent the rate that market participants would use to value the assets. The Company compensated for
the phase of development of the program by applying a probability factor to the estimation of the expected future cash flows. The projected cash flows were based on significant assumptions, including
the indication in which development of CRV431 will be pursued, the time and resources needed to complete the development and regulatory approval of CRV431, estimates of revenue and operating profit
related to
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Business Combination (Continued)
the
program considering its stage of development, the life of the potential commercialized product, market penetration and competition, and risks associated with achieving commercialization, including
delay or failure to obtain regulatory approvals to conduct clinical studies, failure of clinical studies, delay or failure to obtain required market clearances, and intellectual property litigation.
The Company recorded a $1,269,620 deferred income tax liability resulting from the acquisition reflecting the tax impact of the difference
between the book basis and tax basis of acquired IPR&D. Such deferred income tax liability cannot be used to offset deferred tax assets when analyzing the Company's valuation allowance as the acquired
IPR&D is considered to have an indefinite life until the Company completes or abandons development of CRV431.
5. Stockholder's Equity and Derivative Liability
Preferred stock, Common Stock and Warrant Offering
On October 14, 2014, the Company closed a private offering of Series A Convertible Preferred Stock (the "Series A") and
issued 900,000 shares of Series A preferred at $10.00 per share, generating gross proceeds of approximately $9,000,000. The Company also granted the purchaser the option to purchase up to an
additional 350,000 shares of Series A prior to February 28, 2015. The Series A are classified as permanent equity in accordance with ASC Topic 480,
Distinguishing Liabilities from Equity.
The Company issued an additional 50,000 shares of Series A preferred at $10.00 per share on
December 23, 2014, an additional 30,000 shares of Series A preferred at $10.00 per share on February 10, 2015 and an additional 270,000 shares on February 26, 2015,
resulting in the issuance of a total of $1.25 million shares of Series A Preferred stock generating aggregate gross proceeds of $12.5 million. Further, on December 17,
2014, the Company licensed TXL from Chimerix in exchange for an upfront payment of 120,000 shares of our Series B Preferred stock valued at $1.2 million.
During
the period from August 5, 2016 to December 31, 2016, certain holders of the Company's Series A Convertible Preferred Stock elected to convert approximately
1.1 million shares of Series A Convertible Preferred stock into approximately 23.5 million shares of the Company's common stock. In addition, in September 2016, the holder of the
Company's Series B Convertible Preferred stock elected to convert the outstanding 120,000 shares of Series B Convertible Preferred stock into approximately 1.1 million shares of
the Company's common stock
On
October 7, 2015, the Company entered into an underwriting agreement related to the public offering and sale of 5,000,000 shares of common stock and warrants to purchase up to
3,000,000 shares of common stock, at a fixed combined price to the public of $3.00 under the Company's current shelf registration statement on Form S-3. The shares of common stock and warrants
were issued separately on October 13, 2015. The warrants are immediately exercisable and will be exercisable for a period of five years from the date of issuance at an exercise price of $4.25
per share. There is not, nor is there expected to be, any trading market for the warrants issued in the offering contemplated by the Underwriting Agreement. The Company also granted the Underwriters a
45-day option to purchase up to an additional 750,000 additional shares of common stock and additional warrants to purchase up to 450,000 shares of common stock at $3.00, which was not exercised. The
gross proceeds to the Company
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Stockholder's Equity and Derivative Liability (Continued)
were
$15 million, before deducting the underwriting discount and other offering expenses payable by the Company of approximately $1.5 million. If the warrants were exercised in full,
ContraVir would receive additional proceeds of approximately $12.8 million.
If
the Company consummates any merger, consolidation, sale or other reorganization event in which its common stock is converted into or exchanged for securities, cash or other property
("Fundamental transaction"), then the Company shall pay at the holder's option, exercisable at any time commencing on the occurrence or the consummation of the fundamental transaction and continuing
for 90 days, an amount of cash equal to the value of the remaining unexercised portion of the warrant as determined in accordance with the Black-Scholes option pricing model on the date of such
fundamental transaction. As a result of these terms, in accordance with the guidance contained in ASC Topic 815-40, the Company has determined that the warrants issued in connection with this
financing transaction must be recorded as derivative liabilities upon issuance and marked to market on a quarterly basis in the Company's statement of operations and comprehensive loss. Upon the
issuance of these warrants, the fair value of approximately $4.4 million was recorded as derivative financial instruments liabilitywarrants.
The
fair value of these liability classified warrants were estimated using the Black-Scholes option pricing model. The Company develops its own assumptions for use in the Black-Scholes
option pricing model that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company's
common stock, stock price volatility of comparable companies, the contractual term of the warrants, risk free interest rates and dividend yields. The Company has a limited trading history in its
common stock, therefore, expected volatility is based on that of comparable public development stage biotechnology companies. Due to the nature of these inputs, the valuation of the warrants is
considered a Level 3 measurement.
The
following assumptions were used to remeasure the warrants liability as of December 31, 2016 and June 30, 2016:
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2016
|
Price of ContraVir common stock
|
|
$2.76
|
|
$1.20
|
Expected warrant term (years)
|
|
5.00 years
|
|
3.78 years
|
Risk-free interest rate
|
|
1.36%
|
|
1.70%
|
Expected volatility
|
|
76%
|
|
75%
|
Dividend yield
|
|
|
|
|
On
April 4, 2016, the Company closed on a public offering of 4,929,578 shares of its common stock and warrants to purchase up to 2,464,789 shares of common stock, at a fixed
combined price to the public of $1.42 under the Company's current shelf registration statement on Form S-3. The warrants are immediately exercisable and will be exercisable for a period of five
years from the date of issuance at an exercise price of $1.70 per share. There is not, nor is there expected to be, any trading market for the warrants issued in the offering contemplated by the
Underwriting Agreement. The gross proceeds to the Company were $7 million, before deducting the underwriting discount and other offering expenses payable by the Company of approximately
$0.7 million. If the warrants were exercised in full, ContraVir would receive additional proceeds of approximately $4.2 million.
13
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Stockholder's Equity and Derivative Liability (Continued)
Similar
to the terms of the warrants issued in October 2015, if the Company consummates any merger, consolidation, sale or other reorganization event in which its common stock is
converted into or exchanged for securities, cash or other property ("Fundamental transaction"), then the Company shall pay at the holder's option, exercisable at any time commencing on the occurrence
or the consummation
of the fundamental transaction and continuing for 90 days, an amount of cash equal to the value of the remaining unexercised portion of the warrant as determined in accordance with the
Black-Scholes option pricing model on the date of such fundamental transaction. As a result of these terms, in accordance with the guidance contained in ASC Topic 815-40, the Company has determined
that the warrants issued in connection with this financing transaction must be recorded as derivative liabilities upon issuance and marked to market on a quarterly basis in the Company's statement of
operations and comprehensive loss. Upon the issuance of these warrants, the fair value of approximately $1.5 million was recorded as derivative financial instruments
liabilitywarrants.
The
fair value of these liability classified warrants were estimated using the Black-Scholes option pricing model. The Company develops its own assumptions for use in the Black-Scholes
option pricing model that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company's
common stock, stock price volatility of comparable companies, the contractual term of the warrants, risk free interest rates and dividend yields. The Company has a limited trading history in its
common stock, therefore, expected volatility is based on that of comparable public development stage biotechnology companies. Due to the nature of these inputs, the valuation of the warrants is
considered a Level 3 measurement.
During
the three months ended December 31, 2016, a warrant holder exercised 50,000 warrants with a $1.70 exercise price.
The
following assumptions were used to remeasure the warrants liability as of December 31, 2016 and June 30, 2016:
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2016
|
Price of ContraVir common stock
|
|
$1.16
|
|
$1.20
|
Expected warrant term (years)
|
|
5.00 years
|
|
4.26 years
|
Risk-free interest rate
|
|
1.22%
|
|
1.70%
|
Expected volatility
|
|
76%
|
|
74%
|
Dividend yield
|
|
|
|
|
14
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Stockholder's Equity and Derivative Liability (Continued)
The
following table sets forth the components of changes in the Company's derivative financial instruments liability balance for the six months ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
Date
|
|
Description
|
|
Number of
Warrants
Outstanding
|
|
Derivative
Instrument
Liability
|
|
July 1, 2016
|
|
Balance of derivative financial instruments liability
|
|
|
5,464,789
|
|
$
|
2,115,965
|
|
|
|
Change in fair value of warrants for the six months ended December 31, 2016
|
|
|
|
|
|
331,010
|
|
Exercise of warrants
|
|
Warrants issued in conjunction with the April 2016 offering with an exercise price of $1.70
|
|
|
(50,000
|
)
|
|
(75,417
|
)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Balance of derivative financial instruments liability
|
|
|
5,414,789
|
|
$
|
2,371,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlled Equity Offering Sales Agreement
On March 9, 2015, the Company entered into a Controlled Equity Offering Sales Agreement (the "Agreement"), with Cantor
Fitzgerald & Co., as sales agent ("Cantor"), pursuant to which the Company may offer and sell, from time to time, through Cantor shares of the Company's common stock, par value $0.0001
per share (the "Shares"), up to an aggregate offering price of $50.0 million. The Company intends to use the net proceeds from these sales to fund research and development activities, including
the Phase 3 clinical trial of Valnivudine, and for working capital and other general corporate purposes, and possible acquisitions of other companies, products or technologies, though no such
acquisitions are currently contemplated.
Under
the Agreement, Cantor may sell the Shares by methods deemed to be an "at-the-market" offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), including sales made directly on The NASDAQ Capital Market, on any other existing trading market for the Shares or to or through a market maker. In addition, under the
Agreement, Cantor may sell the Shares by any other method permitted by law, including in privately negotiated transactions. Subject to the terms and conditions of the Agreement, Cantor will use
commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The NASDAQ Capital Market, to sell
the Shares from time to time, based upon the Company's instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose).
The
Company is not obligated to make any sales of the Shares under the Agreement. The offering of Shares pursuant to the Agreement will terminate upon the earlier of (1) the sale
of all of the Shares subject to the Agreement or (2) the termination of the Agreement by Cantor or the Company. ContraVir will pay Cantor a commission of up to 3.0% of the gross sales price per
share sold and has agreed to provide Cantor with customary indemnification and contribution rights.
15
Table of Contents
CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Stockholder's Equity and Derivative Liability (Continued)
During
the three months ended December 31, 2016, the Company sold approximately 5.9 million shares of the Company's common stock resulting in net proceeds of approximately
$12.8 million, under the Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co., as sales agent.
6. Fair Value Measurements
The following table presents the Company's liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value
hierarchy as of December 31, 2016 and June 30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
Quoted Prices in
Active Markets for
Identical Assets and
Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to warrants
|
|
$
|
(2,371,558
|
)
|
$
|
|
|
$
|
|
|
$
|
(2,371,558
|
)
|
Contingent consideration
|
|
|
(3,325,000
|
)
|
|
|
|
|
|
|
|
(3,325,000
|
)
|
As of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to warrants
|
|
$
|
(2,115,965
|
)
|
$
|
|
|
$
|
|
|
$
|
(2,115,965
|
)
|
Contingent consideration
|
|
|
(3,320,000
|
)
|
|
|
|
|
|
|
|
(3,320,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities- warrants in the Company's statement of operations. See
Note 5 for a rollfoward of the derivative liability for the six months ended December 31, 2016. The financial instrument's level within the fair value hierarchy is based on the lowest
level of any input that is significant to the fair value measurement. At each reporting period, the Company reviews the assets and liabilities that are subject to ASC 815-40. At each reporting period,
all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency
are classified as Level 3.
As
discussed in Note 4, contingent consideration was recorded for the acquisition of Ciclofilin on June 10, 2016. The contingent consideration represented the acquisition
date fair value of potential future payments, to be paid in cash and Company stock, upon the achievement of certain milestones and was estimated based on a probability-weighted discounted cash flow
model. The following table presents the change in fair value of the contingent consideration as of December 31, 2016.
|
|
|
|
|
|
|
Acquisition-related
Contingent
Consideration
|
|
Liabilities
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
3,320,000
|
|
Change in fair value recorded in earnings
|
|
|
5,000
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
3,325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Table of Contents
CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Indefinite-lived Intangible Assets and Goodwill
IPR&D
The Company's IPR&D asset consisted of the following at:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
June 30,
2016
|
|
IPR&D asset:
|
|
|
|
|
|
|
|
CRV431
|
|
$
|
3,190,000
|
|
$
|
3,190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No
impairment losses were recorded on IPR&D during the six months ended December 31, 2016.
Goodwill
The table below provides a roll-forward of the Company's goodwill balance:
|
|
|
|
|
|
|
Amount
|
|
Goodwill balance at July 1, 2016
|
|
$
|
1,870,924
|
|
Changes during the six months ended December 31, 2016
|
|
|
|
|
Goodwill balance at December 31, 2016
|
|
$
|
1,870,924
|
|
No
impairment losses were recorded on goodwill during the six months ended December 31, 2016.
8. Accrued Liabilities
The Company's accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
June 30,
2016
|
|
Research and development
|
|
$
|
415,440
|
|
$
|
177,197
|
|
Professional fees
|
|
|
|
|
|
80,984
|
|
Payroll and related costs
|
|
|
490,753
|
|
|
489,823
|
|
Legal fees
|
|
|
15,000
|
|
|
8,441
|
|
Other
|
|
|
|
|
|
64,449
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
921,193
|
|
$
|
820,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Accounting for Share-Based Payments
On June 3, 2013, ContraVir adopted the 2013 Equity Incentive Plan (the "Plan"). Stock options granted under the Plan typically will vest after three years of continuous service
from the grant date and will have a contractual term of ten years. ContraVir has reserved 6,500,000 shares of common stock issuable pursuant to the Plan.
The
Company classifies stock-based compensation expense in its statement of operations in the same manner in which the award recipient's payroll costs are classified or in which the
award
17
Table of Contents
CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Accounting for Share-Based Payments (Continued)
recipients'
service payments are classified. For the three and six months ended December 31, 2016 and 2015, respectively, ContraVir recorded the following stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2016
|
|
December 31,
2015
|
|
General and administrative
|
|
$
|
319,123
|
|
$
|
204,171
|
|
$
|
736,469
|
|
$
|
327,814
|
|
Research and development
|
|
|
108,445
|
|
|
30,304
|
|
|
192,215
|
|
|
(82,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation expense
|
|
$
|
427,568
|
|
$
|
234,475
|
|
$
|
928,684
|
|
$
|
245,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
summary of stock option activity and of changes in stock options outstanding under the Plan for the six months ended December 31, 2016 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Exercise Price
Per Share
|
|
Weighted
Average
Exercise Price
Per Share
|
|
Intrinsic
Value
|
|
Weighted
Average
Remaining
Contractual Term
|
Balance outstanding, July 1, 2016
|
|
|
5,204,478
|
|
$0.11 - $4.38
|
|
$
|
1.59
|
|
$
|
|
|
8.1 years
|
Granted
|
|
|
586,978
|
|
$1.04 - $2.01
|
|
$
|
1.15
|
|
|
|
|
|
Exercised
|
|
|
(24,666
|
)
|
$1.50 - $1.50
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2016
|
|
|
5,766,790
|
|
$0.11 - $4.38
|
|
$
|
1.54
|
|
$
|
|
|
7.7 years
|
Vested awards and those expected to vest at December 31, 2016
|
|
|
5,684,152
|
|
$.011 - $4.38
|
|
$
|
1.54
|
|
|
|
|
|
Vested and exercisable at December 31, 2016
|
|
|
2,770,196
|
|
$0.11 - $4.38
|
|
$
|
1.48
|
|
$
|
|
|
6.85years
|
The
weighted-average grant-date fair value of options granted to employees during the six months ended December 31, 2016 and 2015 was $0.78 and $1.73, respectively. The total fair
value of shares vested during the six months ended December 31, 2016 was $199,516. No shares vested during the six months ended December 31, 2015. Included within the above table are
1.4 million non-employee options outstanding as of December 31, 2016, of which 0.6 million are unvested as of December 31, 2016 and therefore subject to remeasurement.
The
aggregate intrinsic value of stock options in the tables above is calculated as the difference between the exercise price of the stock options and the fair value of the Company's
common stock for those stock options that had exercise prices lower than the fair value of the Company's common stock.
As
of December 31, 2016, the unrecognized compensation cost related to non-vested stock options outstanding, net of expected forfeitures, was approximately $2.3 million to
be recognized over a weighted-average remaining vesting period of approximately 1.26 years.
18
Table of Contents
CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Accounting for Share-Based Payments (Continued)
The following weighted-average assumptions were used in the Black-Scholes valuation model to estimate the fair value of stock option awards granted to employees during the six months
ended December 31, 2016 and 2015, respectively.
|
|
|
|
|
|
|
Six Months Ended
December 31, 2016
|
|
Six Months Ended
December 31, 2015
|
Stock price
|
|
$1.15
|
|
$2.56
|
Risk-free interest rate
|
|
1.33%
|
|
1.80%
|
Dividend yield
|
|
|
|
|
Expected volatility
|
|
80%
|
|
78%
|
Expected term (in years)
|
|
6 years
|
|
6 years
|
Risk-free interest rate
Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of
the Company's stock options.
Dividend yield
ContraVir has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock
in the foreseeable future.
Expected volatility
Because ContraVir has a limited trading history in its common stock, the Company based expected volatility on that of comparable
public development stage biotechnology companies.
Expected term
The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method
provided in SAB No. 107. Options are considered to be "plain vanilla" if they have the following basic characteristics: (i) granted "at-the-money"; (ii) exercisability is
conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and
(v) options are non-transferable and non-hedgeable.
In
December 2007, the SEC issued SAB No. 110,
Share-Based Payment
, ("SAB No. 110"). SAB No. 110 was effective
January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the
expected term of "plain vanilla" share options in accordance with ASC 718. The Company will use the simplified method until it has the historical data necessary to provide a reasonable estimate of
expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has "plain-vanilla" stock options, and therefore used a simple average of the
vesting period and the contractual term for options granted as permitted by SAB No. 107.
Forfeitures
ASC 718 requires forfeitures to be estimated at the time of grant and revised if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Due to its limited history of issuing stock options as a standalone company, ContraVir estimated future unvested option forfeitures based on the historical experience of
its former parent and is using a comparable 3% rate.
10. Loss per Share
Basic and diluted net loss per share is presented in conformity with ASC Topic 260,
Earnings per Share
, ("ASC Topic 260") for all periods
presented. In accordance with ASC Topic 260, basic and
19
Table of Contents
CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
10. Loss per Share (Continued)
diluted
net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. The following table sets
forth the computation of basic and diluted net loss per share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2016
|
|
December 31,
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,505,487
|
)
|
$
|
(3,030,434
|
)
|
$
|
(9,322,384
|
)
|
$
|
(7,874,876
|
)
|
Preferred stock deemed dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(4,505,487
|
)
|
$
|
(3,030,434
|
)
|
$
|
(9,322,384
|
)
|
$
|
(7,874,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
60,053,612
|
|
|
26,642,889
|
|
|
48,986,350
|
|
|
24,466,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stockbasic and diluted
|
|
$
|
(0.08
|
)
|
$
|
(0.11
|
)
|
$
|
(0.19
|
)
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following outstanding securities at December 31, 2016 and 2015 have been excluded from the computation of diluted weighted shares outstanding, as they would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
Six months ended
December 31, 2016
|
|
Six months ended
December 31, 2015
|
|
Common shares issuable upon conversion of Series A preferred stock
|
|
|
2,564,808
|
|
|
26,041,667
|
|
Common shares issuable upon conversion of Series B preferred stock
|
|
|
|
|
|
1,071,429
|
|
Stock options
|
|
|
5,766,790
|
|
|
4,017,745
|
|
Warrants
|
|
|
5,414,789
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,746,387
|
|
|
34,130,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
liability classified warrants disclosed above been excluded from the computation of diluted earnings per share because their exercise price exceeds the average market price of the
Company's common stock during the six months ended December 31, 2016.
11. Commitments and Contingencies
License Agreement with Chimerix, Inc.
On December 17, 2014, the Company entered into an exclusive license agreement with Chimerix pursuant to which the Company has licensed
TXL from Chimerix for further clinical development and commercialization. TXL is a highly potent analog of the antiviral drug tenofovir DF (Viread®). Under the terms of the agreement,
ContraVir licensed TXL from Chimerix in exchange for an upfront payment consisting of 120,000 shares of ContraVir Series B Convertible Preferred Stock. In addition,
20
Table of Contents
CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Commitments and Contingencies (Continued)
Chimerix
is eligible to receive up to approximately $20.0 million in clinical, regulatory and initial commercial milestone payments in the United States and Europe, as well as royalties and
additional milestone payments based on commercial sales in those territories. Either party may terminate the License Agreement upon the occurrence of a material breach by the other party (subject to
standard cure periods), or upon certain events involving the bankruptcy or insolvency of the other party. The Company may also terminate the License Agreement without cause on a country by country
basis upon sixty days' prior written notice to Chimerix.
The
fair value of the Preferred B shares exchanged for the license was determined to be equal to the amount paid per share of the Series A, as the provision of the Preferred B
shares were the same as the Preferred A Shares, based on an arm's length transaction. Therefore, the fair value of the Preferred B shares issued was $10.00 per share or $1.2 million. The
cost of the license was classified as a research and development expense in the amount of $1.2 million as the compound is early stage, has not yet reached technological feasibility and has no
alternative use. As of the date of this report, no amounts had been accrued related to the milestone payments Chimerix is eligible to receive.
As
of December 31, 2016, Chimerix has converted all outstanding shares of the Company's Preferred B shares into approximately 1.1 million shares of the Company's common
stock.
On June 10, 2013, the Company and Synergy entered into a Contribution Agreement, as amended and restated on August 5, 2013, or the
Contribution Agreement, to transfer to the Company the Valnivudine assets, in exchange for the issuance to Synergy of 9,000,000 shares of the Company's common stock representing 100% of the
outstanding shares of the Company's common stock as of immediately following such issuance. Pursuant to the Contribution Agreement, Synergy transferred ownership of all intellectual property rights
acquired from Bristol-Myers Squibb ("BMS") including all historical research, clinical study protocols, data, results and patents related to the Valnivudine assets as well as assumed the obligations
of Synergy, including all liabilities of Synergy, under the asset purchase agreement, dated August 17, 2012, by and between Synergy and BMS, or the BMS Agreement.
The
Valnivudine assets acquired from BMS are licensed from Cardiff pursuant to the terms of that certain Patent and Technology License Agreement, dated as of February 2, 2005,
between Cardiff and CRI, an entity with no prior relationship with us, as amended March 27, 2007, or the Cardiff Agreement.
The
Cardiff Agreement shall remain in full force and effect until the date upon which the last of the last patent or the last continuation or extension to any patents within the Patent
Rights (as defined in the Cardiff Agreement) expires. Any milestone and/or royalty payment under the Cardiff Agreement shall be payable for as long as the Cardiff Agreement is in effect. The Cardiff
Agreement may be terminated in its entirety, for among other reasons and in the following manner as set forth below: (a) automatically by Cardiff, if we become bankrupt or insolvent and/or if
our business shall be placed in the hands of a receiver, assignee, or trustee; (b) upon ninety (90) calendar days written notice from Cardiff, if we breach or default (i) on the
payment or report obligations or use of name obligations or (ii) on any other obligation under the Cardiff Agreement, subject to a ninety (90) calendar-day cure period; (c) if we
have defaulted or been in excess of one (1) month late on its payment obligations
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Commitments and Contingencies (Continued)
pursuant
to the terms of the Cardiff Agreement on any two (2) occasions in a twelve (12) month period, subject to a cure period; (d) upon one hundred twenty (120) calendar
days written notice from us if any particular patent or patents included in Patent Rights and which account for at least thirty (30%) percent of the total royalty to Cardiff, is or are irrevocably
adjudicated to be invalid; or (e) upon ninety (90) calendar days written notice from us if Cardiff is in breach of Section 11.1 (Confidential Information and Publication) unless,
before the end of the such ninety (90) calendar-day notice period, Cardiff has cured the default or breach to our reasonable satisfaction and so notifies us, stating the manner of the cure.
The
terms of the Cardiff Agreement provided in consideration for a license of all of Cardiff's rights in any technical information, know-how, processes, procedures, compositions,
devices, methods, formulae, protocols, techniques related to the Valnivudine Assets, or the Patent Rights. The Cardiff Agreement provided for an initial base payment of $270,000, which has previously
been paid by CRI, subsequent milestone payments covering (i) initiation of a clinical trial at each phase, (ii) marketing (FDA) approval and (iii) on achieving the milestone of
aggregate net sales in three different tiers, as well as a low single digit royalty based on net sales. The total aggregate amount of milestone payments that could be payable to Cardiff by the Company
under the Cardiff Agreement is equal to $400,000 as follows:
Milestone
payments upon occurrence of the following events:
-
-
Upon initiation of a Phase 3 clinical trial for a licensed product, $150,000
-
-
Upon approval of the first NDA for any licensed product, $250,000
The
terms of the BMS Agreement provided for an initial base payment of $1 million, subsequent milestone payments of $3 million and $6 million, respectively, covering
(i) marketing (FDA) approval and (ii) on achieving the milestone of aggregate net sales equal to or greater than $125 million, as well as a single digit royalty based on net
sales. The total aggregate amount of milestone payments that could be payable to BMS under the BMS Agreement is equal to $9 million. The duration of any milestone payment obligation owed to BMS
shall continue until the earliest of (i) payment, in full, of all milestone payments as required under the BMS Agreement, (ii) our determination using commercially reasonable standards
consistent with the exercise of prudent scientific and business judgment and consistent with those standards used by us for its other therapeutic products at a similar stage of development and with
similar commercial potential, to terminate the development of the Valnivudine assets, and (iii) the tenth (10th) anniversary of the date of the BMS Agreement, The duration of any royalty
payment obligation to BMS shall commence on the date of the first commercial sale of the Valnivudine assets in a country until the expiration of any claim of an issued and unexpired patent which has
not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction of any of our patents or any other patent covering the use
or sale of the Valnivudine assets in such country. The transactions contemplated by the BMS Agreement closed on August 17, 2012 and neither party can terminate the remaining obligations owed
under the BMS Agreement. No milestone payments have been made under this agreement and as of the date of this report, no amounts had been accrued related to the remaining milestone payments BMS is
eligible to receive.
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CONTRAVIR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Commitments and Contingencies (Continued)
As
of December 31, 2016, the Company is in compliance with all requirements of the Cardifff agreement.
12. Related Party Transactions
One of the Company's Directors, Timothy Block, is President of the Baruch S. Blumberg Institute ("Blumberg Institute"). On May 29, 2015, the Company entered into a Sponsored
Research Agreement ("Agreement") with Blumberg Institute, pursuant to which the Company is sponsoring research by investigators affiliated with the Blumberg Institute with respect to TXL. The Company
incurred expenses related to the agreement of approximately $50,000 and $0 for the six months ended December 31, 2016 and 2015, respectively.
The
Company is a party to a Master Services Agreement dated June 19, 2014 with Clinical Supplies Management, Inc. ("CSM"), pursuant to which CSM provides the Company with
pharmaceutical and clinical supply management services in support of clinical research programs. James Sapirstein, CEO of ContraVir, was a director of CSM, which is a private company, until
October 15, 2016. For the six months ended December 31, 2016 and 2015, the Company incurred expenses related to services performed by CSM of approximately $193,921 and $306,400,
respectively. As of December 31, 2016 there was an outstanding payables balance of approximately $40,745.
The
Company is a party to a Consulting agreement dated June 1, 2016 with Gabriele Cerrone. Mr. Cerrone is a principal stockholder of the Company and provides general
corporate consulting services. For the six months ended December 31, 2016 and 2015, the Company incurred expenses related to services performed by Mr. Cerrone of $60,000 and $0,
respectively.
13. Income Tax Benefit
In November 2016, the Company transferred state net operating loss tax credits and received approximately $1.9 million in connection with the sale of the state net operating
losses to a third party. The Company received approval for the sale of net operating losses through participation in the 2016 New Jersey Technology Business Tax Certificate Transfer (NOL) Program.
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