As
filed with the Securities and Exchange Commission on July 19 , 2017
Registration No.
333-219147
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RITTER
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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2834
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26-3474527
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(State
or other jurisdiction of
incorporation or organization)
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(Primary
Standard Industrial
Classification Code Number)
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(I.R.S.
Employer
Identification No.)
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Ritter
Pharmaceuticals, Inc.
1880 Century Park East #1000
Los
Angeles, CA 90067
(310)
203-1000
(Address,
including zip code, and telephone number,
including area code, of registrant’s principal executive office)
Michael
D. Step
Chief
Executive Officer
Ritter
Pharmaceuticals, Inc.
1880
Century Park East #1000
Los
Angeles, CA 90067
(310)
203-1000
(Name,
address, including zip code, and telephone number,
including area code, of agent for service)
Copies
to:
Michael
Sanders, Esq.
Aron
Izower, Esq.
Reed
Smith LLP
1901
Avenue of the Stars, Suite 700
Los
Angeles, California 90067-6078
Telephone:
(310) 734-5200
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Anthony
J. Marsico, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
666 Third Avenue
New
York, NY 10017
Telephone: (212) 935-3000
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Approximate
date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared
effective.
If
any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, as amended, check the following box: [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement
for the same offering: [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering:
[ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering: [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ] (Do not check if smaller reporting company)
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Smaller
reporting company [X]
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Emerging
growth company [X]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided in Section 7(a)(2)(B) of the Securities Act. [ ]
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
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Proposed
Maximum
Aggregate
Offering Price
(1)
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Amount
of
Registration Fee
(2)
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Class
A Units consisting of:
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$
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8,745,750
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$
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1,014
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(i)
Common Stock, par value $0.001 per share
(2)
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(ii)
Warrants to purchase Common Stock
(3)
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Class
B Units consisting of
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$
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2,754,250
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$
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320
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(i)
Series A Convertible Preferred Stock, par value $0.001 per share
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(ii)
Warrants to purchase Common Stock
(3)
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(iii)
Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock
(2)
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Common
Stock issuable upon the exercise of the Warrants to purchase Common Stock
(2)
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6,324,999
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734
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Total
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$
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17,824,999
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$
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2,068
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(4)
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(1)
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Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended. Includes shares and warrants to be sold upon exercise of the underwriters’ option to purchase additional shares and warrants. See “Underwriting.”
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(2)
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Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
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(3)
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No fee pursuant to Rule 457(g) under the Securities Act of 1933, as amended.
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(4)
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Previously paid.
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The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION
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DATED
JULY 19, 2017
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11,700,000
Class A Units Consisting of Common Stock and Warrants
and
2,395
Class B Units Consisting of Series A Convertible Preferred
Stock and Warrants
We
are offering 11,700,000 Class A Units consisting of one share of our common stock and one warrant to purchase 0.5 of a share of
our common stock, at an exercise price equal to 110% of the public offering price of the Class A Units, which warrants will be
exercisable upon issuance and will expire three years from date of issuance. The shares of common stock and warrants that are
part of a Class A Unit are immediately separable and will be issued separately in this offering.
We
are also offering to those purchasers, if any, whose purchase of Class A Units in this offering would otherwise result in the
purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding common
stock immediately following the consummation of this offering, the opportunity, in lieu of purchasing Class A Units, to purchase
Class B Units. Each Class B Unit will consist of one share of our newly designated Series A Convertible Preferred Stock, or the
Series A Preferred, with a stated value of $1,000 and convertible into shares of our common stock at the public offering price
of the Class A Units, together with the equivalent number of warrants as would have been issued to such purchaser if they had
purchased Class A Units based on the public offering price. The Series A Preferred do not generally have any voting rights but
are convertible into shares of common stock. The shares of Series A Preferred and warrants that are part of a Class B Unit are
immediately separable and will be issued separately in this offering.
The
number of shares of our common stock outstanding after this offering will fluctuate depending on how many Class B Units are sold
in this offering and whether and to what extent holders of Series A Preferred shares convert their shares to common stock.
Our
common stock is listed on The NASDAQ Capital Market under the symbol “RTTR”. On July 14, 2017, the last reported sale
price of our common stock on The NASDAQ Capital Market was $0.65 per share. The public offering price per Class A Unit will
be determined between us and the underwriter based on the closing price of our common stock on the pricing date and market conditions
at the time of pricing, and may be at a discount to the current market price. The public offering price of the Class B Units
will be $1,000 per unit.
Assuming an offering
price
of $0.65 per Class A unit ,
the Series A Preferred included in the Class B Units will be convertible into an aggregate total of 3,684,611 shares of Common
Stock and the Warrants included in the Class B Units will be exercisable for an aggregate total of 1,842,306 shares of Common
Stock.
There
is no established trading market for the warrants or the Series A Preferred, and we do not expect an active trading market to
develop. We do not intend to list the warrants or the Series A Preferred on any securities exchange or other trading market. Without
an active trading market, the liquidity of the warrants and the Series A Preferred will be limited.
We
are an “emerging growth company” under applicable Securities and Exchange Commission rules and are eligible for reduced
public company disclosure requirements. See “Summary — Implications of Being an Emerging Growth Company.”
Our
business and an investment in our securities involves a high degree of risk. See “Risk Factors” beginning on page
9 of this prospectus for a discussion of information that you should consider before investing in our securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per
Class A
Unit
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Per
Class B
Unit
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Total
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Public
offering price
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$
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$
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$
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Underwriting
discounts and commissions
(1)
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$
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$
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$
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Proceeds
to us, before expenses
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$
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$
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$
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(1)
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The
underwriters will receive compensation in addition to the underwriting discount and commissions. See “Underwriting”
beginning on page 10 of this prospectus for a description of compensation payable to the underwriters.
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We
have granted a 45-day option to the underwriters to purchase additional shares of common stock and/or additional warrants to purchase
shares of common stock, in amounts up to 15% of the common stock, warrants and/or common stock issuable upon conversion of the
Series A Preferred included in the Units sold in the offering, solely to cover over-allotments, if any.
The
underwriters expect to deliver the securities against payment therefor on or about ,
2017.
Sole
Book-Running Manager
Aegis
Capital Corp
,
2017
TABLE
OF CONTENTS
You
should rely only on the information contained or incorporated by reference in this prospectus. Neither we nor any of the underwriters
has authorized anyone to provide you with information different from, or in addition to, that contained or incorporated by reference
in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we may have referred you in connection
with this offering. We take no responsibility for, and can provide no assurance as to the reliability of, any other information
that others may give you. Neither we nor any of the underwriters is making an offer to sell or seeking offers to buy these securities
in any jurisdiction where, or to any person to whom, the offer or sale is not permitted. The information contained or incorporated
by reference in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time
of delivery of this prospectus or of any sale of shares of our common stock, and the information in any free writing prospectus
that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our
business, financial condition, results of operations and future growth prospects may have changed since those dates.
This
prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys
and studies conducted by third parties. The industry publications and industry data contained in this prospectus have been obtained
from sources believed to be reliable.
For
investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the
United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United
States.
PROSPECTUS
SUMMARY
This
summary provides an overview of selected information contained elsewhere or incorporated by reference in this prospectus and does
not contain all of the information you should consider before investing in our securities. You should carefully read this prospectus
and the registration statement of which this prospectus is a part in their entirety before investing in our securities, including
the information discussed under “Risk Factors” and our financial statements and notes thereto that are incorporated
by reference in this prospectus. Unless otherwise indicated herein, the terms “we,” “our,” “us,”
or “the Company” refer to Ritter Pharmaceuticals, Inc. Unless otherwise indicated, all share amounts and per share
amounts in this prospectus have been adjusted to reflect the reverse stock split of our outstanding shares of common stock at
a ratio of 1-for-7.15.
Business
Overview
Ritter
Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases.
We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality
of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health. “Prebiotics”
is a general term used to refer to chemicals that induce the growth and/or activity of commensal microorganisms that contribute
to the well-being of their host.
Our
first novel microbiome modulator, RP-G28, an orally administered, high purity galactooligosaccharide, (a carbohydrate found naturally,
at least in small amounts, in plants, consisting of three to ten simple sugars linked together), or GOS, is currently under development
for the treatment of lactose intolerance. RP-G28 is designed to stimulate the growth of lactose-metabolizing bacteria in the colon,
thereby effectively adapting the gut microbiome to assist in digesting the lactose that reaches the large intestine. RP-G28 has
the potential to become the first drug approved by the U.S. Food and Drug Administration, or FDA, for the treatment of lactose
intolerance.
Our
Market Opportunity
Lactose
intolerance is a common condition attributed to insufficient levels of the enzyme lactase, which is needed to properly digest
lactose, a complex sugar found in milk and milk-containing foods. Lactase deficiency may also cause lactose malabsorption, which
results in undigested lactose passing to the colon where it is fermented to monosaccharides, free fatty acids and gases. It is
the undigested lactose and the resulting breakdown products that cause symptomatology. Thus, lactose intolerance is a syndrome
composed of characteristic symptoms, including abdominal symptoms (e.g., pain, cramping, bloating, gas movement, and release of
gas (flatulence) and finally bowel-related symptoms (e.g., bowel movement, loose stool, and bowel urgency) following ingestion
of lactose, contained in milk or milk-containing products.
Lactose
intolerance is a widespread condition affecting over one billion people worldwide and over 40 million people in the United States
(or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating moderate to severe symptoms
[NIH Consensus Statement, LIH, Vol. 27, #2 (February 2010); Objective Insights, “Market Research Analysis and Forecasts
on Lactose Intolerance and RP-G28,” p. 4 and 7 (June 2012)]
.
In
the United States alone, we believe lactose intolerance is a large and underserved market. Current annual spending on over-the-counter
lactose intolerance aids in the United States has been estimated at approximately $2.45 billion
[Zpryme Research & Consulting,
“The Digestive Health Prescription Drug Market,” (May 2009)].
However, these options are limited and there is
no long-term treatment available.
Unlike
many common gastrointestinal conditions, such as irritable bowel syndrome, inflammatory bowel diseases, gastroesophageal reflux
disease, or dyspepsia (among many others), lactose intolerance symptoms can be completely abated by avoiding dietary lactose.
In this regard, lactose intolerance is an avoidance condition, similar to celiac sprue, food intolerances, or various environmental
allergies. However, dairy avoidance may lead to inadequate calcium and vitamin D intake, which can predispose individuals to decreased
bone accrual, osteoporosis, hypertension, rickets, osteomalacia, and possibly certain cancers. Although supplements and calcium-rich
foods are available, several studies have shown that lactose intolerance patients had an average calcium intake of only 300-388
mg/day, significantly less than the 1000-1200 mg/day adult dietary recommended levels. The 2010 National Institutes of Health
conference on lactose intolerance highlighted the long-term consequences of dairy avoidance demonstrating both the importance
of treating the condition and the need to find improved solutions for patients.
Our
Leading Product Candidate — RP-G28
We
completed a double-blinded, randomized, multi-center, placebo-controlled Phase 2a clinical trial of RP-G28 in November 2011. The
purpose of the trial was to assess the effectiveness, safety and tolerability of RP-G28 compared to a placebo when administered
to subjects with symptoms associated with lactose intolerance.
An
additional goal of the Phase 2a clinical trial was to establish proof-of-concept that treatment with RP-G28 facilitates improved
lactose metabolism via the adaptation of intestinal bacteria metabolism (i.e., colonic adaptation). The trial evaluated RP-G28
in 62 patients with lactose intolerance over a treatment period of 35 consecutive days. Post-treatment, subjects reintroduced
dairy into their diets and were followed for an additional 30 days. The results from our Phase 2a trial were published in Nutrition
Journal in a manuscript entitled, “Improving lactose digestion and symptoms of lactose intolerance with a novel galacto-oligosaccharide
(RP-G28): a randomized, double-blind clinical trial.”
Key
findings of the Phase 2a trial include:
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RP-G28
was well tolerated, with no significant adverse events reported.
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The
combined data suggest that RP-G28 exerted a positive therapeutic effect and clinically meaningful benefits to patients on
treatment, though not all results were statistically significant.
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Positive
trends were seen when the entire per protocol study population was analyzed, including some statistically significant subgroup
analysis.
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Treated
subjects reported increased tolerance to lactose and dairy foods: reduced lactose intolerance symptoms (gas, bloating, cramping
and abdominal pain) were reported in subjects on RP-G28, a durable reduction in abdominal pain (p=0.019) was reported, and
treated patients were 6 times more likely to describe themselves as lactose tolerant (p=0.039). We believe these results are
signals of a clinically meaningful benefit to patients treated with RP-G28. P-value is a conventional statistical method for
measuring the statistical significance of clinical results. In clinical trials, the “p-value” is the probability
that the result was obtained by chance. By convention, a “p-value” that is less than 0.05 is considered statistically
significant.
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Principal
Component Analysis (PCA), a multivariate method that helps transform a number of possibly correlated variables into a smaller
number of uncorrelated variables called principal components, thereby reducing the dimensions of a complex dataset, also showed
statistically significant shifts in the microbiome of subjects fed RP-G28, compared to placebo, at 66 days.
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In
sum, positive trends were seen when the entire per protocol study population was analyzed, including some statistically significant
subgroup analysis. We held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February
20, 2013. The purpose of the meeting was to obtain the FDA’s feedback on the planned Phase 2 program and Phase 3 programs,
inform the FDA of our ongoing development plans, gain feedback on relevant clinical trial design and end points related to patient
meaningful benefits, and to inform the FDA of the status of our product characterization. We believe that this meeting was a significant
step forward in streamlining the pathway to possible U.S. approval of RP-G28.
Following
analysis of the Phase 2a clinical trial, the Type C discussion with the FDA in 2013, and further discussions with our regulatory
consultants, we initiated a Phase 2b/3 clinical trial of RP-G28 in March 2016. We did not discuss the Phase 2b/3 trial design
and development plan for RP-G28 with the FDA.
The
Phase 2b/3 trial was a multi-center, randomized, double-blind, placebo-controlled, parallel group trial evaluating safety, efficacy
and tolerability of two dosing regimens of RP-G28 in patients with moderate to severe lactose intolerance symptoms. Enrollment
was initiated in March 2016 and completed in August 2016, achieving our projected enrollment time period. The trial aimed to evaluate
a patient’s ability to consume dairy foods post-treatment with improved tolerance and reduced digestive symptoms. A total
of 377 subjects were enrolled in the trial with 18 clinical sites participating throughout the United States. Patients underwent
a 30-day treatment, followed by a 30-day post-treatment evaluation of dairy tolerance. On October 17, 2016, the last patient completed
dosing and all monitoring visits in our Phase 2b/3 clinical trial of RP-G28.
We
held a Type C meeting with the FDA in March 2017, prior to the unblinding of our Phase 2b/3 data, to discuss our development plans
and Phase 2b/3 clinical trial. The focus of the meeting was to gain feedback about our statistical analysis plan, or SAP, and
best position the SAP so that the trial could be considered a pivotal registration trial if the results were positive.
The
meeting with the FDA was constructive and productively focused on best defining clinically meaningful benefits to patients suffering
from lactose intolerance and how to reflect these benefits in endpoints. We modified aspects of our SAP to address certain FDA
recommendations, including a change to our primary endpoint, which was changed to combine abdominal pain with relevant secondary
endpoints to establish an abdominal composite score (abdominal pain, abdominal cramping, abdominal bloating and abdominal gas).
The protocol design and the assessment utilized to collect lactose intolerance symptoms remained unchanged.
Topline
results of the trial were announced in March 2017. Results showed a clinically meaningful benefit to subjects in the reduction
of lactose intolerance symptoms across a variety of outcome measures. The majority of analyses showed positive outcome measures
and the robustness of the data point to a clear drug effect. Treatment patients not only reported meaningful reduced symptoms,
but also 30 days after taking the treatment, patients reported adequate relief from lactose intolerance symptoms and satisfaction
with the results of the treatment, with RP-G28 preventing or treating their lactose intolerance symptoms. Greater milk and dairy
product consumption was also reported by patients. See “Business—Phase 2b/3 Clinical Trial” for additional details
regarding our Phase 2b/3 clinical trial.
Due
to inconsistent data results from one study site, the data from this site was excluded from the primary analysis population. The
Company is continuing to examine the data results from this one anomalous study site. Nevertheless, we believe that, based on
the trial results, the successful completion of a confirmatory Phase 3 program could be adequate to support a New Drug Application,
or NDA, submission.
In
the Efficacy Subset mITT Analysis group, the primary endpoint met statistical significance, in which 41.2% of the pooled dosing
group and 25.8% of the placebo group responded (p=0.0159). Because the primary analysis was statistically significant, the primary
endpoint comparison between the high dose group and the placebo group was then tested and also met statistical significance.
This endpoint compared the high dose group, of which 38% of whom were treatment responders compared to the placebo group of which
26% of whom were treatment responders (p=0.0294). The comparison between the low dose group and the placebo group further met
statistical significance (p=0.0434).
In
the entire study population (mITT population) taking at least one dose of drug (n=368), including the excluded data, the comparison
between the pooled treatment groups and the placebo group narrowly missed statistical significance (p=0.0618), in which 40% of
the pooled treatment group responded compared to 31% of the placebo group. Both low dose and high dose group arms demonstrated
a higher proportion of responders than the placebo group.
No
significant adverse events (SAEs) were reported from treatment. Safety measurements showed no difference between treatment and
placebo patients.
A
subset of subjects from our Phase 2b/3 clinical trial have been rolled into a 12-month extension study to evaluate long-term durability
of treatment. The study is also evaluating each participant’s microbiome, expanding our knowledge of the effects that RP-G28
may have on adapting the gut microbiota in a beneficial manner. The subjects are expected to complete the 12-month evaluation
during the fourth quarter of 2017.
We
have requested an End of Phase 2 meeting by the end of 2017, which the FDA has granted.
Our
Competitive Strengths
Market
Opportunity
RP-G28
has the potential to become the first approved drug in the United States and Europe for the treatment of lactose intolerance.
Renowned
Scientific Team and Management Team
Our
leadership team has extensive biotechnology/pharmaceutical expertise in discovering, developing, licensing and commercializing
therapeutic products. We have attracted a scientific team comprised of innovative researchers who are renowned in their knowledge
and understanding of the host-microbiome in the field of lactose intolerance and gastroenterology.
Patent
Portfolio
We
have an issued patents in the United States and in select countries in Europe (Germany, the United Kingdom, France, Spain, and
the Netherlands) directed to pharmaceutical compositions and methods of using such compositions for the treatment of lactose intolerance
and certain of its symptoms. Additionally, in other countries, we have issued patents and pending patent applications. These patent
applications include claims directed to pharmaceutical compositions and methods of use.
In
addition, in July 2015 we acquired the rights, title and interest to certain patents and related patent applications with claims
directed to processes for producing ultra-high purity GOS active pharmaceutical ingredients, including RP-G28, from our supplier.
See “Business—Manufacturing” for additional details.
Our
Growth Strategy
In
order to achieve our objective of developing safe and effective applications to treat conditions associated with microbiome dysfunctions,
our near-term and long-term strategies include the following:
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Seek
regulatory guidance through an End of Phase 2 meeting with the FDA regarding our Phase 3 program;
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Conduct
all required pivotal studies of RP-G28 for the treatment of lactose intolerance;
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develop
and commercialize RP-G28 either by ourselves or in collaboration with others throughout the world;
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explore
the use of RP-G28 for additional potential therapeutic indications and orphan indications;
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establish
ourselves as a leader in developing therapeutics that modulate the human gut microbiome;
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continue
to develop a robust and defensible patent portfolio, including patents we own and those we plan to in-license in the future;
and
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continue
to optimize our product development and manufacturing capabilities both internally and through outside manufacturers.
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Risks
Relating to Our Business
We
are an early stage pharmaceutical company, and our business and ability to execute our business strategy are subject to a number
of risks of which you should be aware before you decide to invest in this offering. In particular, you should consider the risks
discussed in the “Risk Factors” section of this prospectus and documents incorporated by reference herein, including,
but not limited to, the following risks:
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We
have incurred net losses in each year since our inception. We expect to incur net losses and negative operating cash flow
for the foreseeable future, and may never achieve or maintain profitability.
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We
will require substantial additional funding to complete the development and commercialization of RP-G28 and to fund our operations
generally and such funding may not be available on acceptable terms or at all.
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We
are substantially dependent on the success of our only product candidate, RP-G28, which is under clinical development. We
cannot be certain that RP-G28 will receive regulatory approval or be successfully commercialized even if we receive regulatory
approval.
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If
we are unable to obtain the required regulatory and marketing approvals for, commercialize, obtain and maintain patent protection
for, or gain sufficient market acceptance by physicians, patients and healthcare payers of, RP-G28, or experience significant
delays in doing so, our business will be materially harmed and our ability to generate revenue will be materially impaired.
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RP-G28
will be subject to ongoing regulatory requirements and any violations of these requirements could negatively affect our business
and results of operation.
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Any
delay or disruption in the manufacture and supply of RP-G28 (including delays related to required regulatory approvals) may
negatively impact our operations.
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We
will be substantially dependent on third-party manufacturers to manufacture RP-G28 and its key ingredients in sufficient quantities
and on a timely basis, while complying with extensive FDA and European Medicines Agency, or EMA, requirements.
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We
may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
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If
we are unable to maintain valid and enforceable intellectual property rights or if our intellectual property rights are inadequate
for RP-G28, our competitive position could be harmed.
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We
could face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail
to compete effectively.
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Implications
of Being an Emerging Growth Company
We
qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As an emerging
growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally
to public companies. These provisions include:
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being
permitted to provide only two years of audited financial statements in addition to any required unaudited interim financial
statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” disclosure;
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reduced
disclosure obligations regarding executive compensation arrangements;
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not
being required to hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and
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exemption
from the auditor attestation requirement in the assessment of our internal control over financial reporting.
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We
have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1)
of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective
dates for public and private companies until those standards apply to private companies. As a result of this election, our financial
statements may not be comparable to companies that comply with public company effective dates.
We
will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth
anniversary of the date we completed our initial public offering, which was June 29, 2015, (b) in which we have total annual gross
revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value
of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, or (ii) the date on which
we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We may choose to take advantage
of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly,
the information contained herein may be different than the information you receive from other public companies in which you hold
stock.
We
refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the “JOBS Act,” and references in this
prospectus to “emerging growth company” have the meaning associated with that term as used in the JOBS Act.
Notwithstanding
the above, we are also currently a “smaller reporting company” meaning that we are not an investment company, an asset-backed
issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of
less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event
that we are still considered a smaller reporting company at such time as we cease to be an emerging growth company, the disclosure
we will be required to provide in our filings with the Securities and Exchange Commission, or SEC, will increase, but will still
be less than it would be if we were not considered either an emerging growth company or a smaller reporting company. Specifically,
similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures
in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, requiring
that independent registered public accounting firms provide an attestation report on the effectiveness of their internal control
over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other
things, only being required to provide two years of audited financial statements in their annual reports.
Corporate
Information
We
were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. On September
16, 2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc. Our principal executive offices
are located at 1880 Century Park East, #1000, Los Angeles, CA 90067, and our telephone number is (310) 203-1000. Our website address
is www.ritterpharmaceuticals.com. The information contained on, or that can be accessed through, our website is not part of this
prospectus.
We
previously marketed a product under the Lactagen trademark. This prospectus may contain references to our trademark and to trademarks
belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos,
artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate,
in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor
to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to
imply a relationship with, or endorsement or sponsorship of us by, any other company.
THE
OFFERING
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Class
A Units offered
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11,700,000 Class A Units with each Class
A Unit consisting of one share of our common stock and a warrant to purchase 0.5 of a share of our common stock at an exercise
price equal to 110% of the public offering price of the Class A Units. The Class A Units will not be certificated and the share
of common stock and warrant that are part of such unit will be immediately separable and will be issued separately in this offering.
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Class
B Units offered
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2,395
Class B Units are also being offered
to
those purchasers, if any, whose purchase of Class A Units in this offering would otherwise
result in the purchaser, together with its affiliates and certain related parties, beneficially
owning more than 4.99% of our outstanding common stock immediately following the consummation
of this offering. Each Class B Unit will consist of one share of our Series A Preferred,
with a stated value of $1,000 and convertible into shares of our common stock, at the
public offering price of the Class A Units, together with the equivalent number of warrants
as would have been issued to such purchaser if they had purchased Class A units based
on the public offering price. The Series A Preferred generally do not have any
voting rights but are convertible into shares of common stock. The Class B Units will
not be certificated and the shares of Series A Preferred and warrants that are part of
such unit are immediately separable and will be issued separately in this offering.
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Warrants
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Each
warrant included in the Units will have an exercise price equal to 110% of the public offering price of the Class A
Units, will be exercisable upon issuance, and will expire three years from the date of issuance.
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Over-allotment
option
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We have granted a 45-day option to the underwriters to purchase additional shares of common stock and/or additional
warrants to purchase shares of common stock, in amounts up to 15% of the common stock, warrants and/or common stock issuable upon
conversion of the Series A Preferred included in the Units sold in the offering, solely to cover over-allotments, if any.
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Common
stock to be outstanding immediately after this offering
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30,141,132
shares, including the conversion of the Series A Preferred. If the underwriters’ over-allotment option is exercised
in full, the total number of shares of our common stock outstanding immediately following the option exercise will
be 32,448,439 shares, including the conversion of the Series A Preferred. Excludes shares of common stock that may
be issued under the warrants to be issued in this offering.
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Series
A Convertible Preferred Stock
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The
Series A Preferred will be convertible into shares of our common stock (subject to adjustment as provided in the related certificate
of designation of preferences, rights and limitations) at any time at the option of the holder, at the public offering price
of the Class A Units. See “Description of Securities — Preferred Stock — Series A Convertible Preferred
Stock” for a discussion of the terms of the Series A Preferred.
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Use
of proceeds
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We
estimate that the net proceeds in this offering will be approximately $9.1 million,
or approximately $10.5 million if the underwriters exercise their over-allotment option
in full, at an assumed public offering price of $0.65 per Class A Unit and $1,000 per
Class B Unit, after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
We
anticipate that we will use the net proceeds from this offering for our operations and for other general corporate purposes,
including, but not limited to, our internal research and development programs and the development of new programs, and
general working capital. See “Use of Proceeds” on page 35.
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Risk
factors
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See
“Risk Factors” beginning on page
9
and the other information included in this prospectus for a discussion
of factors you should carefully consider before investing in our securities.
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NASDAQ
Capital Market symbol
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Our
common stock currently trades on The NASDAQ Capital Market under the symbol “RTTR”
There
is no established public trading market for the Warrants or Series A Preferred, and we
do not expect an active trading market to develop. We do not intend to list the warrants
or the Series A Preferred on any securities exchange or other trading market. Without
an active trading market, the liquidity of the warrants and the Series A Preferred will
be limited.
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The
number of shares of our common stock that will be outstanding immediately after this offering is based on 14,756,521 shares of
common stock outstanding as of July 14, 2017, assumes that only Class A Units will be sold in this offering, and excludes:
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2,559,924
shares of common stock issuable upon exercise of outstanding options as of July 14, 2017, at a weighted average exercise
price of $5.91 per share, of which 1,712,706 shares are vested as of such date;
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843,360
shares of common stock reserved for future issuance under the 2015 Equity Incentive Plan,
as amended, as of July 14, 2017; and
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578,323
shares of common stock issuable upon exercise of warrants outstanding as of July 14,
2017, at a weighted average exercise price of $8.45; and
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●
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shares
of our common stock issuable upon exercise of the warrants to be issued in this offering.
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The number
of shares of our common stock outstanding after this offering will fluctuate depending on how many Class B Units are sold in this
offering and whether and to what extent holders of Series A Preferred shares convert their shares to common stock.
To
the extent we sell any Class B Units in this offering, the same aggregate number of common stock equivalents resulting from this
offering would be convertible under the Series A Preferred issued as part of the Class B Units.
Except
as otherwise indicated herein, all information in this prospectus, including the number of shares that will be outstanding after
this offering, assumes no exercise by the underwriters of their over-allotment option.
SUMMARY
HISTORICAL FINANCIAL DATA
The
following table summarizes our selected financial data for the periods and as of the dates indicated. Our selected statements
of operations data for the years ended December 31, 2016 and 2015, respectively, and our selected balance sheet data as of December
31, 2016 and 2015, have been derived from our audited financial statements, which are incorporated by reference in this prospectus.
Our selected statements of operations data for each of the three month periods ended March 31, 2017 and 2016, and our selected
balance sheet data as of March 31, 2017, have been derived from our unaudited financial statements, which are incorporated by
reference in this prospectus. The interim unaudited financial statements have been prepared on the same basis as the annual audited
financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments,
necessary for a fair presentation of the information for the periods presented. Our financial statements are prepared and presented
in accordance with generally accepted accounting principles in the United States. Our historical results are not necessarily indicative
of the results to be expected for any future periods. Our selected financial data should be read together with the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial
statements and their related notes, which are incorporated by reference in this prospectus.
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Three
Months Ended March 31,
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Years
ended December 31,
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2017
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2016
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2016
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2015
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(Unaudited)
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Statement
of Operations Data:
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Operating
costs and expenses:
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Research
and development
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$
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432,154
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$
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1,882,848
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$
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13,292,488
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$
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2,260,297
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Patent
costs
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77,702
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32,364
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272,514
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243,463
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General
and administrative
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1,171,325
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1,235,018
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4,881,725
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6,404,643
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Total
operating expenses
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1,686,181
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3,150,230
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18,446,727
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8,908,403
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Loss
from operations
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(1,681,181
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)
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(3,150,230
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)
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(18,446,727
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)
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(8,908,403
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)
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Other
income (expense):
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|
|
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Interest
income
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7,946
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20,566
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60,879
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40,876
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Other
income
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-
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1,214
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1,214
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79,756
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Net
(loss)
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$
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(1,673,235
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)
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$
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(3,128,450
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)
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$
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(18,384,634
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)
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$
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(8,787,771
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)
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Net
loss per share, basic and diluted
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$
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(0.14
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)
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$
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(0.36
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)
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$
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(2.04
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$
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(3.11
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)
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Weighted
average shares outstanding, basic and diluted
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11,619,197
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8,583,259
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8,993,317
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2,946,792
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As
of
March
31, 2017
(Unaudited)
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Balance
Sheet Data:
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Cash
and cash equivalents
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$
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5,092,309
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Total
assets
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5,274,597
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Total
liabilities
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2,550,593
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Total
stockholders’ equity
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2,724,004
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RISK
FACTORS
Any
investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below and
all of the information contained or incorporated by reference in this prospectus before deciding whether to purchase our common
stock. Our business, financial condition or results of operations could be materially adversely affected by these risks if any
of them actually occur. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including
the risks we face as described below and elsewhere in this prospectus.
Risks
Relating to Our Financial Position and Need for Additional Capital
We
have incurred net losses in each year since our inception. Currently, we have no products approved for commercial sale. As a result,
our ability to reduce our losses and reach profitability is unknown, and we may never achieve or sustain profitability.
We
have incurred net losses in each year since our inception. Our financial statements have been prepared assuming that we will continue
as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal
course of business. For the three months ended March 31, 2017 and 2016, we had net losses of approximately $1.7 million and $3.1
million, respectively, and had net cash used in operating activities of approximately $2.0 million and $1.7 million, respectively.
For the years ended December 31, 2016 and 2015, we had net losses of approximately $18.4 million and $8.8 million, respectively,
and had net cash used in operating activities of approximately $15.2 million and $5.7 million, respectively. These net losses
and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.
To
date, we have devoted most of our financial resources to our corporate overhead and research and development, including our drug
discovery research, preclinical development activities and clinical trials. We currently have no products that are approved for
commercial sale. We expect to continue to incur net losses and negative operating cash flow for the foreseeable future, and we
expect these losses to increase as we continue our development of, and seek regulatory approvals for, RP-G28, prepare for and
begin the commercialization of RP-G28, and add infrastructure and personnel to support our product development efforts and operations
as a public company. We anticipate that any such losses could be significant for the next several years as we begin any Phase
3 clinical trials for RP-G28 and related activities required for regulatory approval of RP-G28. If RP-G28 does not gain regulatory
approval, or does not achieve market acceptance, we may never become profitable, unless we are able to develop and market some
other product. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’
equity and working capital.
Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses
could increase if we are required by the FDA or the EMA, to perform studies or trials in addition to those currently expected,
or if there are any delays in completing our clinical trials or the development of RP-G28, or any other product candidate we may
develop in the future. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and
our ability to generate revenues.
We
will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available,
may require us to delay, limit, reduce or cease our operations.
Developing
pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. To complete the work necessary
to file a NDA in the United States and a marketing authorization application, or MAA, in the European Union for RP-G28, which
is currently anticipated to occur in 2019, we estimate that our RP-G28 clinical trials, and our planned clinical trials and nonclinical
studies, as well as other work needed to submit RP-G28 for regulatory approval in the United States, Europe and other countries,
will cost approximately $85 million, including the internal resources needed to manage the program. If the FDA or EMA requires
that we perform additional nonclinical studies or clinical trials, our expenses would further increase beyond what we currently
expect and the anticipated timing of any potential NDA or MAA would likely be delayed.
We
will need to secure additional financing following this offering in order to complete clinical development of and commercialize
RP-G28, if approved, and generally fund our operations. We can provide no assurances that any additional sources of financing
will be available to us on favorable terms, if at all. If we are unable to obtain funding on a timely basis, we may be required
to significantly curtail our research and development program. We also could be required to seek funds through arrangements with
collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates
or otherwise agree to terms unfavorable to us.
We
may sell additional equity or debt securities to fund our operations, which would result in dilution to our stockholders and imposed
restrictions on our business.
We
may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding,
commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Additional funding may not be available to us on acceptable terms or at all. To the extent that we raise additional funds by issuing
equity securities (including any common stock issued to Aspire Capital Fund, LLC, or Aspire Capital, pursuant to our financing
arrangement with Aspire Capital), our stockholders may experience significant dilution. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Aspire Capital Financing Arrangement.” Any debt financing,
if available, may involve restrictive covenants that impact our ability to conduct business. If we are not able to raise additional
capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development
and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates 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 we would otherwise seek to develop or commercialize.
In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of
additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline.
Our
financial condition and operating results have varied significantly since our formation and are expected to continue to fluctuate
significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control.
Our
operations since 2010 have been limited to developing our technology and undertaking preclinical studies and clinical trials of
RP-G28. We have not yet obtained regulatory approvals for RP-G28, or any other product candidate. Consequently, any predictions
made about our future success or viability may not be as accurate as they could be if we had approved products on the market.
Our financial condition and operating results have varied significantly since our formation and are expected to continue to significantly
fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating
to our business that may contribute to these fluctuations include:
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any
delays in regulatory review and approval of our product candidates in clinical development,
including our ability to receive approval from the FDA and the EMA for RP-G28 based on
our Phase 2b/3 and any Phase 3 trials of RP-G28, and our other completed and planned
clinical trials and nonclinical studies and other work, as the basis for review and approval
of RP-G28;
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delays
in the commencement, enrollment and timing of clinical trials;
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difficulties
in identifying and treating patients suffering from our target indications;
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●
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the
success of our clinical trials through all phases of clinical development, including our Phase 2b/3 and any Phase 3 trials
of RP-G28;
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●
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potential
side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the
market;
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●
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our
ability to obtain additional funding to develop our product candidates;
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●
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our
ability to identify and develop additional product candidates;
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market
acceptance of our product candidates;
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●
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our
ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties;
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●
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competition
from existing products or new products that may emerge;
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●
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the
ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
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●
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our
ability to adhere to clinical study requirements directly or with third parties such as CROs;
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●
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our
dependency on third-party manufacturers to manufacture our products and key ingredients;
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●
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our
ability to establish or maintain collaborations, licensing or other arrangements;
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●
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the
costs to us, and our ability and our third-party collaborators’ ability to obtain, maintain and protect our intellectual
property rights;
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costs
related to and outcomes of potential intellectual property litigation;
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●
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our
ability to adequately support future growth;
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●
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our
ability to attract and retain key personnel to manage our business effectively; and
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●
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potential
product liability claims.
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Accordingly,
the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
Risks
Relating to Regulatory Review and Approval of Our Product Candidates
We
are substantially dependent on the success of RP-G28.
We
currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. We currently
invest nearly all of our efforts and financial resources in the research and development of RP-G28, which is currently our only
product candidate. Our business currently depends entirely on the successful development and commercialization of RP-G28.
We
cannot be certain that RP-G28 will receive regulatory approval, and without regulatory approval we will not be able to market
RP-G28.
The
development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the
FDA in the United States, the EMA in Europe, and regulatory authorities in other countries, with regulations differing from country
to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of
a NDA from the FDA or a Marking Authorization Application, or MAA, from the EMA, respectively. We have not submitted any marketing
applications for RP-G28.
NDAs
and MAAs must include extensive preclinical and clinical data and other supporting information to establish the product candidate’s
safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry,
manufacturing and controls for the product. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process,
and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval
is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing.
We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators of other jurisdictions,
such as the EMA, have their own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA,
as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product
labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities
in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must
comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country
does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections
of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory
requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different
interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of
new information regarding our product candidates or other products. Also, regulatory approval for any product candidate may be
withdrawn.
We
have completed one Phase 2a trial and an adaptive design Phase 2b/3 clinical trial for RP-G28 and intend to hold an End of Phase
2 meeting with the FDA by the end of 2017, which will be an important venue to understand the key elements and expectations the
FDA will have for any Phase 3 clinical trial in preparation of potentially obtaining commercial approval of the compound. We plan
to present and discuss many aspects of the Phase 2b/3 trial results, including the use of the Phase 2b/3 trial data as supportive
of registrational data necessary for approval of the compound. We also plan to present and discuss both the size of the clinical
program and the total patient exposure required for an NDA.
Regulatory
authorities in the United States and Europe have both published guidance documents on the use and implementation of adaptive design
trials. These documents include description of adaptive trials and include a requirement for prospectively written standard operating
procedures and working processes for executing adaptive trials and a recommendation that sponsor companies engage with CROs that
have the necessary experience in running such trials. In addition, the regulations governing INDs are extensive and involve numerous
notification requirements including that, generally, an IND supplement must be submitted to and cleared by the FDA before a sponsor
or an investigator may make any change to the investigational plan that may affect its scientific soundness or the rights, safety
or welfare of human subjects. We intend to comply with these requirements. We submitted an IND supplement containing amended protocols
for the Phase 2b/3 adaptive trial, and have had subsequent communications with FDA regarding our clinical program and regulatory
path towards getting our product adequately studied and eventually approved. We held a Type C meeting with the FDA in March 2017
and intend to hold an End of Phase 2 meeting by the end of 2017, which the FDA has granted. These meetings and communications
are typical for development stage companies and include the clinical pathway, regulatory requirements, statistical plan and endpoints
and similar matters. There can be no assurance that this trial and other trials will not be delayed or disrupted as a result of
our current development plan.
In
addition, guidelines adopted by the FDA and established by the International Conference on Harmonization of Technical Requirements
for Registration of Pharmaceuticals for Human Use (ICH) require nonclinical studies that specifically address female fertility
to be completed before the inclusion of women of child bearing potential in large-scale or long-duration clinical trials (e.g.,
Phase 3 trials). In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using
precautions to prevent pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue
to evaluate females of child-bearing potential who are willing to use appropriate contraception throughout the duration of any
study. We cannot predict whether our future trials and studies will be successful or whether regulators will agree with our conclusions
regarding the preclinical studies and clinical trials we have conducted to date.
If
we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for RP-G28, or if, subsequent to approval,
we are unable to successfully commercialize RP-G28, we will not be able to generate sufficient revenue to become profitable or
to continue our operations.
Any
statements in this document indicating that RP-G28 has demonstrated preliminary favorable or positive results are our own and
are not based on the FDA’s or any other comparable governmental agency’s assessment of RP-G28 and do not indicate
that RP-G28 will achieve favorable efficacy results in any later stage trials or that the FDA or any comparable agency will ultimately
determine that RP-G28 is effective for purposes of granting marketing approval.
The
FDA and other regulatory agencies outside the United States, such as the EMA, may not agree to our proposed endpoint for approval
of RP-G28 for the treatment of lactose intolerance in patients, in which case we would need to complete an additional clinical
trial in order to seek approval.
We
held a Type C Meeting with the FDA in March 2017 prior to the unblinding of our Phase 2b/3 data to discuss our development plans
and Phase 2b/3 clinical trial. The focus of the meeting was to gain feedback about our statistical analysis plan, or SAP, and
best position the SAP so that the trial could be considered a pivotal registration trial upon receipt of positive results. The
meeting with the FDA focused on best defining clinically meaningful benefits to patients suffering from lactose intolerance and
how to reflect these benefits in endpoints. We modified aspects of our SAP to address certain FDA recommendations, including our
primary endpoint to combine abdominal pain with relevant secondary endpoints to establish a composite score (abdominal pain, abdominal
cramping, abdominal bloating and abdominal gas).
We
do not know if the FDA, the EMA or regulatory authorities in other countries will agree with our final primary endpoint for approval
of RP-G28. The FDA, the EMA and regulatory authorities in other countries in which we may seek approval for and market RP-G28,
may require additional nonclinical studies and/or clinical trials prior to granting approval, if at all. It may be expensive and
time consuming to conduct and complete additional nonclinical studies and clinical trials that the EMA and other regulatory authorities
may require us to perform. As such, any requirement by the EMA or other regulatory authorities that we conduct additional nonclinical
studies or clinical trials could materially and adversely affect our business, financial condition and results of operations.
Furthermore, even if we receive regulatory approval of RP-G28 for the treatment of lactose intolerance in patients, the labeling
for RP-G28 in the United States, Europe or other countries in which we seek approval may include limitations that could impact
the commercial success of RP-G28.
The
results from our planned Phase 2b/3 trial with adaptive design may not be sufficiently robust to support the submission of marketing
approval for RP-G28.
We conducted our Phase
2b clinical trial as an adaptive Phase 2b/3 clinical trial. We did not meet with the FDA to discuss the Phase 2b/3 trial design
or the development plan for RP-G28 before initiating the Phase 2b/3 trial in March 2016. The FDA standard for traditional approval
of a drug generally requires two well-controlled pivotal clinical trials, which are typically Phase 3 trials. The FDA
may require us to conduct two or more additional clinical trials, possibly involving a larger sample size or a different clinical
trial design, or may require longer follow-up periods, particularly if the FDA does not find the results from our adaptive Phase
2b/3 clinical trial to be sufficiently persuasive. This would incur increased costs and delays in the marketing approval process
and require us to expend more resources than we have available.
Delays
in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our
ability to obtain regulatory approval for RP-G28 or our other product candidates we may develop in the future.
Delays
in the commencement, enrollment and completion of clinical trials could increase our product development costs or limit the regulatory
approval of RP-G28. The commencement, enrollment and completion of clinical trials may be delayed or suspended for a variety of
reasons, including:
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inability
to obtain sufficient funds required for a clinical trial;
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inability
to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
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clinical
holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval
to commence a clinical trial in countries that require such approvals;
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discussions
with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials;
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inability
to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial
programs, including some that may be for the same indications targeted by our product candidates;
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inability
to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;
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severe
or unexpected drug-related adverse effects experienced by patients;
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inability
to timely manufacture sufficient quantities of the product candidate required for a clinical trial;
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difficulty
recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment
criteria for our study and competition from other clinical trial programs for the same indications as our product candidates;
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the
FDA’s rejection of our end points as indicators of efficacy; and
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inability
to retain enrolled patients after a clinical trial is underway.
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Changes
in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols to reflect these changes
with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a clinical trial. In addition, a clinical trial may be suspended
or terminated at any time by us, our future collaborators, the FDA or other regulatory authorities due to a number of factors,
including:
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our
failure or the failure of our potential future collaborators to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols;
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unforeseen
safety issues or any determination that a clinical trial presents unacceptable health risks;
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lack
of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
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a
breach of the terms of any agreement with, or for any other reason by, future collaborators who have responsibility for the
clinical development of our product candidates.
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In
addition, if we or any of our potential future collaborators are required to conduct additional clinical trials or other nonclinical
studies of our product candidates beyond those contemplated, our ability to obtain regulatory approval of these product candidates
and to generate revenue from their sales would be similarly harmed.
Clinical
failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive
of future results and any product candidate we or our potential future collaborators advance through clinical trials may not have
favorable results in later clinical trials or receive regulatory approval.
Clinical
failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and
we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies.
In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret
our data as favorably as we do, which may delay, limit or prevent regulatory approval. For instance, due to inconsistent data
results from one study site from our Phase 2b/3 clinical trial, the data from this site was excluded from the primary analysis
population. Nevertheless, we believe that, based on the trial results, the successful completion of a confirmatory Phase 3 program
could be adequate to support a New Drug Application, or NDA, submission. Success in preclinical studies and early clinical trials
does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to
demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry, including those
with greater resources and experience than us, have suffered significant setbacks in Phase 2b and/or Phase 3 clinical trials,
including adaptive seamless clinical trials even after seeing promising results in earlier clinical trials.
In
addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the
design of a clinical trial may not become apparent until the clinical trial is well-advanced. We may be unable to design and execute
a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical
or feasible to continue development efforts.
If
RP-G28 is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would
be harmed. For example, if the results of our Phase 2b/3 and any Phase 3 trials of RP-G28 do not achieve the primary efficacy
endpoints or demonstrate expected safety, the prospects for approval of RP-G28 would be materially and adversely affected.
In
some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations,
adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not
know whether the clinical trials that we or any of our potential future collaborators may conduct will demonstrate the consistent
or adequate efficacy and safety that would be required to obtain regulatory approval and market RP-G28. Our adaptive Phase 2b/3
clinical trial for RP-G28 may not be deemed to be a pivotal trial by the FDA or may not provide sufficient support for NDA approval.
The
FDA may require us to conduct one or more additional clinical trials, possibly involving a larger sample size or a different clinical
trial design, or may require longer follow-up periods, particularly if the FDA does not find the results from our adaptive Phase
2b/3 clinical trial to be sufficiently persuasive. If we are unable to bring RP-G28 to market, our ability to create long-term
stockholder value will be limited.
RP-G28
may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require them to
be taken off the market, require them to include safety warnings or otherwise limit their sales.
Unforeseen
side effects from RP-G28, could arise either during clinical development or, if approved, after the approved product has been
marketed. The most common side effects observed in clinical trials of RP-G28 were headache (nine out of 57), nausea (three out
of 57), upper respiratory tract infection (two of 57), nasal congestion (two of 57), and pain (two out of 57). No patients were
withdrawn from our Phase 2b/3 clinical trial for these side effects.
Any
undesirable or unacceptable side effects associated with RP-G28 could interrupt, delay or halt clinical trials, and result in
delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.
In
addition:
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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we
may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or
change the labeling of the product;
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we
may be subject to limitations on how we may promote the product;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from
generating significant revenues from the sale of our products.
Reimbursement
decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement
for our products, it is less likely that they will be widely used.
Market
acceptance and sales of RP-G28, or any other product candidates we may develop in the future, if approved, will depend on reimbursement
policies and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish
payment levels. We cannot be certain that reimbursement will be available for RP-G28 or any other product candidates that we may
develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products.
If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize RP-G28,
or other product candidates that we develop.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the way Medicare
covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for
outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered
in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered
drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices
we might otherwise obtain in the United States. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries,
private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction
in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The
United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy
makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States,
the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. We expect to experience pricing pressures in connection with the sale of RP-G28, and any other product candidates
that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and
additional legislative proposals.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010,
or, collectively, the ACA, enacted in March 2010, is a sweeping law intended to broaden access to health insurance, reduce or
constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare
and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs
covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. Although it is
too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical pricing,
especially under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition, some members
of the U.S. Congress have been seeking to repeal in full or amend portions of the legislation and we expect they will continue
to review and assess this legislation and alternative health care reform proposals. Ongoing Congressional efforts to repeal or
amend the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.
If
we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent
terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for a limited
Patent Term Extension under the Drug Price Competition and Patent Term Restoration Act of 1984, which is sometimes referred to
as the Hatch-Waxman Act, provided our U.S. patent claims a method of treating lactose intolerance that is approved by the FDA.
The Hatch-Waxman Act, 35 U.S.C. §156, permits a patent extension of up to five years as compensation for patent term lost
during the FDA regulatory review process. The scope of protection afforded by the patent during the extended term is not commensurate
with the scope of the unextended portion of the patent; for example, the “rights derived” from a method of use patent
during the extended period are “limited to any use claimed by the patent and approved for the product.” 35 U.S.C.
§156(b)(2). We may not be granted an extension because of, for example, failing to apply for the extension within applicable
deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable statutory and/or
regulatory requirements including, for example, the requirement that the patent to be extended “claim” the approved
product or a method of using the approved product. Moreover, the applicable period of extension could be less than we request.
If we are unable to obtain patent term extension or if the term of any such extension is shorter than we request, the period during
which we will be able to exclude others from marketing their versions of our product will be shortened and our competitors may
obtain approval of generic products following our patent expiration, and our revenue could be reduced, possibly materially. Similar
concerns are associated with obtaining Supplemental Protection Certificates, or SPCs, of certain patents issued in Europe and
owned by Inalco, to which we have an exclusive options of assignment, based upon patent terms lost during European regulatory
review processes. In the event that we are unable to obtain any patent term extension, the issued patents for RP-G28 are expected
to expire in 2030, assuming they withstand any challenge toothier validity and/or patentability.
If
we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws,
we may be subject to civil or criminal penalties.
In
addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws,
commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices
in the pharmaceutical industry. Other jurisdictions such as Europe have similar laws. These laws include false claims and anti-kickback
statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business
activities could be subject to challenge under one or more of these laws.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare
program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers
on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most
states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to
items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative,
civil and criminal sanctions may be imposed under these federal and state laws.
Over
the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety
of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other
monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement
rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce
liability for Medicaid rebates.
Any
delay or disruption in the manufacture and supply of RP-G28 may negatively impact our operations.
We
do not intend to manufacture RP-G28. We have an agreement with RSM, our contract manufacturer, for the production of a higher
purity form of GOS, or Improved GOS, the active pharmaceutical ingredient in RP-G28, and the formulation of sufficient quantities
of Improved GOS for the clinical and nonclinical studies that we believe we will need to conduct prior to seeking regulatory approval
for RPG-28. However, we do not have agreements for commercial supplies of RP-G28 and we may not be able to reach agreement with
RSM or any other contract manufacturer for sufficient supplies to commercialize RP-G28 if it is approved.
Reliance
on third-party manufacturers entails risks, to which we would not be subject if we manufactured our products ourselves, including:
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the
possibility that we are unable to enter into manufacturing agreements with third parties to manufacture RP-G28;
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the
possible breach of manufacturing agreements by third parties because of factors beyond our control; and
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the
possible termination or nonrenewal of manufacturing agreements by third parties before we are able to arrange for qualified
replacement third-party manufacturers.
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Any
of these factors could cause the delay of approval or commercialization of RP-G28 cause us to incur higher costs or prevent us
from commercializing our products successfully. Furthermore, if RP-G28 is approved and contract manufacturers fail to deliver
the required commercial quantities of finished product on a timely basis and at commercially reasonable prices and we are unable
to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent
volumes and quality and on a timely basis, we would likely be unable to meet demand for our product and could lose potential revenue.
It may take several years to establish an alternative source of supply for RP-G28 and to have any such new source approved by
the government agencies that regulate our products. In the event we do need to identify alternative manufacturing partners, we
may have to secure licenses to manufacturing and/or purification technologies, including third-party patent licenses, to allow
us to manufacture RP-G28 that is suitable for the late-stage regulatory review process and/or adequate to manufacture commercial
quantities of RP-G28.
If
the FDA and EMA and other regulatory agencies do not approve the manufacturing facilities of our contract manufacturers for commercial
production, we may not be able to commercialize RP-G28.
The
facilities used by any contract manufacturer to manufacture RP-G28 must be the subject of a satisfactory inspection before the
FDA or the regulators in other jurisdictions approve the product candidate manufactured at that facility. We are completely dependent
on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of
our finished products. If our manufacturers cannot successfully manufacture material that conform to our specifications and current
good manufacturing practice requirements of any governmental agency whose jurisdiction to which we are subject, our product candidates
will not be approved or, if already approved, may be subject to recalls.
Even
if RP-G28 receives regulatory approval, we may still face future development and regulatory difficulties.
RP-G28,
and any other product candidates we develop in the future, if approved, will be subject to ongoing regulatory requirements for
labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information.
In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and
EMA requirements and requirements of other similar agencies, including ensuring that quality control and manufacturing procedures
conform to current Good Manufacturing Practices, or cGMPs. As such, we and our contract manufacturers will be subject to continual
review and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to
expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
We will also be required to report certain adverse reactions and production problems, if any, to the FDA and EMA and other similar
agencies and to comply with certain requirements concerning advertising and promotion for our products. Promotional communications
with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the
information in the product’s approved label. Accordingly, we may not promote our approved products, if any, for indications
or uses for which they are not approved.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market.
If RP-G28 fails to comply with applicable regulatory requirements, a regulatory agency may:
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issue
warning letters;
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mandate
modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require
us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include imposition
of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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impose
other administrative or judicial civil or criminal penalties;
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withdraw
regulatory approval;
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refuse
to approve pending applications or supplements to approved applications filed by us or our potential future collaborators;
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impose
restrictions on operations, including costly new manufacturing requirements; or
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detain,
seize and/or condemn and destroy products.
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Risks
Relating to the Potential Commercialization of RP-G28
Even
if approved, RP-G28 may not achieve broad market acceptance among physicians, patients and healthcare payors, and as a result
our revenues generated from its sales may be limited.
The
commercial success of RP-G28, if approved, will depend upon its acceptance among the medical community, including physicians,
health care payors and patients. The degree of market acceptance of RP-G28 will depend on a number of factors, including:
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limitations
or warnings contained in our product candidates’ FDA-approved labeling;
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changes
in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for
such product candidates;
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limitations
in the approved clinical indications for RP-G28;
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demonstrated
clinical safety and efficacy compared to other products;
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lack
of significant adverse side effects;
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sales,
marketing and distribution support;
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availability
of reimbursement from managed care plans and other third-party payors;
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timing
of market introduction and perceived effectiveness of competitive products;
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the
degree of cost-effectiveness;
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availability
of alternative therapies at similar or lower cost, including generics and over-the-counter products;
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enforcement
by the FDA and EMA of laws and rulings that prohibit the illegal sale of RP-G28 as a dietary supplement;
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the
extent to which RP-G28 is approved for inclusion on formularies of hospitals and managed care organizations;
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whether
RP-G28 is designated under physician treatment guidelines for the treatment of or reduction of symptoms associated with the
indications for which we have received regulatory approval;
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adverse
publicity about RP-G28 or favorable publicity about competitive products;
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convenience
and ease of administration of RP-G28; and
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potential
product liability claims.
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If
RP-G28 is approved, but does not achieve an adequate level of acceptance by physicians, patients, the medical community and healthcare
payors, sufficient revenue may not be generated from its sales and we may not become or remain profitable. In addition, efforts
to educate the medical community and third-party payors on the benefits of RP-G28 may require significant resources and may never
be successful.
We
have no internal sales, distribution and/or marketing capabilities at this time and we will have to invest significant resources
to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.
We
have no internal sales, distribution and/or marketing capabilities at this time. To develop these capabilities, we will have to
invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that
RP-G28 will be approved. We could also face a number of additional risks, including:
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we
or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;
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the
cost of securing or establishing a marketing or sales force may exceed the revenues generated by RP-G28; and
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our
direct sales and marketing efforts may not be successful.
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We
may have limited or no control over the sales, marketing and distribution activities of third parties. Our future revenues could
depend heavily on the success of the efforts of third parties.
We
may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely
affect our ability to develop RP-G28 or other product candidates and our financial condition and operating results.
Because
developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities
and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more experience.
Additionally, if RP-G28 receives marketing approval, we may enter into sales and marketing arrangements with third parties with
respect to our unlicensed territories. If we are unable to enter into arrangements on acceptable terms, we may be unable to effectively
market and sell RP-G28 in our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration
arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to
maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements
for the development of RP-G28.
When
we collaborate with a third party for the development and commercialization of RP-G28, we can expect to relinquish some or all
of the control over the future success of that product candidate to the third party. For example, we may relinquish the rights
to RP-G28 in jurisdictions outside of the United States. Our collaboration partner may not devote sufficient resources to the
commercialization of RP-G28 or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement
that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development
and commercialization of RP-G28. In some cases, we may be responsible for continuing preclinical and initial clinical development
of RP-G28 or research program under a collaboration arrangement, and the payment we receive from our collaboration partner may
be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators, we would
face increased costs, we may be forced to limit the territories in which we commercialize RP-G28. If we fail to achieve successful
collaborations, our operating results and financial condition will be materially and adversely affected.
Risks
Relating to Our Business and Strategy
We
may face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to
compete effectively.
Although
we know of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid and significant technological change. We have potential competitors
in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology
companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of these
potential competitors have greater financial and other resources, such as larger research and development staff and more experienced
marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical
testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have
significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading
companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and
development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete.
As a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval
or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome based development
companies: Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix Inc. In addition, many
universities and private and public research institutes may become active in our target disease areas. These potential competitors
may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective
or less costly than RP-G28, which could render RP-G28 obsolete and noncompetitive.
We
believe that our ability to successfully compete will depend on, among other things:
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the
results of our and our potential strategic collaborators’ clinical trials and preclinical studies;
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our
ability to recruit and enroll patients for our clinical trials;
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the
efficacy, safety and reliability of RP-G28;
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the
speed at which we develop RP-G28;
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our
ability to design and successfully execute appropriate clinical trials;
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our
ability to maintain a good relationship with regulatory authorities;
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our
ability to get FDA approval of our end points;
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the
timing and scope of regulatory approvals, if any;
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our
ability to commercialize and market RP-G28;
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the
price of RP-G28;
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adequate
levels of reimbursement under private and governmental health insurance plans, including Medicare;
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our
ability to protect intellectual property rights related to RP-G28;
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our
ability to manufacture and sell commercial quantities of RP-G28 to the market; and
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acceptance
of RP-G28 by physicians and other health care providers.
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If
our competitors market products that are more effective, safer or less expensive than RP-G28, or that reach the market sooner
than RP-G28, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological
change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes
in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological
advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive
or not economical.
We
depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively
as if we performed these functions ourselves.
We
outsource substantial portions of our operations to third-party service providers, including the conduct of preclinical studies
and clinical trials, collection and analysis of data, and manufacturing. Our agreements with third-party service providers and
contract research organizations, or CROs, are on a study-by-study and project-by-project basis. Typically, we may terminate the
agreements with notice and are responsible for the supplier’s previously incurred costs. In addition, any CRO that we retain
will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the United States
and Europe and we do not have control over compliance with these regulations by these providers. Consequently, if these providers
do not adhere to applicable governing practices and standards, the development and commercialization of our product candidates
could be delayed or stopped, which could severely harm our business and financial condition.
Because
we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing
these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner
or may fail to perform at all. Although we have not experienced any significant difficulties with our third-party contractors,
it is possible that we could experience difficulties in the future. In addition, the use of third-party service providers requires
us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
There are a limited number of third-party service providers that specialize or have the expertise required to achieve our business
objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming
and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources
we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully
manage the performance of third-party service providers in the future, our business may be adversely affected, and we may be subject
to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.
We
may enter into agreements with other third parties for the development and commercialization of RP-G28, or other product candidates
we develop in the future, in international markets. International business relationships subject us to additional risks that may
materially adversely affect our ability to attain or sustain profitable operations, including:
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differing
regulatory requirements for drug approvals internationally;
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potentially
reduced protection for intellectual property rights;
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potential
third-party patent rights in the United States and/or in countries outside of the United States;
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the
potential for so-called “parallel importing,” which is what occurs when a local seller, faced with relatively
high local prices, opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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economic
weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several
countries in Europe;
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compliance
with tax, employment, immigration and labor laws for employees traveling abroad;
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taxes
in other countries;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident
to doing business in another country;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business
interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes,
volcanoes, typhoons, floods, hurricanes and fires.
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We
will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As
we advance RP-G28 through clinical trials to commercialization, and increase the number of ongoing product development programs,
we will need to increase our product development, scientific and administrative headcount to manage these programs. In addition,
to continue to meet our obligations as a public company, we will need to increase our general and administrative capabilities.
Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively
manage our operations, growth and various projects requires that we:
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successfully
attract and recruit new employees or consultants with the expertise and experience we will require;
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manage
our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop
a marketing and sales infrastructure; and
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continue
to improve our operational, financial and management controls, reporting systems and procedures.
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If
we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
We
may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We
may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the
intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are
not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints
that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our
ability to implement our business strategy.
We
are highly dependent on the development, regulatory, commercialization and business development expertise of Michael D. Step,
our Chief Executive Officer, Andrew J. Ritter, our Founder and President, and Ira E. Ritter, our Executive Chairman and Chief
Strategic Officer. If we were to lose one or more of these key employees, our ability to implement our business strategy successfully
could be seriously harmed. Any of our executive officers may terminate their employment at any time. Replacing any of these persons
would be difficult and could take an extended period of time because of the limited number of individuals in our industry with
the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
There
is also a risk that other obligations could distract our officers and employees from our business, which could have negative impact
on our ability to effectuate our business plans.
In
addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and
clinical strategies. Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors
are not our employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their
availability to us, and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between
their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements
with other companies to assist those companies in developing products or technologies that may compete with ours.
If
we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately
report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and,
as a result, the value of our common stock.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
controls and procedures. We are required, under Section 404 of the Sarbanes-Oxley Act, to furnish with our annual report on Form
10-K a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment
must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting
that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will
not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from
our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However,
for as long as we remain an emerging growth company, as defined in the JOBS Act, we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies including,
but not limited to, not being required to comply with the independent registered public accounting firm’s requirement to
attest to the effectiveness of our internal controls over financial reporting.
Our
compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts. We
may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and
testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable
to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material
weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain
internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results
of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or
if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal
control over financial reporting once that firm begin its Section 404 reviews, we could lose investor confidence in the accuracy
and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions
or investigations by the NASDAQ stock market, the SEC, or other regulatory authorities. Failure to remedy any material weakness
in our internal control over financial reporting, or to implement or maintain other effective control systems required of public
companies, could also restrict our future access to the capital markets.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our
disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports
we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or
internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control
system, misstatements or insufficient disclosure due to error or fraud may occur and not be detected.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements
and insider trading, which could significantly harm our business.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply
with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately
or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry
are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive
practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper
use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our
reputation. We have adopted an employee handbook, but it is not always possible to identify and deter employee misconduct, and
the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or
losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with
these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines
or other sanctions.
We
face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability
for a product candidate and may have to limit its commercialization.
The
use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose
us to the risk of product liability claims. Product liability claims may be brought against us or our potential future collaborators
by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our
products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial programs;
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costs
of related litigation;
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substantial
monetary awards to patients or other claimants;
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decreased
demand for our product candidates and loss of revenues;
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impairment
of our business reputation;
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diversion
of management and scientific resources from our business operations; and
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the
inability to commercialize our product candidates.
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We
have product liability insurance coverage in the United States and in selected other jurisdictions where we intend to conduct
clinical trials at levels we believe are sufficient and consistent with industry standards for companies at our stage of development.
However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may
suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand
our insurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product
candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products
approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side
effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance
coverage, could decrease our cash resources and adversely affect our business.
Our
insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured
liabilities.
We
do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain
include general liability ($2.0 million coverage), employment practices liability, workers’ compensation, and directors’
and officers’ insurance at levels we believe are typical for a company in our industry and at our stage of development.
We currently carry clinical trial liability insurance for our Phase 2b/3 clinical trials at levels we believe are sufficient and
consistent with industry standards for companies at our stage of development. We do not know, however, if we will be able to maintain
insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which
would adversely affect our financial position and results of operations.
If
we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect
our business operations or our stockholders.
From
time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further
the expansion and development of our business. These initiatives may include acquiring businesses, technologies or products or
entering into a business combination with another company. If we pursue such a strategy, we could, among other things:
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issue
equity securities that would dilute our current stockholders’ percentage ownership;
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incur
substantial debt that may place strains on our operations;
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spend
substantial operational, financial and management resources to integrate new businesses, technologies and products;
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assume
substantial actual or contingent liabilities;
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reprioritize
our development programs and even cease development and commercialization of our product candidates; or
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merge
with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or
shares of the other company on terms that certain of our stockholders may not deem desirable.
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Although
we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have no agreements
or understandings with respect to any acquisition, reorganization or business combination at this time.
Risks
Relating to Our Intellectual Property
It
is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position
does not adequately protect our product candidates, others could compete against us more directly, which would harm our business,
possibly materially.
Our
commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving
and enforcing current trade secret protection. In particular, it will depend in part on our ability to obtain, maintain and enforce
patents, especially those directed to methods of using our current product, RP-G28, and other future drug candidates, and those
directed to the methods used to develop and manufacture our products, as well as successfully defending these patents against
third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products
depends on the extent to which we have rights under valid and enforceable patents (and/or trade secrets) that cover these activities.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted
to us in the future will withstand subsequent challenges to their validity, enforceability, and/or patentability, or if they will
be commercially useful in protecting our product candidates, discovery programs and processes. Furthermore, we cannot be sure
that our existing patents and patent applications will embrace (or “claim”) the particular uses for RP-G28 that may
be approved by the FDA.
The
patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved.
No
consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged,
to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they
substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of any claims that will issue or will be enforceable
in the patents that have or may be issued from the patents and applications we currently own or may in the future own or license
from third parties. Further, if any patents we obtain, or to which we obtain licenses, are deemed invalid, unpatentable and unenforceable,
our ability to commercialize or license our technology could be adversely affected.
In
the future others may file patent applications directed to products, uses for products, and manufacturing techniques and related
technologies that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent
or patent application owned by a third party will not have priority over patent applications filed or in-licensed by us in the
future, or that we or our licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings
before U.S. or non-U.S. patent offices or courts.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage.
For
example:
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others
may be able to develop a platform similar to, or better than, ours in a way that does
not infringe our patents;
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others
may be able to make compounds that are similar to our product candidates but that do
not infringe our patents;
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others
may be able to manufacture compounds that are similar or identical to our product candidates using processes that do not infringe
our method of making patents;
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others
may obtain regulatory approval for uses of compounds, similar or identical to our product,
that do not infringe our pharmaceutical composition patents or our method of use patents;
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we
may not be able to obtain licenses for patents that are essential to the process of making the product;
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we
might not have been the first to make the inventions claimed in our issued patents and
pending patent applications;
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we
might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies;
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any
patents that we obtain may not provide us with any competitive advantages;
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we
may not develop additional proprietary technologies that are patentable; or
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the
patents of others may have an adverse effect on our business.
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Patents
directed to pharmaceutical compositions containing RP-G28 or methods of using RP-G28 expire in 2030 if the appropriate maintenance
fee renewal, annuity, or other government fees are paid, unless a patent term extension based on regulatory delay is obtained.
We expect that expiration in 2030 of some of our pharmaceutical composition and method-of-use patents directed to RP-G28 and its
use for treating lactose intolerance will have a limited impact on our ability to protect our intellectual property in the United
States, where we have additional issued patents directed to such compositions and uses that extend until 2030. In other countries,
our issued patents and pending patent applications directed to compositions containing RP-G28 or methods of using RP-G28 for treating
other indications, if issued, would expire in 2030. We will attempt to mitigate the effect of patent expiration by seeking data
exclusivity, or the foreign equivalent thereof, in conjunction with product approval, as well as by filing additional patent applications
directed to improvements in our intellectual property.
We
expect that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity
or other governmental fees are paid, would expire in 2030. We own pending applications in the United States, Europe, and certain
other countries directed to uses of RP-G28 to treat a variety of disorders, including lactose intolerance. Patent protection,
to the extent these patents issue, would be expected to extend to 2030, unless a patent term extension based on regulatory delay
is obtained.
Due
to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not
obtain patents directed to all of our product candidates or methods involving these candidates in the parent patent application.
We plan to pursue divisional patent applications or continuation patent applications in the United States and other countries
to obtain claims directed to inventions that were disclosed but not claimed in the parent patent application.
We
also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate
or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets,
our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes
less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our
patents are not directed to RP-G28 as a composition of matter.
Although
we own certain patents and patent applications with claims directed to specific pharmaceutical compositions and methods of using
RP-G28 to treat lactose intolerance, we do not have patents directed to RP-G28 as a composition of matter in the United States
or elsewhere. As a result, we may be limited in our ability to list our patents in the FDA’s Orange Book if our product
or the use of our product, consistent with its FDA-approved label, would not fall within the scope of our patent claims. Also,
our competitors may be able to offer and sell products so long as these competitors do not infringe any other patents that we
(or third parties) hold, including patents with claims directed to the manufacture of RP-G28, pharmaceutical compositions containing
RP-G28 and/or method of using RP-G28. In general, pharmaceutical composition patents and method of use patents are more difficult
to enforce than composition of matter patents because, for example, of the risks that FDA may approve alternative uses of the
subject compounds not covered by the method of use patents, and others may engage in off-label sale or use of the subject compounds.
Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although
off-label prescriptions may infringe our method of use patents, the practice is common across medical specialties and such infringement
is difficult to prevent or prosecute. FDA approval of uses that are not covered by our patents would limit our ability to generate
revenue from the sale of RP-G28, if approved for commercial sale. Off-label sales would limit our ability to generate revenue
from the sale of RP-G28, if approved for commercial sale.
We
may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property
rights.
If
we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual or
company may seek a post grant review (including inter partes review) of our patents, and has the right to ask the court to rule
that such patents are invalid or should not be enforced against that third party. These lawsuits and administrative proceedings
are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we
were successful in stopping the infringement of such patents. In addition, there is a risk that the court or administrative body
will decide that such patents are not valid or unpatentable and that we do not have the right to stop the other party from using
the inventions. There is also the risk that, even if the validity/patentability of such patents is upheld, the court will refuse
to stop the other party on the ground that such other party’s activities do not infringe our patents. In addition, the U.S.
Supreme Court and the Court of Appeals for the Federal Circuit have articulated and/or modified certain tests used by the U.S.
Patent and Trademark Office, or USPTO, in assessing patentability and by the courts in assessing validity and claim scope, which
may decrease the likelihood that we will be able to obtain patents and increase the likelihood that others may succeed in challenging
any patents we obtain or license.
We
may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our product candidates.
Our
success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee
that our products, our methods of manufacture, or our uses of RP-G28 (or our other product candidates), will not infringe third-party
patents. Furthermore, a third party may claim that we or our manufacturing or commercialization collaborators are using inventions
covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities,
including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert
the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization
collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered
by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need
to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators
to pay the other party damages for having violated the other party’s patents. In the future, we may agree to indemnify our
commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical
and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including
us, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation
by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, the patentee would need to
demonstrate, by a preponderance of the evidence that our products or methods infringe the patent claims of the relevant patent,
and we would need to demonstrate either that we do not infringe or, by clear and convincing evidence, that the patent claims are
invalid; we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if
we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing
these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of
others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity
or enforceability of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources
to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing
technology, otherwise fail to defend an infringement action successfully, or have a court hold that any patent we infringe is
invalid or unenforceable, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates
to market and we may be precluded from manufacturing or selling our product candidates.
We
cannot be certain that others have not filed patent applications for technology claimed in our pending applications, or that we
were the first to invent the technology, because:
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some
patent applications in the United States may be maintained in secrecy until the patents are issued;
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patent
applications in the United States are typically not published until at least 18 months after the earliest asserted priority
date; and
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publications
in the scientific literature often lag behind actual discoveries.
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Our
competitors may have filed, and may in the future file, patent applications directed to technology similar to ours. Any such patent
application may have priority over our patent applications, which could further require us to obtain rights to issued patents
directed to such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have
to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The
costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to
us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss
of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications,
and other parties may be entitled to priority over our applications in such jurisdictions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Obtaining
and maintaining our patent portfolio depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patents could be deemed abandoned or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and/or applications. We employ an outside firm to pay fees due to non-U.S. patent agencies, and this outside firm
has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S. governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process.
We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured
by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would
have a material adverse effect on our business.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees,
or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation
could result in substantial costs and be a distraction to management.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees,
consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other
proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently
considering whether to make additional information publicly available on a routine basis, including information that we may consider
to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies
may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
Failure
to secure trademark registrations could adversely affect our business.
We
have not developed a trademark for our RP-G28 product. Hence, we do not currently own any actual or potential trademark rights
associated with our RP-G28 product. If we seek to register additional trademarks, including trademarks associated with our RP-G28
product, our trademark applications may not be allowed for registration or our registered trademarks may not be maintained or
enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond
to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many
other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such
proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against
third parties than we otherwise would.
Risks
Relating to Our Common Stock
An
active trading market for our common stock may not develop or be sustained.
Prior
to our initial public offering, there was no public market for our common stock. Since our initial public offering in June 2015,
there has been, and we expect that there will continue to be, only a limited volume of trading in our common stock. An active
trading market in our common stock may not develop or, if developed, may not be sustained. The lack of an active market may impair
your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital
to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using
our shares as consideration.
Our
share price may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell
your shares at or above your purchase price.
The
market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this
section, and others beyond our control, including:
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results
of our clinical trials;
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results
of clinical trials of our competitors’ products;
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regulatory
actions with respect to our products or our competitors’ products;
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actual
or anticipated fluctuations in our financial condition and operating results;
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actual
or anticipated changes in our growth rate relative to our competitors;
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actual
or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;
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competition
from existing products or new products that may emerge;
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announcements
by us, our potential future collaborators or our competitors of significant acquisitions, strategic collaborations, joint
ventures, or capital commitments;
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issuance
of new or updated research or reports by securities analysts;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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inconsistent
trading volume levels of our shares;
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additions
or departures of key management or scientific personnel;
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disputes
or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our technologies;
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announcement
or expectation of additional financing efforts;
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sales
of our common stock by us, our insiders or our other stockholders;
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market
conditions for biopharmaceutical stocks in general; and
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general
economic and market conditions.
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Furthermore,
the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market
prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market
conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market
price of shares of our common stock. In addition, such fluctuations could subject us to securities class action litigation, which
could result in substantial costs and divert our management’s attention from other business concerns, which could seriously
harm our business.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
share price and trading volume could decline.
The
trading market for our common stock will depend on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide
favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our
share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
There
is no active, public market for the warrants or Series A Preferred being offered in this offering.
There
is no established public trading market for the warrants or the Series A Preferred being offered in this offering. We do not intend
to apply to list the warrants or the Series A Preferred on a securities exchange. Without an active trading market, the liquidity
of the warrants and the Series A Preferred will be limited.
Holders
of Series A Preferred will have limited voting rights.
Except
with respect to certain material changes in the terms of the Series A Preferred and certain other matters and except as may be
required by Delaware law, holders of Series A Preferred will have no voting rights. You will have no right to vote for any members
of our board of directors.
Holders
of the warrants will not have rights of common stockholders until such Warrants are exercised.
The
warrants being offered do not confer any rights of common stock ownership on their holders, such as voting rights or the right
to receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price for a limited period
of time. Specifically, commencing on the date of issuance, holders of the warrants may exercise their right to acquire the common
stock and pay the exercise price of prior to three years from the date of issuance, after which date any unexercised
warrants will expire and have no further value.
Future
sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline,
even if our business is doing well.
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could occur in the future. These
sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could
reduce the market price of our common stock.
We
may sell up to $6.5 million of our shares of common stock to Aspire Capital pursuant to financing arrangement with Aspire Capital.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Aspire Capital Financing
Arrangement.” The sale of a substantial number of shares of our common stock by Aspire Capital, or anticipation of such
sales, could cause the trading price of our common stock to decline or make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise desire. However, we have the right to control the timing
and amount of sales of our shares to Aspire Capital, and we may terminate the financing arrangement at any time at our discretion
without any penalty or cost to us.
Exercise
of options or warrants or conversion of convertible securities may have a dilutive effect on your percentage ownership and may
result in a dilution of your voting power and an increase in the number of shares of common stock eligible for future resale in
the public market, which may negatively impact the trading price of our shares of common stock.
The
exercise or conversion of some or all of our outstanding options, warrants, or convertible securities could result in significant
dilution in the percentage ownership interest of investors in this offering and in the percentage ownership interest of our existing
common stockholders and in a significant dilution of voting rights and earnings per share.
As
of July 14, 2017, we had outstanding warrants to purchase up to 578,323 shares of our common stock at a weighted exercise
price of $8.45 per share.
Additionally,
the issuance of up to 2,559,924 shares of our common stock upon exercise of stock options outstanding under our stock incentive
plans will further dilute our stockholders’ voting interests. To the extent options and/or warrants and/or conversion rights
are exercised (including with respect to the warrants and any Series A Preferred issued in this offering), additional shares of
common stock will be issued, and such issuance will dilute stockholders.
We
may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing securities that would dilute
your ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively
impact the trading price of our shares of common stock.
We
have financed our operations, and we expect to continue to finance our operations, acquisitions, if any, and the development of
strategic relationships by issuing equity and/or convertible securities, which could significantly reduce the percentage ownership
of our existing stockholders. Further, any additional financing that we secure, including any debt financing, may require the
granting of rights, preferences or privileges senior to, or
pari passu
with, those of our common stock. Any issuances by
us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive
impact on your ownership interest, which could cause the market price of our common stock to decline. We may also raise additional
funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our shares of common
stock. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders.
If we experience dilution from the issuance of additional securities and we grant superior rights to new securities over common
stockholders, it may negatively impact the trading price of our shares of common stock and you may lose all or part of your investment.
Our
executive officers, directors and principal stockholders maintain the ability to exert substantial influence over all matters
submitted to stockholders for approval.
Our
executive officers, directors and principal stockholders beneficially own shares representing approximately 30.3% of our outstanding
capital stock. As a result, if these stockholders were to choose to act together, they would be able to exert substantial influence
over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons,
if they choose to act together, would exert substantial influence over the election of directors and approval of any merger, consolidation
or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of
our Company on terms that other stockholders may desire.
We
are an “emerging growth company” and avail ourselves of reduced disclosure requirements applicable to emerging growth
companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely
on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may be more volatile.
We
may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain
an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary
of the date we completed our initial public offering, which was June 29, 2015, (b) in which we have total annual gross revenue
of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our
common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30
th
, or (ii) the date on
which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Our
failure to meet the continued listing requirements of NASDAQ could result in a de-listing of our common stock.
If
we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum
closing bid price requirement, NASDAQ may take steps to de-list our common stock. Such a de-listing would likely have a negative
effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do
so. In the event of a de-listing, we would take actions to restore our compliance with NASDAQ’s listing requirements, but
we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid
price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
On
June 7, 2017, we received a notice from NASDAQ that, because the closing bid price of our common stock has been below $1.00 per
share for 30 consecutive business days, it no longer complies with the minimum bid price requirement for continued listing on
The NASDAQ Capital Market. NASDAQ Listing Rule 550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per
share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency
continues for a period of 30 consecutive business days.
The
Notice has no immediate effect on the listing of our common stock on The Nasdaq Capital Market. Pursuant to Nasdaq Marketplace
Rule 5810(c)(3)(A), we have been provided an initial compliance period of 180 calendar days, or until December 4, 2017, to regain
compliance with the minimum bid price requirement. During the compliance period, our shares of common stock will continue to be
listed and traded on The Nasdaq Capital Market. To regain compliance, the closing bid price of our common stock must meet or exceed
$1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period.
In
the event we are not in compliance with the minimum bid price requirement by December 4, 2017, we may be afforded a second 180
calendar day grace period. To qualify, we would be required to meet the continued listing requirements for market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the minimum bid price
requirement. In addition, we would be required to provide written notice of our intention to cure the minimum bid price deficiency
during this second 180 day compliance period by effecting a reverse stock split, if necessary.
We
intend to actively monitor the bid price for our common stock between now and December 4, 2017 and will consider available options
to regain compliance with the minimum bid price requirement.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent
a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions
in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition,
because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate
or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders
to replace members of our board of directors. Among other things, these provisions provide that:
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the
authorized number of directors can be changed only by resolution of our board of directors;
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our
bylaws may be amended or repealed by our board of directors or our stockholders;
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stockholders
may not call special meetings of the stockholders or fill vacancies on the board of directors;
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our
board of directors is authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined
at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the
stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
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our
stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common
stock outstanding will be able to elect all of our directors; and
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our
stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder
meeting.
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Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, or the DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining
with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against
us and may reduce the amount of money available to us.
As
permitted by Section 102(b)(7) of the DGCL, our amended and restated certificate of incorporation limits the liability of our
directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our amended and restated
certificate of incorporation and our amended and restated bylaws provide that we shall indemnify, to the fullest extent authorized
by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer
of our company or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. Our amended and restated certificate of incorporation provides that the
right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition,
provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director
or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification.
If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification,
except in the case of a claim for an advancement of expenses, in which case such period is 20 days, our restated certificate of
incorporation and our restated bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense
to such action.
Section
145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted
in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful.
In a derivative action, (
i.e.
, one brought by or on behalf of the corporation), indemnification may be provided only for
expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action
or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to
be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine
that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
The
rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized
to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify
such persons. We have entered into indemnification agreements with each of our officers and directors.
The
above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers
for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us.
Although we plan to increase the coverage under our directors’ and officers’ liability insurance, certain liabilities
or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts
may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations,
which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to
bring a claim against our company.
We
have never paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future, and accordingly,
stockholders must rely on stock appreciation for any return on their investment.
We
have never paid dividends on our common stock and we do not anticipate paying dividends on our common stock for the foreseeable
future. Accordingly, any return on an investment in our common stock will be realized, if at all, only when stockholders sell
their shares. In addition, our failure to pay dividends may make our stock less attractive to investors, adversely impacting trading
volume and price.
We
have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our
management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes
described in the section of this prospectus entitled “Use of Proceeds.” The failure by our management to apply these
funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As
of December 31, 2016, we had federal net operating loss carryforwards, or NOLs, of approximately $26.7 million which begin to
expire in 2028. Our ability to utilize our NOLs may be limited under Section 382 and 383 of the Internal Revenue Code. The limitations
apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders
increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period
(typically three years). Although we have not undergone a Section 382 analysis, it is possible that the utilization of the NOLs,
could be substantially limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against
future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes.
Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This
prospectus and the documents incorporated by reference in this prospectus contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act. All statements
other than statements of historical facts contained or incorporated by reference in this prospectus, including statements regarding
our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management
and expected market growth are forward-looking statements. These statements involve known and unknown risks, uncertainties and
other important factors that may cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements.
The
words ‘anticipate,’ ‘believe,’ ‘could,’ ‘estimate,’ ‘expect,’ ‘intend,’
‘may,’ ‘plan,’ ‘potential,’ ‘predict,’ ‘project,’ ‘should,’
‘target,’ ‘will,’ ‘would’ and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include,
among other things, statements about:
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our
ability to obtain additional financing;
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the
accuracy of our estimates regarding expenses, future revenues and capital requirements;
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the
success and timing of our preclinical studies and clinical trials;
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our
ability to obtain and maintain regulatory approval of RP-G28 and any other product candidates we may develop, and the labeling
under any approval we may obtain;
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regulatory
developments in the United States and other countries;
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the
performance of third-party manufacturers;
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our
plans to develop and commercialize our product candidates;
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our
ability to obtain and maintain intellectual property protection for our product candidates;
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the
successful development of our sales and marketing capabilities;
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the
potential markets for our product candidates and our ability to serve those markets;
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the
rate and degree of market acceptance of any future products;
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the
success of competing drugs that are or become available; and
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the
loss of key scientific or management personnel.
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These
forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed
in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual results or
events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends
that we believe may affect our business, financial condition and operating results. We have included important factors in the
cautionary statements included in this prospectus, and in the documents incorporated by reference, particularly in the ‘Risk
Factors’ section, that could cause actual future results or events to differ materially from the forward-looking statements
that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make.
The
forward-looking statements included in this prospectus, and documents incorporated by reference in this prospectus, represent
our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change.
However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention
of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements
as representing our views as of any date subsequent to the date of this prospectus.
This
prospectus contains estimates made, and other statistical data published, by independent parties and by us relating to market
size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research
as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number
of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we
operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions
and estimates.
USE
OF PROCEEDS
We estimate that the
net proceeds from sale of Units offered by us will be approximately $9.1 million, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, and assuming a public offering price of $0.65 per Class A Unit and
$1,000 per Class B Unit. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $10.5 million, after deducting underwriting discounts and commissions and estimated offering expenses payable
by us, and assuming a public offering price of $0.65 per Class A Unit and $1,000 per Class B Unit.
We
anticipate that we will use the net proceeds from this offering for our operations and for other general corporate purposes, including,
but not limited to, our internal research and development programs and the development of new programs, and general working capital.
This
expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation
investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior
to our initial public offering, no public trades occurred in our common stock. Since June 24, 2015, our common stock has been
listed on The NASDAQ Capital Market. The following table sets forth, for the periods indicated, our high and low sales prices
on The NASDAQ Capital Market.
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High
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Low
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2017
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First Quarter
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$
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3.75
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$
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1.29
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Second Quarter
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$
|
1.46
|
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$
|
0.52
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Third Quarter (through July 14, 2017)
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$
|
0.75
|
|
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$
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0.52
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|
|
|
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|
|
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2016
|
|
|
|
|
|
|
|
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First Quarter
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|
$
|
1.79
|
|
|
$
|
0.98
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|
Second Quarter
|
|
$
|
1.89
|
|
|
$
|
1.10
|
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Third Quarter
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|
$
|
2.47
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$
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1.20
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Fourth Quarter
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$
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3.26
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$
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1.62
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|
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|
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2015
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|
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|
|
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Second Quarter (beginning June 24, 2015)
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|
$
|
7.06
|
|
|
$
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4.56
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Third Quarter
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$
|
5.48
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$
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1.90
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Fourth Quarter
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$
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4.70
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$
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1.69
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Holders
As
of June 30, 2017, we had approximately 39 registered holders of record of our common stock. A substantially greater number of
holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers,
other financial institutions, and registered clearing agencies.
Dividend
Policy
We
do not anticipate paying dividends on our common stock. We currently intend to retain all of our future earnings, as applicable,
to finance the growth and development of our business. We are not subject to any legal restrictions respecting the payment of
dividends, except that we may not pay dividends if the payment would render us insolvent. Any future determination as to the payment
of cash dividends on our common stock will be at our board of directors’ discretion and will depend on our financial condition,
operating results, capital requirements and other factors that our board of directors considers to be relevant.
CAPITALIZATION
The
following table sets forth our cash and cash equivalents and capitalization, as of March 31, 2017:
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on
an actual basis; and
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on
an as adjusted basis after giving effect to the sale of 11,700,000 Class A Units, at the assumed public offering
price of $0.65 per Class A Unit and 2,395 Class B Units, at the public offering price of $1,000 per Class B Unit, after deducting
underwriting discounts and commissions and other estimated offering expenses payable by us.
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You
should consider this table in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included elsewhere in this prospectus and our financial statements and
unaudited as adjusted financial information and related notes thereto, which are incorporated by reference in this prospectus.
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As of March 31, 2017
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(unaudited)
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Actual
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As Adjusted
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Cash and cash equivalents
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$
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5,092,309
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$
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14,184,309
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Total Liabilities
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$
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2,550,593
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$
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2,550,593
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Total stockholders’ equity:
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Preferred stock, $0.001 par value; 5,000,000 shares authorized, 0 shares issued and outstanding, actual; 5,000,000 shares authorized, 0 shares issued and outstanding, as adjusted.
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—
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—
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Common Stock, $0.001 par value, 25,000,000 shares authorized, 11,619,197
shares issued and outstanding, actual; 25,000,000 shares authorized, 27,003,808 shares issued and outstanding, as adjusted.
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11,619
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27,004
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Additional paid in capital
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49,853,196
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|
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58,929,811
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|
Accumulated deficit
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|
|
(47,140,811
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)
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|
|
(47,140,811
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)
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Total stockholders’ equity
|
|
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2,724,004
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|
|
|
11,816,004
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Total capitalization
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$
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5,274,597
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$
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14,366,597
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The
number of shares of our common stock that will be outstanding immediately after this offering is based on 11,619,197 shares of
common stock outstanding as of March 31, 2017, and excludes:
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2,564,924
shares of common stock issuable upon exercise of outstanding options as of March 31, 2017, at a weighted average exercise
price of $5.90 per share, of which 1,612,603 shares are vested as of such date;
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●
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360
shares of common stock reserved for future issuance under the 2015 Equity Incentive Plan, as amended, as of March 31, 2017;
and
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●
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578,323
shares of common stock issuable upon exercise of warrants outstanding as of March 31, 2017, at a weighted average exercise
price of $8.45; and
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●
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shares
of our common stock issuable upon exercise of the warrants to be issued in this offering.
|
The number of shares
of our common stock outstanding after this offering will fluctuate depending on how many Class B Units are sold in this offering
and whether and to what extent holders of Series A Preferred shares convert their shares to common stock.
To
the extent we sell any Class B Units in this offering, the same aggregate number of common stock equivalents resulting from this
offering would be convertible under the Series A Preferred issued as part of the Class B Units.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read together with our financial statements and the related note, which are incorporated
by reference in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that
involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and
assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed
in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and
elsewhere in this prospectus.
Special
Note Regarding Forward-Looking Statements and Industry Data
This
prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements
of historical facts contained in this prospectus, including statements regarding our strategy, future operations, future financial
position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking
statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,”
“should,” “target,” “will,” “would” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain these identifying words. These statements involve
known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Some
of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
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our
ability to obtain additional financing;
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the
accuracy of our estimates regarding expenses, future revenues and capital requirements;
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●
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the
success and timing of our preclinical studies and clinical trials;
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●
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our
ability to obtain and maintain regulatory approval of RP-G28 and any other product candidates we may develop, and the labeling
under any approval we may obtain;
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●
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regulatory
developments in the United States and other countries;
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the
performance of third-party manufacturers;
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●
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our
ability to develop and commercialize our product candidates;
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our
ability to obtain and maintain intellectual property protection for our product candidates;
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the
successful development of our sales and marketing capabilities;
|
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●
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the
potential markets for our product candidates and our ability to serve those markets;
|
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●
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the
rate and degree of market acceptance of our products, if approved;
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●
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the
success of competing drugs that are or become available; and
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●
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the
loss of key scientific or management personnel.
|
By
their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics,
and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the
future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each
forward-looking statement contained in this prospectus, we caution you that forward-looking statements are not guarantees of future
performance and that our actual results of operations, financial condition and liquidity, and the development of the industry
in which we operate may differ materially from the forward-looking statements contained in this prospectus. In addition, even
if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent
with the forward-looking statements contained in this prospectus, they may not be predictive of results or developments in future
periods.
Any
forward-looking statement that we make in this prospectus speaks only as of the date of such statement, and we undertake no obligation
to update such statements to reflect events or circumstances after the date of this prospectus. You should also read carefully
the factors described in the “Risk Factors” section of this prospectus to better understand the risks and uncertainties
inherent in our business and underlying any forward-looking statements.
This
prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys
and studies conducted by third-parties. Industry publications and third-party research, surveys and studies generally indicate
that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or
completeness of such information. While we believe these industry publications and third-party research, surveys and studies are
reliable, we have not independently verified such data.
Overview
Ritter
Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases.
We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality
of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health. We completed
a Phase 2a clinical trial of our leading product candidate, RP-G28, an orally administered, high purity oligosaccharide at the
end of 2011. We initiated a Phase 2b/3 clinical trial of RP-G28 in March 2016 and completed enrollment in August 2016. In October
2016, the last patient completed dosing and all monitoring visits in our Phase 2b/3 clinical trial of RP-G28 for the treatment
of lactose intolerance.
Topline
results of our Phase 2b/3 clinical trial were announced in March 2017. Results showed a clinically meaningful benefit to subjects
in the reduction of lactose intolerance symptoms across a variety of outcome measures. The majority of analyses showed positive
outcome measures and the robustness of the data point to a clear drug effect. Treatment patients not only reported meaningful
reduced symptoms, but also 30-days after taking the treatment, patients reported adequate relief from lactose intolerance symptoms
and satisfaction with the results of the treatment, with RP-G28 preventing or treating their lactose intolerance symptoms. Greater
milk and dairy product consumption was also reported by patients.
Due
to inconsistent data results from one study site, the data from this site was excluded from the primary analysis population. The
Company is continuing to examine the data results from this one anomalous study site. Nevertheless, we believe that, based on
the trial results, the successful completion of a confirmatory Phase 3 program could be adequate to support a NDA submission.
We have requested an End of Phase 2 meeting by the end of 2017, which the FDA has granted. The FDA may require us to conduct two
or more additional clinical trials, possibly involving a larger sample size or a different clinical trial design, or may require
longer follow-up periods, particularly if the FDA does not find the results from our adaptive Phase 2b/3 clinical trial to be
sufficiently persuasive.
A
subset of subjects from our Phase 2b/3 clinical trial have been rolled into a 12-month extension study to evaluate long-term durability
of treatment. The study is also evaluating each participant’s microbiome, expanding our knowledge of the effects that RP-G28
may have on adapting the gut microbiota in a beneficial manner. The subjects are expected to complete the 12-month evaluation
during the fourth quarter of 2017.
We
have devoted substantially all of our resources to development efforts relating to RP-G28, including conducting clinical trials
of RP-G28, providing general and administrative support for these operations and protecting our intellectual property. We currently
do not have any products approved for sale and we have not generated any revenue from product sales since our inception. Prior
to our initial public offering in June 2015, we funded our operations primarily through the private placement of preferred stock,
common stock and promissory notes.
We
have incurred net losses in each year since our inception, including net losses of approximately $1.7 million for the three months
ended March 31, 2017. We had an accumulated deficit of approximately $47.1 million as of March 31, 2017. Substantially all of
our net losses resulted from costs incurred in connection with our research and development programs, patent costs, stock-based
compensation, and from general and administrative costs associated with our operations.
Financial
Overview
Revenue
We
have not generated any revenue since our inception. Our ability to generate revenue in the future will depend almost entirely
on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize RP-G28 in the United
States. In the event we choose to pursue a partnering arrangement to commercialize RP-G28 or other products outside the United
States, we would expect to initiate additional research and development and clinical trial activities in the future.
Research
and Development Expenses
Since
our inception, we have focused our resources on our research and development activities, including conducting nonclinical studies
and clinical trials, manufacturing development efforts and activities related to regulatory filings for RP-G28. Our research and
development expenses consist primarily of:
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●
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fees
paid to consultants and CROs, including in connection with our nonclinical and clinical trials, and other related clinical
trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical
trial material management and statistical compilation and analysis;
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●
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costs
related to acquiring and manufacturing clinical trial materials;
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●
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depreciation
of equipment, computers and furniture and fixtures;
|
|
|
|
|
●
|
costs
related to compliance with regulatory requirements; and
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|
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|
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●
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overhead
expenses for personnel in research and development functions.
|
From
inception through March 31, 2017, we have incurred approximately $20.2 million in research and development expenses. We plan to
increase our research and development expenses for the foreseeable future as we continue the development of RP-G28 for the treatment
of lactose intolerance in patients and other indications, subject to the availability of additional funding.
The
successful development of RP-G28 is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs
of the efforts that will be necessary to complete the remainder of the development of RP-G28 or when, if ever, net cash inflows
from RP-G28 may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the
uncertainty of:
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●
|
the
scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development
activities;
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|
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future
clinical trial results; and
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|
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●
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the
timing and receipt of any regulatory approvals.
|
For
example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently
anticipate will be required for the completion of the clinical development of RP-G28 or if we experience significant delays in
enrollment in our clinical trials, we could be required to expend significant additional financial resources and time on the completion
of clinical development.
Patent
Costs
Patent
costs consist primarily of professional fees for legal services to prosecute patents and maintain patent rights.
General
and Administrative Expenses
General
and administrative expenses include allocation of facilities costs, salaries, benefits, and stock-based compensation for employees,
professional fees for directors, fees for independent contractors and accounting and legal services.
We
expect that our general and administrative expenses will increase as we continue to operate as a public company and will increase
further if RP-G28 is approved for commercialization. We believe that these increases will likely include increased costs for director
and officer liability insurance, and increased fees for outside consultants, lawyers and accountants, among other expenses.
Interest
Income
Interest
income consists of interest earned on our cash.
Critical
Accounting Policies and Estimates
This
discussion and analysis is based on our financial statements, which have been prepared in accordance with GAAP. The preparation
of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis,
we evaluate our estimates and judgments, including those related to fair value of financial instruments, research and development
costs, accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events
and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. There have been no material changes in our significant
accounting policies as compared with the significant accounting policies described in our Annual Report on Form 10-K for the year
ended December 31, 2016.
While
our significant accounting policies are more fully described in Note 3 to our financial statements for the year ended December
31, 2016, which are incorporated by reference in this prospectus, we believe that the following accounting policies are the most
critical to aid you in fully understanding and evaluating our financial condition and results of operations.
Fair
Value of Financial Instruments
Fair
value measurement guidelines are prescribed by GAAP to value financial instruments. The guidance includes a definition of fair
value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair
value and expands disclosures about the use of fair value measurements.
The
valuation techniques utilized are based upon observable and unobservable inputs. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect internal market assumptions. Assets are classified in their entirety
based on the lowest level of input that is significant to the fair value measurement.
These
two types of inputs create the following fair value hierarchy:
Level
1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access
at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such
as exchange-traded instruments and listed equities.
Level
2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models
consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial
instruments. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or
are supported by observable levels at which transactions are executed in the marketplace.
Level
3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values
are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption
or input is unobservable.
The
carrying amounts reported in the balance sheet for cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses,
approximate the fair values due to the short-term nature of the instruments.
Research
and Development Costs
We
expense the cost of research and development as incurred. Research and development expenses comprise costs incurred in performing
research and development activities, including clinical study costs, contracted services, and other external costs. Nonrefundable
advance payments for goods and services that will be used in future research and development activities are expensed when the
activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730,
Research
and Development
.
Accrued
Expenses
As
part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves
reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service
performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual
cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones
are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make
adjustments if necessary. The significant estimates in our accrued research and development expenses include fees due to service
providers.
We
base our expenses on our estimates of the services received and efforts expended pursuant to quotes and contracts with our service
providers that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation,
vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors
will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service
fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period.
If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status
and timing of services performed relative to the actual status and timing of services performed may vary and could result in us
reporting amounts that are too high or too low in any particular period.
Stock-based
Compensation
Stock-based
compensation cost for equity awards granted to employees and nonemployees is measured at the grant date based on the calculated
fair value of the award using the Black-Scholes option-pricing model, and is recognized as an expense, under the straight-line
method, over the requisite service period (generally the vesting period of the equity grant). If we determine that other methods
are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated
for our stock options could change significantly. Higher volatility and longer expected lives would result in an increase to stock-based
compensation expense to non-employees determined at the date of grant.
In
addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the
stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expected volatility, expected
terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis.
Emerging
Growth Company Status
On
April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can
take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new
or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period
for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay
the adoption of new or revised accounting standards that have different effective dates for public and private companies until
those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies
that comply with public company effective dates.
Subject
to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of
these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal
controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement
that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing
additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain
an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the
date we completed our initial public offering, which was June 29, 2015, (b) in which we have total annual gross revenue of at
least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common
stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, or (ii) the date on which we have issued
more than $1.0 billion in non-convertible debt during the prior three-year period.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2017 and 2016
The
following table summarizes our results of operations for the three months ended March 31, 2017 and 2016, together with the changes
in those items in dollars and as a percentage:
|
|
For
the Three Months Ended March 31,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
432,154
|
|
|
$
|
1,882,848
|
|
|
$
|
(1,450,694
|
)
|
|
|
(77
|
%)
|
Patent
costs
|
|
|
77,702
|
|
|
|
32,364
|
|
|
|
45,338
|
|
|
|
140
|
%
|
General
and administrative
|
|
|
1,171,325
|
|
|
|
1,235,018
|
|
|
|
(63,693
|
)
|
|
|
(5
|
%)
|
Total
operating costs and expenses
|
|
|
1,681,181
|
|
|
|
3,150,230
|
|
|
|
(1,469,049
|
)
|
|
|
(47
|
%)
|
Loss
from operations
|
|
|
(1,681,181
|
)
|
|
|
(3,150,230
|
)
|
|
|
1,469,049
|
|
|
|
47
|
%
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
7,946
|
|
|
|
20,566
|
|
|
|
(12,620
|
)
|
|
|
(61
|
%)
|
Other
income
|
|
|
―
|
|
|
|
1,214
|
|
|
|
(1,214
|
)
|
|
|
(100
|
%)
|
Total
other income
|
|
|
7,946
|
|
|
|
21,780
|
|
|
|
(13,834
|
)
|
|
|
(64
|
%)
|
Net
loss
|
|
$
|
(1,673,235
|
)
|
|
$
|
(3,128,450
|
)
|
|
$
|
(1,455,215
|
)
|
|
|
47
|
%
|
Research
and Development Expenses
Research
and development expenses decreased by approximately $1.5 million, or 77%, during the three months ended March 31, 2017 as compared
to the three months ended March 31, 2016. The primary reason for this decrease is that our Phase 2b/3 clinical trial, which was
initiated in March 2016, was completed during the fourth quarter of 2016. Research and development expenses during the three months
ended March 31, 2017 primarily reflect extension study costs and continued Phase 2b/3 analysis costs.
Patent
Costs
The
approximate $45,000, or 140%, increase in patent costs during the three months ended March 31, 2017 as compared to the same period
in 2016 was mainly due to certain costs related to our maintenance of patent rights and the prosecution of patents for an increased
number of patents, the new patent applications and our preparation to file national phase applications in certain foreign countries.
During the three months ended March 31, 2017, three new patents were successfully issued.
General
and Administrative Expenses
General
and administrative expenses decreased slightly by approximately $64,000, or 5%, during the three months ended March 31, 2017 as
compared to the three months ended March 31, 2016, primarily due to lower stock-based compensation expense. Approximately $294,000
in stock-based compensation expense was recognized during the three months ended March 31, 2017 as compared to approximately $378,000
during the same period in 2016.
Other
Income
Other
income decreased by approximately $14,000, or 64%, during the three months ended March 31, 2017 as compared to the three months
ended March 31, 2016, due to lower interest income.
Comparison
of the years ended December 31, 2016 and 2015
The
following table summarizes the results of our operations for the years ended December 31, 2016 and 2015, together with the changes
in those items in dollars and as a percentage:
|
|
For
the Years Ended
December 31,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
Change
|
|
Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
13,292,488
|
|
|
$
|
2,260,297
|
|
|
$
|
11,032,191
|
|
|
|
488
|
%
|
Patent
costs
|
|
|
272,514
|
|
|
|
243,463
|
|
|
|
29,051
|
|
|
|
12
|
%
|
General
and administrative
|
|
|
4,881,725
|
|
|
|
6,404,643
|
|
|
|
(1,522,918
|
)
|
|
|
(24
|
)%
|
Total
operating costs and expenses
|
|
|
18,446,727
|
|
|
|
8,908,403
|
|
|
|
9,538,324
|
|
|
|
107
|
%
|
Loss
from operations
|
|
|
(18,446,727
|
)
|
|
|
(8,908,403
|
)
|
|
|
(9,538,324
|
)
|
|
|
107
|
%
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
60,879
|
|
|
|
40,876
|
|
|
|
20,003
|
|
|
|
49
|
%
|
Other
income
|
|
|
1,214
|
|
|
|
79,756
|
|
|
|
(78,542
|
)
|
|
|
(98
|
)%
|
Total
other income
|
|
|
62,093
|
|
|
|
120,632
|
|
|
|
(58,539
|
)
|
|
|
(49
|
)%
|
Net
loss
|
|
$
|
(18,384,634
|
)
|
|
$
|
(8,787,771
|
)
|
|
$
|
(9,596,863
|
)
|
|
|
109
|
%
|
Research
and Development Expenses
Research
and development expenses increased by approximately $11.0 million, or 488%, for the year ended December 31, 2016 as compared to
the year ended December 31, 2015. The majority of the increase was due to costs incurred in connection with our Phase 2b/3 clinical
trial that was initiated in March 2016. An increase of approximately $11.1 million was attributable to fees paid to our third-party
CRO as part of our Phase 2b/3 clinical trial, offset by approximately $0.3 lower manufacturing costs and approximately $0.5 lower
pre-trial research fees. The remaining $0.6 million increase was the result of higher consulting fees and new costs incurred for
the onset of a 12-month extension study to evaluate the long-term durability of treatment. There was no clinical trial during
the 2015 year.
Patent
Costs
Patent
costs were approximately $273,000 and $243,000 for the years ended December 31, 2016 and 2015, respectively, representing an increase
of approximately $29,000, or 12%. The increase was primarily due to overall timing of certain costs related to our maintenance
of patent rights, our prosecution of patents for an increased number of patents and our application for the issuance of patents
as well as our preparation to file national phase applications in certain foreign countries. During 2016, three patents were issued
- U.S. Patent Nos. 9,200,303, 9,226,933 and 9,370,532.
General
and Administrative Expenses
General
and administrative expenses decreased by approximately $1.5 million, or 24%, for the year ended December 31, 2016 as compared
to the year ended December 31, 2015. The decrease in general and administrative expenses was mainly due to a decrease in stock-based
compensation expense of approximately $1.5 million. The increase in cost of being a public company for the full year 2016 was
offset by lower expenses as a result of cost containment practices.
Other
Income
Interest
income increased by approximately $20,000, or 49%, during the year ended December 31, 2016 as compared to the year ended December
31, 2015, due to the longer period interest earned on cash balances from the net proceeds of our initial public offering. Other
income decreased by approximately $79,000, or 98%, during year ended December 31, 2016 as compared to the same 2015 period, as
gains on the settlement of accounts payable during the year ended December 31, 2015 were not realized during the same 2016 period.
Liquidity
and Capital Resources
Since
our inception, we have incurred net losses and negative cash flows from operations and, as of March 31, 2017, we had an accumulated
deficit of approximately $47.1 million. Substantially all of our net losses resulted from costs incurred in connection with our
research and development programs, stock-based compensation, and from general and administrative costs associated with our operations.
At
March 31, 2017, we had working capital of approximately $2.7 million, and cash of approximately $5.1 million. We have not generated
any product revenues and have not achieved profitable operations.
Cash
Flows
The
following table sets forth the significant sources and uses of cash for the periods set forth below:
|
|
For
the Three Months Ended
March 31,
|
|
|
For
the Years Ended
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
|
2015
|
|
Net
cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(1,953,973
|
)
|
|
$
|
(1,725,723
|
)
|
|
$
|
(15,208,718
|
)
|
|
$
|
(5,721,565
|
)
|
Investing
activities
|
|
|
—
|
|
|
|
(7,432
|
)
|
|
|
(8,063
|
)
|
|
|
(16,999
|
)
|
Financing
activities
|
|
|
—
|
|
|
|
2,130
|
|
|
|
6,443,497
|
|
|
|
18,810,882
|
|
Net
decrease in cash
|
|
$
|
(1,953,973
|
)
|
|
$
|
(1,731,025
|
)
|
|
$
|
(8,773,284
|
)
|
|
$
|
13,072,318
|
|
Operating
Activities
Net
cash used in operating activities of approximately $2.0 million during the three months ended March 31, 2017 primarily reflects
our net loss of approximately $1.7 million and a decrease in accounts payable and accrued expenses of approximately $262,000 and
$322,000, respectively, partially offset by stock-based compensation of approximately $294,000.
Net
cash used in operating activities of approximately $1.7 million during the three months March 31, 2016 was mainly due to our net
loss of approximately $3.1 million and an approximate decrease in accrued expenses of $410,000, partially offset by stock-based
compensation of approximately $378,000 and an approximate increase in accounts payable of $1.4 million.
Net
cash used in operating activities was approximately $15.2 million during the year ended December 31, 2016 compared to $5.7 million
during the year ended December 31, 2015. The increase in cash used in operating activities was driven by the initiation of our
Phase 2b/3 clinical trial in March 2016. Patient enrollment was completed in August 2016 and the last patient was dosed in October
2016. A total of 377 patients enrolled at 18 clinical sites throughout the United States. There was no clinical trial during 2015.
Investing
Activities
Net
cash used in investing activities of approximately $7,000 during the three months ended March 31, 2016 was related to the purchase
of office furniture and equipment.
Net
cash used in investing activities of was approximately $8,000 during the year ended December 31, 2016 compared to approximately
$17,000 for the year ended December 31, 2015 due to the reduction in purchases of property and equipment.
Financing
Activities
Net
cash provided by financing activities of approximately $2,000 during the three months ended March 31, 2016 represents proceeds
received from the exercise of options for common stock.
Net
cash provided by financing activities was approximately $6.4 million during the year ended December 31, 2016 compared to $18.8
million during the year ended December 31, 2015. As described below, during the 2015 year, we received proceeds from our initial
public offering whereas we did not have the same level of financing activities during the 2016, resulting in the decrease.
Net
cash provided by financing activities of approximately $6.4 million during the year ended December 31, 2016 was due to net proceeds
from the October 2016 follow-on offering of approximately $4.4 million and issuance of shares to Aspire Capital under the Aspire
Purchase Agreement of approximately $2.0 million. Net cash provided by financing activities of approximately $18.8 million during
the year ended December 31, 2015 was attributable to the net proceeds of approximately $17.4 million received upon closing of
our initial public offering, selling 4,000,000 shares of our common stock. Additionally, proceeds of $1.0 million were received
in connection with the sale of shares of our common stock to Aspire Capital pursuant to the Aspire Purchase Agreement.
Sources
of Liquidity
Aspire
Capital Financing Arrangement
On
December 18, 2015, we entered into a common stock purchase agreement, or the 2015 Aspire Purchase Agreement, with Aspire Capital,
LLC, an Illinois limited liability company, or Aspire Capital, pursuant to which Aspire Capital was committed to purchase up to
an aggregate of $10.0 million of our shares of common stock over the approximately 30-month term of the 2015 Aspire Purchase Agreement.
In consideration for entering into the 2015 Aspire Purchase Agreement, concurrently with the execution of the 2015 Aspire Purchase
Agreement, we issued to Aspire Capital 188,864 shares of our common stock as a commitment fee, or the 2015 Commitment Shares.
Upon execution of the 2015 Aspire Purchase Agreement, we sold 500,000 shares of common stock to Aspire Capital at $2.00 per share
for proceeds of $1.0 million. On December 8, 2016, we sold an additional 888,835 shares of our common stock to Aspire Capital
at $2.28 per share for proceeds of $2.0 million. As of March 31, 2017, we had issued an aggregate of 1,577,699 shares of our common
stock to Aspire Capital for aggregate proceeds of approximately $3.0 million. From March 31, 2017 through May 1, 2017, we sold
an aggregate of 3,000,000 shares of our common stock to Aspire Capital for approximate proceeds of $2.0 million.
On
May 4, 2017, we terminated the 2015 Aspire Purchase Agreement and entered into a new common stock purchase agreement, or the 2017
Aspire Purchase Agreement, with Aspire Capital, which provides that upon the terms and conditions set forth therein (which terms
and conditions are substantially similar to those provided in the 2015 Aspire Purchase Agreement), Aspire Capital is committed
to purchase up to an aggregate of $6.5 million of shares of our common stock over the 30-month term of the 2017 Aspire Purchase
Agreement. As a condition to the 2017 Aspire Purchase Agreement, we issued $97,500 in aggregate value of shares of common stock
to Aspire Capital as a commitment fee, or the 2017 Commitment Shares. Concurrently with entering into the 2017 Aspire Purchase
Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration
statements, as permissible and necessary to register under the Securities Act, the sale of shares of our common stock that may
be issued to Aspire Capital under the 2017 Aspire Purchase Agreement (including the 2017 Commitment Shares). As of the date of
this prospectus, no shares of common stock have been sold to Aspire Capital under the 2017 Aspire Purchase Agreement.
We
expect to use the Aspire facility to complement, rather than replace, other financing that may be required during the next twelve
months to continue our operations and support our capital needs.
October
2016 Public Offering
On
October 31, 2016, we closed a public offering of 2,127,660 shares of our common stock at a price to the public of $2.35 per share,
for net proceeds of approximately $4.4 million, after deducting underwriting discounts and commissions and offering expenses payable
by us in the offering. The offering was made pursuant to a shelf registration statement on Form S-3 (Registration Number 333-213087).
Future
Funding Requirements
To
date, we have not generated any revenue. We do not know when, or if, we will generate any revenue from product sales. We do not
expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize
RP-G28. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly
as we continue the research, development and clinical trials of, and seek regulatory approval for, RP-G28. Additionally, we have
incurred and will continue to incur additional costs associated with operating as a public company. In addition, subject to obtaining
regulatory approval of any of RP-G28, we expect to incur significant commercialization expenses for product sales, marketing,
manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing
operations.
Based
upon our current operating plan, we believe that our existing cash and cash equivalents, together with interest and any proceeds
received from our sale of shares of common stock to Aspire Capital in the future pursuant to the Aspire Purchase Agreement, will
enable us to fund our operating expenses and capital expenditure requirements through 2017. We intend to devote our existing financial
resources to fund the continued clinical development of RP-G28, including completion of our extension study and Phase 3 program
development activities; to fund expenses associated with the manufacture and product development of RP-G28; to explore potential
orphan indications; and for general corporate purposes, general and administrative expenses, capital expenditures, working capital
and prosecution and maintenance of our intellectual property.
Our
future capital requirements will depend on many factors, including:
|
●
|
the
ability of RP-G28 to progress through clinical development successfully;
|
|
|
|
|
●
|
the
outcome, costs and timing of seeking and obtaining FDA approval;
|
|
|
|
|
●
|
the
willingness of the EMA or other regulatory agencies outside the United States to accept our Phase 2b/3 and any Phase 3 trials
of RP-G28, as well as our other completed and planned clinical and nonclinical studies and other work, as the basis for review
and approval of RP-G28 in the European Union for the treatment of lactose intolerance in patients;
|
|
|
|
|
●
|
our
need to expand our research and development activities;
|
|
|
|
|
●
|
the
costs associated with securing and establishing commercialization and manufacturing capabilities;
|
|
|
|
|
●
|
market
acceptance of RP-G28;
|
|
|
|
|
●
|
the
costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;
|
|
|
|
|
●
|
our
ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of
any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense
and enforcement of any patents or other intellectual property rights;
|
|
|
|
|
●
|
our
need and ability to hire additional management and scientific and medical personnel;
|
|
|
|
|
●
|
the
effect of competing technological and market developments;
|
|
|
|
|
●
|
our
need to implement additional internal systems and infrastructure, including financial and reporting systems;
|
|
|
|
|
●
|
the
economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or
other arrangements into which we may enter in the future; and
|
|
|
|
|
●
|
the
costs of operating as a public company.
|
Until
such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination
of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements
and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the
terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through
government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future
revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Off-Balance
Sheet Arrangements
Through
March 31, 2017, we do not have any off-balance sheet arrangements, as defined by applicable SEC regulations.
BUSINESS
Overview
Ritter
Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases.
We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality
of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health.
Our
first novel microbiome modulator, RP-G28, an orally administered, high purity GOS, is currently under development for the treatment
of lactose intolerance. RP-G28 is designed to stimulate the growth of lactose-metabolizing bacteria in the colon, thereby effectively
adapting the gut microbiome to assist in digesting the lactose that reaches the large intestine. RP-G28 has the potential to become
the first drug approved by the FDA for the treatment of lactose intolerance. RP-G28 has been studied in a Phase 2a clinical trial
and an adaptive design Phase 2b/3 clinical trial and is a first-in-class compound.
The
Phase 2b/3 trial was a multi-center, randomized, doubled-blind, placebo-controlled, parallel-group trial evaluating safety, efficacy
and tolerability of two dosing regimens of RP-G28 in patients with moderate to severe lactose intolerance symptoms. Enrollment
was initiated in March 2016 and completed in August 2016, achieving our projected enrollment time period. The trial aimed to evaluate
a patient’s ability to consume dairy foods post-treatment with improved tolerance and reduced digestive symptoms. A total
of 377 subjects were enrolled in the trial with 18 clinical sites participating throughout the United States. Patients underwent
a 30-day treatment, followed by a 30-day post-treatment evaluation of dairy tolerance. On October 17, 2016, the last patient completed
dosing and all monitoring visits in our Phase 2b/3 clinical trial of RP-G28 for the treatment of lactose intolerance.
We
held a Type C meeting with the FDA in March 2017, prior to the unblinding of our Phase 2b/3 data, to discuss our development plans
and Phase 2b/3 clinical trial. The focus of the meeting was to gain feedback about our statistical analysis plan, or SAP, and
best position the SAP so that the trial could be considered a pivotal registration trial upon receipt of positive results.
The
meeting with the FDA was constructive and productively focused on best defining clinically meaningful benefits to patients suffering
from lactose intolerance and how to reflect these benefits in endpoints. We modified aspects of our SAP to address certain FDA
recommendations, including a change to our primary endpoint, which was changed to combine abdominal pain with relevant secondary
endpoints to establish an abdominal composite score (abdominal pain, abdominal cramping, abdominal bloating and abdominal gas).
The protocol design and the assessment utilized to collect lactose intolerance symptoms remained unchanged. The protocol design
and the assessment utilized to collect lactose intolerance symptoms remained unchanged.
Topline
results of the trial were announced in March 2017. Results showed a clinically meaningful benefit to subjects in the reduction
of lactose intolerance symptoms across a variety of outcome measures. The majority of analyses showed positive outcome measures
and the robustness of the data point to a clear drug effect. Treatment patients not only reported meaningful reduced symptoms,
but also 30-days after taking the treatment, patients reported adequate relief from lactose intolerance symptoms and satisfaction
with the results of the treatment, with RP-G28 preventing or treating their lactose intolerance symptoms. Greater milk and dairy
product consumption was also reported by patients.
Due
to inconsistent data results from one study site, the data from this site was excluded from the primary analysis population. Nevertheless,
we believe that, based on the trial results, the successful completion of a confirmatory Phase 3 program could be adequate to
support a NDA submission. We have requested an End of Phase 2 meeting by the end of 2017, which the FDA granted. See “Phase
2b/3 Clinical Trial” for additional details regarding our Phase 2b/3 clinical trial. The FDA may require us to conduct two
or more additional clinical trials, possibly involving a larger sample size or a different clinical trial design, or may require
longer follow-up periods, particularly if the FDA does not find the results from our adaptive Phase 2b/3 clinical trial to be
sufficiently persuasive.
A
subset of subjects from our Phase 2b/3 clinical trial have been rolled into a 12-month extension study to evaluate long-term durability
of treatment. The study is also evaluating each participant’s microbiome, expanding our knowledge of the effects that RP-G28
may have on adapting the gut microbiota in a beneficial manner. The subjects are expected to complete the 12-month evaluation
during the fourth quarter of 2017.
The
Gut Microbiome
The
human gut is a relatively under-explored ecosystem but provides a great opportunity for using dietary intervention strategies
to reduce the impact of gastrointestinal disease. The human body carries about 100 trillion microorganisms in the intestines,
which is 10 times greater than the number of cells in the human body. This microbial population is responsible for a number of
beneficial activities such as fermentation, strengthening the immune system, preventing growth of pathogenic bacteria, providing
nutrients, and providing hormones. The increasing knowledge of how these microbial populations impact human health provides opportunities
for novel therapies to treat an assortment of diseases such as neurological disease, cardiovascular disease, obesity, irritable
bowel syndrome, inflammatory bowel disease, colon cancer, allergies, autism and depression.
Platform
Approach
Our
platform is based on selectively colonizing microbiota (increasing beneficial bacteria) in the colon, and thus changing the colon’s
composition of microbiota. This process has been shown to stimulate the growth of endogenous bifidobacteria, which after a short
feeding period become predominant in the colon. The result is believed to reduce inflammation and improve digestion, thereby potentially
reducing digestive symptoms.
RP-G28
selectively increases colonization of lactose-metabolizing bacteria in the colon, such as bifidobacteria and lactobacilli, without
increasing the growth of harmful bacteria, such as Escherichia coli, or E. coli. Increased colonization of lactose-metabolizing
colonic microbiota is associated with increased lactase activity, thereby increasing the fermentation of lactose into galactose,
glucose and short chain fatty acids. We believe this process could reduce lactose-derived gas production and thereby mitigate
the symptoms of lactose intolerance.
Lactose
Intolerance and Management of Lactose Intolerance
Lactose
intolerance is a common condition attributed to insufficient levels of the enzyme lactase, which is needed to properly digest
lactose, a complex sugar found in milk and milk-containing foods.
Studies
have suggested that lactose intolerance is a widespread condition affecting over one billion people worldwide and over 40 million
people in the United States (or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating
moderate to severe symptoms.
Current
annual spending on over-the-counter lactose intolerance aids in the United States has been estimated at approximately $2.45 billion
.
However, these options are limited and there is no long-term treatment available.
Unlike
many common gastrointestinal conditions, such as irritable bowel syndrome, inflammatory bowel diseases, gastroesophageal reflux
disease, or dyspepsia (among many others), lactose intolerance symptoms can be completely abated by avoiding dietary lactose.
In this regard, lactose intolerance is an avoidance condition, similar to celiac sprue, food intolerances, or various environmental
allergies. However, dairy avoidance may lead to inadequate calcium and vitamin D intake, which can predispose individuals to decreased
bone accrual, osteoporosis, hypertension, rickets, osteomalacia, and possibly certain cancers. Although supplements and calcium-rich
foods are available, several studies have shown that lactose intolerance patients had an average calcium intake of only 300-388
mg/day, significantly less than the 1000-1200 mg/day adult dietary recommended levels. The 2010 National Institutes of Health
conference on lactose intolerance highlighted the long-term consequences of dairy avoidance demonstrating both the importance
of treating the condition and the need to find improved solutions for patients.
Diagnosis
Lactose
intolerance is often diagnosed by evaluating an individual’s clinical history, which reveals a relationship between lactose
ingestion and onset of symptoms. Hydrogen breath tests may also be utilized to diagnose lactose malabsorption and a milk challenge
may be used to differentiate between lactose malabsorption and lactose intolerance. Further tests can be conducted to rule out
other digestive diseases or conditions, including: stool examination to document the presence of a parasite, blood tests to determine
the presence of celiac disease, and intestinal biopsies to determine mucosal problems leading to malabsorption, such as inflammatory
bowel disease or ulcerative colitis.
Our
History
We
were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. Our first prototype,
Lactagen
™
, was an alternative lactose intolerance treatment method. In 2004, clinical testing was conducted,
which included a 60 subject double-blind placebo controlled clinical trial. The results were published in the Federation of American
Societies for Experimental Biology in May 2005 and demonstrated Lactagen
™
to be an effective and safe product
for reducing symptoms for nearly 80% of the clinical participants who were on Lactagen
™
.
In
2008, we expanded our focus by developing a prescription drug development program. We initiated the program by developing RP-G28,
a second generation edition of Lactagen
™
. We believe that RP-G28 enables us to state stronger claims, garner
more medical community support and reach a wider market in the effort to treat lactose intolerance.
To
help fund the development of RP-G28, we were awarded a grant from the United States government’s Health Care Bill program,
the Qualifying Therapeutic Discovery Project, in 2008. The grant program provides support for innovative projects that are determined
by the U.S. Department of Health and Human Services to have reasonable potential to result in new therapies that treat areas of
unmet medical need and/or prevent, detect or treat chronic or acute diseases and conditions.
On
September 16, 2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc.
Our
Leading Product Candidate — RP-G28
Overview
RP-G28
is a novel highly purified GOS, which is synthesized enzymatically. The product is being developed to reduce the symptoms and
frequency of episodes of abdominal pain associated with lactose intolerance. The therapeutic is taken orally (a powder solution
mixed in water) for 30 consecutive days. The proposed mechanism of action of RP-G28 is to increase the intestinal growth and colonization
of bacteria that can metabolize lactose to compensate for a patient’s intrinsic inability to digest lactose. Once colonization
of bacteria has occurred, it is hypothesized that patients will continue to tolerate lactose as long as they maintain their microflora
balance. RP-G28 has the potential to become the first FDA-approved drug for the treatment of lactose intolerance.
Galactooligosaccharides
(GOS)
RP-G28
is a >95% purified GOS product. GOS refers to a group of compounds containing β-linkages of 1 to 6 galactose units with
a single glucose on the terminal end and are found at low levels in human milk. RP-G28 is understood to resist hydrolysis by salivary
and intestinal enzymes due to the configuration of its glycosidic bonds and reach the colon virtually intact. RP-G28 is then broken
down intracellularly by galactosidases, and eventually β-galactosidase hydrolyzes the terminal lactose. This leads to selective
alterations in the composition and activity of the microbiome in which RP-G28 enhances the growth of lactose metabolizing bacteria,
including species of Bifidobacteria and Lactobacilli. Once colonies of these bacteria have increased, continued lactose exposure
should maintain tolerability of lactose without further exposure to RP-G28.
The
significance of a higher purity GOS, namely RP-G28, was highlighted in a 2010 study by Klaenhammer. The in vitro study concluded
that RP-G28 promoted growth of lactobacilli and bifidobacteria, but did not promote multiple strains of E. coli. In contrast,
lower purity GOS stimulated both bifidobacteria as well as the strains of E. coli evaluated. (As seen below in Figure 1, NCK 430
(e. coli) grew in the presence of low purity GOS (GOS 2). Alternatively, the higher purity GOS (RP-G28/GOS 1) did not promote
the growth of E. coli.).
Figure
1
Mechanism
of Action
RP-G28
selectively increases colonization of lactose-metabolizing bacteria in the colon, such as bifidobacteria and lactobacilli, without
increasing the growth of harmful bacteria, such as E. coli
.
Increased colonization of lactose-metabolizing colonic bacteria
is associated with increased lactase activity and GOS utilization, thereby increasing the fermentation of lactose into galactose,
glucose and short chain fatty acids. Digestion of lactose reduces lactose-derived gas production and thereby mitigates the symptoms
of lactose intolerance. It is anticipated that patients will continue to tolerate lactose as long as they continue to eat dairy
products on a regular basis.
In
a randomized, double-blinded, placebo-controlled clinical trial (G28-001), 61 subjects with lactose intolerance were fed RP-G28.
Shifts in the fecal microbiome in 82% of participants on treatment (31) and increases in relative abundance of both Bifidobacteria
and Lactobacilli were reported. RP-G28 had a bifidogenic effect in 90% of responders, which included species Bifidobacterium longum,
Bifidobacterium adolenscentis, Bifidobacterium catenulatum, Bifidobacterium breve, and Bifidobacterium dentium (30). The hypothesized
mechanism of action is that by increasing lactose-metabolizing bacteria, it is understood to reduce fermentation of undigested
lactose, and thus reduces gas production and related lactose intolerance symptoms. Data correlating bacterial taxa and symptom
metadata support this proposed hypothesis. In the G28-001 study, microbiome changes correlated with clinical outcomes of improved
lactose tolerance in which an increase in Bifidobacterium was associated with decreased pain and cramping outcomes (30).
Safety
& Toxicology of GOS
Clinical
studies of GOS products were reviewed as part of the safety evaluation to support our IND Application for RP-G28. The safety of
GOS products in humans has been evaluated in 486 adults at doses of 2.5 to 15 gm/day for up to 14 weeks, 342 children at doses
of 2.0 – 2.4 gm/day for up to 1 year, and in 2415 newborns and infants for up to 6 months. Overall, no reports of severe
adverse events attributable to the consumption of GOS were reported in the literature.
Among
the studies that included tolerance endpoints, side effects were limited to reports of flatulence, fullness, gastronintestinal
symptoms, and changes in stool consistency and frequency when GOS was consumed on a repeat basis at quantities of between 5.5
to 15 g/day (Ito 1990; Deguchi 1997; Teuri 1998); however, this effect was not consistently reported in all studies (Teuri and
Korpela 1998; Depeint 2008; Drakoularako 2010; van de Heuval 1998; van Dokkum 1999; Bouhnik 2004; Sairanen and Piirainen 2007;
Shadid 2007). Similar observations of increased flatulence have been reported following the consumption of fructooligosaccharides
(15 gm/day) over a 7-day period (Alles 1996), and this symptom represents a localized effect that is expected in association with
the consumption of indigestible fiber in large quantities. There were no reports of events in other System Organ Class, or SOC,
suggestive of systemic toxicity.
RP-G28
Clinical Safety
In
addition to the nonclinical studies evaluating GOS products, the safety of RP-G28 for clinical investigation is supported by clinical
safety results from our Phase 2a study, G28-001. In this study, RP-G28 was escalated from 1.5 grams per day to 15 grams per day
over a 35-day dosing period.
RP-G28
was well-tolerated. There were no serious adverse effects. The most common adverse effects were headache, dizziness, nausea, upper
respiratory tract infection, nasal congestion and pain. All adverse effects were mild or moderate in severity, and event occurrence
was distributed over the treatment and post-treatment follow-up phase. No clinically significant changes or findings were noted
from clinical lab evaluations, vital sign measurements, physical exams, or 12-lead electrocardiograms.
Our
Market Opportunity
Unmet
Medical Needs
Lactose
intolerance is a challenging condition to manage. According to a market research study conducted by Objective Insights in April
2012, approximately 60% of lactose intolerant sufferers reported experiencing symptoms daily, or bi-weekly. Not only can symptoms
be painful and embarrassing, they can also dramatically affect one’s quality of life, social activities, and health. Currently
there are few reliable, or effective, treatments available that provide consistent or satisfactory relief.
Currently,
there is no approved prescription treatment for lactose intolerance. Most persons with lactose intolerance avoid ingestion of
milk and dairy products while others substitute non-lactose-containing foods in their diet. However, complete avoidance of lactose-containing
foods is difficult to achieve (especially for those with moderate to severe symptoms) and can lead to significant long-term morbidity
(
i.e.
, dietary deficiencies of calcium and vitamin D).
At
the 2010 National Institute of Health, or NIH, Consensus Development Conference: Lactose Intolerance and Health, the NIH highlighted
numerous health risks tied to lactose intolerance such as: osteoporosis; hypertension; and low bone density
.
There is substantial
evidence indicating that lactose intolerance is a major factor in limiting calcium and nutrient intake in the diet of people who
are lactose intolerant. Adequate calcium intake is essential to reducing the risks of osteoporosis and hypertension
.
In
addition, chronic calcium depletion has been linked to increased arterial blood pressure in over 30 published reports, thereby
establishing a relationship between hypertension and low calcium intake
.
Moreover, there is evidence of a correlation between
calcium intake and both colon and breast cancer
.
Treatment
Options
Doctors
generally recommend the following treatments for the management of lactose intolerance: (1) dairy avoidance; (2) lactase supplements;
(3) probiotics/dietary supplements; and (4) dairy substitutes/lactose free products. Despite educating their patients on all viable
treatment options, physicians tend to advise their patients to refrain from consuming any dairy products whatsoever. However,
in a 2008 survey conducted by Engage Health, 47% of lactose intolerance sufferers reported that this method was not effective
(largely due to hidden dairy products in ingredients), and only 30% of lactose intolerance sufferers reported lactase supplements
as being effective in managing their lactose intolerance
.
Further, while probiotics/dietary supplements have been demonstrated
to aid and support one’s digestive system, helping break down general foods consumed, they don’t directly help with
lactose intolerance. The 2008 survey by Engage Health suggests that the majority of lactose intolerance patients are dissatisfied
with current treatment options.
Patients
Unsatisfied with Current Management Options
Growing
Awareness
Lactose
intolerance is a condition that continues to expand as society advances and evolves. It has been estimated that gastroenterologists
see approximately 15 new patients with lactose intolerance each month. Education and awareness have increased, and the American
diet has greatly changed over the past decade to include more dairy-based goods. As the populace is growing older, the prevalence
of lactose intolerance is increasing because more people tend to develop lactose intolerance later in life. Increased education
and diagnosis is making more people aware of their allergies and digestive conditions. Physicians may compound the growth of lactose
intolerance prevalence and its associated disorders by recommending individuals to avoid dairy products, a practice which in and
of itself may increase severity of the intolerance.
Doctors
tend to diagnose lactose intolerance in a patient before the patient is able to self-diagnose it
.
However, patients tend
to initiate discussion about lactose intolerance with their doctors. This is indicative of broad public awareness of lactose intolerance.
Doctors often administer two tests for diagnosing lactose intolerance: (i) a symptom history test and (ii) a hydrogen breath test.
Our
Competitive Strengths
Market
Opportunity
RP-G28
has the potential to become the first approved drug in the United States and Europe for the treatment of lactose intolerance.
Renowned
Scientific Team and Management Team
Our
leadership team has extensive biotechnology/pharmaceutical expertise in discovering, developing, licensing and commercializing
therapeutic products. We have attracted a scientific team comprised of innovative researchers who are renowned in their knowledge
and understanding of the host-microbiome in the field of lactose intolerance and gastroenterology.
Patent
Portfolio
We
have ssued patents in the United States and in select countries in Europe (Germany, the United Kingdom, France, Spain and the
Netherlands) directed to pharmaceutical compositions and methods of using such compositions for the treatment of lactose intolerance
and certain of its symptoms. Additionally, in other countries we have issued patents and pending patent applications. These patent
applications include claims directed to pharmaceutical compositions and methods of use.
In
addition, in July 2015 we acquired the rights, title and interest to certain patents and related patent applications with claims
directed to processes for producing ultra-high purity GOS active pharmaceutical ingredients, including RP-G28 from our supplier.
See “Business—Manufacturing” for additional details regarding the second amendment to the exclusive supply agreement
and our exercise of the exclusive option.
See
“Business—Intellectual Property” for additional information regarding our patent portfolio.
Our
Growth Strategy
In
order to achieve our objective of developing safe and effective applications to treat conditions associated with microbiome dysfunctions,
our near-term and long-term strategies include the following:
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seek
regulatory guidance through an End of Phase 2 meeting with the FDA regarding our Phase 3 program;
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conduct
all required pivotal studies of RP-G28 for the treatment of lactose intolerance;
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seek
regulatory approval of RP-G28 for the treatment of lactose intolerance if the clinical trials are successful, initially in
the United States and subsequently in the rest of the world;
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develop
and commercialize RP-G28 either by ourselves or in collaboration with others throughout the world;
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explore
the use of RP-G28 for additional potential therapeutic indications and orphan indications;
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establish
ourselves as a leader in developing therapeutics that modulates the human gut microbiome;
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continue
to develop a robust and defensible patent portfolio, including those we own and those we plan to in-license in the future;
and
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continue
to optimize our product development and manufacturing capabilities both internally and externally through outside manufacturers.
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Clinical
and Regulatory
IND
Application/Phase 1
We
submitted an IND application for RP-G28 to the FDA in June 2010. Because the safety and tolerability profile, pharmacokinetics
and dose response curve of GOS products is generally well understood, as part of our IND submission, we proposed that the data
supporting the IND was sufficient to support a Phase 2 proof-of-concept study in a small number of lactose-intolerant patients.
The FDA agreed with this proposal and the typical Phase 1 clinical program in healthy volunteers was replaced with a Phase 2a
program in subjects with lactose intolerance.
On
June 28, 2010, we received an advice letter from the FDA regarding our IND submission. The FDA suggested that we (1) consider
expanding our inclusion criteria to include females of childbearing potential who are willing to use appropriate contraception
throughout the duration of the protocol; (2) follow the FDA’s guidance regarding Patient-Reported Outcome Measures; and
(3) include a pharmacokinetic study in our proposed Phase 2a trial to determine the extent of systemic exposure of RP-G28.
Phase
2a Clinical Trial
In
June 2011, we began a Phase 2a clinical trial on RP-G28 to validate the efficacy, safety, and tolerance of RP-G28 compared to
placebo when administered to subjects with symptoms of lactose intolerance. The clinical results from the study, which concluded
at the end of 2011, showed that RP-G28 improved lactose digestion versus placebo as measured by the improvement in digestive symptoms
associated with lactose intolerance and decline in hydrogen production present in a hydrogen breath test.
On
June 12, 2013, we announced positive data from our Phase 2a first-in-human, proof of concept clinical study of RP-G28. The purpose
of the study was to assess the effectiveness, safety and tolerability of RP-G28 compared to a placebo when administered to subjects
with symptoms associated with lactose intolerance. The results were presented at Digestive Diseases Week and the New York Academy
of Sciences Conference on Probiotics, Prebiotics and the Host Microbiome: The Science of Translation, and co-sponsored by the
Sackler Institute for Nutrition Science and the International Scientific Association of Probiotics and Prebiotics.
The
clinical microbiome data from this Phase 2a clinical trial of RP-G28 in patients with lactose intolerance was published in the
Proceedings of the National Academy of Science
(“PNAS-Plus”) PNAS 2017; Early Edition, published ahead of print
January 3, 2017. The paper titled, “Impact of short-chain galactooligosaccharides on the gut microbiome of lactose-intolerant
individuals,” reports findings on our lead therapeutic candidate, RP-G28, a short-chain GOS. The data validates RP-G28’s
mechanism of action and supports the product as a potential treatment for lactose intolerance. The newly published microbiome
data provides further insight into RP-G28’s Phase 2a 2013 clinical trial.
The
double-blinded, randomized, multi-center, placebo-controlled Phase 2a trial evaluated RP-G28 in 62 patients with lactose intolerance
over a treatment period of 35 consecutive days. Post-treatment, subjects reintroduced dairy into their diets and were followed
for an additional 30 days to evaluate lactose digestion, as measured by hydrogen production and symptom improvements. In order
to confirm lactose intolerance and study participation, subjects underwent a 25-gram lactose challenge in the clinic. Lactose
intolerance symptoms and hydrogen production via hydrogen breath test were assessed for six hours post-lactose dose. Eligible
subjects were required to demonstrate a minimum symptom score and a “positive” hydrogen breath test in order to be
eligible for randomization. A “positive” breath test was defined as a hydrogen gas elevation of 20 parts per million
(ppm) at two time-points within the six hours following a lactose-loading dose. The primary endpoints included tracking patients’
gastrointestinal symptoms via a patient-reported symptom assessment instrument (a Likert Scale, measuring individual symptoms
of flatulence, bloating, cramping, abdominal pain and diarrhea, on a scale of 0 (none) to 10 (worst)) at baseline, day 36 and
day 66; as well as the measurement of hydrogen gas levels in their breath following a 25-gram lactose challenge.
RP-G28
was well tolerated, with no significant adverse events reported. The Phase 2a trial demonstrated clinically meaningful benefits
to patients on treatment, whereas treated subjects reported increased tolerance to lactose and dairy foods: reduced lactose intolerance
symptoms (gas, bloating, cramping and abdominal pain) were reported in subjects on RP-G28, a durable reduction in abdominal pain
(p=0.019) was reported, and treated patients were six times more likely to describe themselves as lactose tolerant (p=0.039).
In sum, positive trends were seen when the entire per protocol study population was analyzed, including some statistically significant
subgroup analysis, suggesting that a therapeutically positive effect is seen. Although there were few primary and secondary efficacy
endpoints with statistically significant results, the combined data suggest that RP-G28 exerted a positive therapeutic effect.
We believe these positive drug effect trends combined with the benign safety profile support continued drug development of RP-G28.
Key
findings of the Phase 2a trial include:
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RP-G28
was well tolerated with no significant study-drug related adverse effects. The benign adverse event safety profile of RP-G28
with dose levels up to 15 gm/day observed in this study is consistent with the known safety of GOS products administered up
to 20 gm/day reported in literature.
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Subjects
in the RP-G28 group reported a reduction in total symptoms after treatment. Reported symptom improvement continued 30 days
post-treatment. Improvement in symptoms was assessed in the study using several different measures, including a pain Likert
scale and a patient global assessment. Subjects receiving RP-G28 had greater improvement in most of their symptoms (cramps,
bloating and gas) following lactose challenge compared to placebo, but the differences were not statistically significant
given the small cohort size. However, a clinically meaningful reduction in abdominal pain was seen in subjects receiving RP-G28
compared to placebo.
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An
analysis of ”responders” for abdominal pain (defined as subjects who reported a score of zero in abdominal
pain severity following a lactose challenge at Day 36/Hour 6 and Day 66/Hour 6) was performed. In the 55 subjects who noted
abdominal pain following the baseline (Day 0) lactose challenge, 50% of RP-G28-treated subjects reported no abdominal pain
compared to 17% of the placebo-treated subjects. This difference was statistically significant (p = 0.0190). See Figure 2
below.
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An
analysis of “responders” for abdominal pain (defined as subjects who reported a greater than 50% decrease in abdominal
pain severity following lactose challenge between Day 0/Hour 6 and Day 36/Hour 6) was performed. In the 55 subjects who noted
abdominal pain following the baseline (Day 0) lactose challenge, 72.2% of RP-G28-treated subjects reported a >50% reduction
in abdominal pain severity compared to 42.1% of the placebo-treated subjects. This difference was also statistically significant
(p=0.0288).
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To
better explore a meaningful benefit to patients, a global assessment was explored. Six times as many patients in the treatment
group versus the placebo group described themselves as lactose tolerant and did not report symptoms associated with lactose
intolerance on Day 66. After completion of study treatment at Day 36, subjects were encouraged to re-introduce dairy foods
into their diet. Thirty days later (Day 66), subjects were asked to provide an assessment of their symptom status, i.e., whether
they considered themselves still lactose intolerant compared with subjects receiving placebo (Yes/No). As seen below in Figure
2 below, in the 58 subjects providing responses, a significantly larger percentage of subjects receiving RP-G28 (30%) considered
themselves no longer lactose intolerant compared with subjects receiving placebo (5.6%); this result was statistically significant
(p=0.0389).
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The
reduction in total symptoms following a post-treatment lactose challenge was consistent with the improvement in post-treatment
hydrogen breath test results as compared to baseline (pre-treatment) results. Although rarely used in clinical practice and
primarily used to identify lactase deficiency, hydrogen measurements were used as an eligibility criterion as well as an outcome
measure in our Phase 2a proof-of-concept study. Our intent was to better understand how lactose intolerant symptoms and hydrogen
values correlated and whether a treatment effect could be detected by hydrogen production. In the RP-G28 group, the median
peak hydrogen production was 113 ppm on Day 0 and 110 ppm on Day 36. In the placebo group, the median peak hydrogen production
was 94 ppm at Day 0 and 113 on day 36. At Day 0 and Day 36, the median total hydrogen production was 385 ppm and 367 ppm,
respectively, for the RP-G28 group and 347 and 436 ppm, respectively, for the placebo group. Comparison of the hydrogen breath
test results between RP-G28 and placebo shows that median hydrogen production was generally similar between the two treatment
groups at Day 0 while at Day 36, median hydrogen production was lower in the RP-G28 group compared to placebo at the peak
time points of 2 to 4 hours. While the differences were not large, the RP-G28 group had consistently lower levels of breath
hydrogen production from Hours 2 to 6 following lactose challenge, but the results did not correlate with clinical symptoms.
In the Placebo group, differences in hydrogen production following lactose challenge were not apparent.
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Figure
2
In
the Phase 2a study, changes in the fecal microbiome were investigated using both Terminal Restriction Fragment Length Polymorphisms,
or TRFLP, a molecular biology technique for profiling microbial communities based on the position of a restriction site closest
to a labeled end of an amplified gene, and microme analysis of 16S rRNA genex by pyrosequencing, a method of DNA sequencing (determining
the order of nucleotides in DNA).
Figure
3
In
addition, Principal Component Analysis, or PCA, a multivariate method that helps transform a number of possibly correlated variables
into a smaller number of uncorrelated variables called principal components, thereby reducing the dimensions of a complex dataset,
showed statistically significant shifts in the microbiome of subjects fed RP-G28, compared to placebo, at 66 days. Specifically,
RP-G28 significantly altered the microbiomes of 82% of the study participants who received the treatment. See Figure 3 above.
Pre-treatment,
three distinct clusters were identified, whereas post-treatment (Day 66) two distinct clusters were identified, showing a clear
shift in certain species represented before and after treatment.
Principal
Coordinates Analysis, or PCoA, a multivariate method that helps visualize similarities and dissimilarities in large datasets,
was also utilized to analyze the microbiome data. For analysis of 16S amplicon sequencing data, we created Unweighted Unifrac
similarity matrices (that is we conducted PCoA) and applied ANOSIM (Analysis of Similarities) and PERMANOVA (Permutational Analysis
of Variance) statistical analyses. Our analysis showed a significant association between Day (day 0 or baseline, and day 36 and
66 as categories) and microbiome composition (ANOSIM R = 0.218, P = 0.0001, PERMANOVA Pseudo-F = 3.4318, P = 0.0001). These data
indicate that RP-G28 and subsequent introduction of lactose into the diet had impacted the fecal microbiome of participants. Further,
lactose metabolizing bacteria were shown to increase in the treatment group.
The
results of our Phase 2a trial were published in Nutrition Journal in a manuscript entitled “
Improving lactose digestion
and symptoms of lactose intolerance with a novel galactooligosaccharide (RP-G28): a randomized, double-blind clinical trial
.”
We
held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February 20, 2013. The purpose
of the meeting was to obtain the FDA’s feedback on the planned Phase 2 program and Phase 3 programs, inform the FDA of our
ongoing development plans, gain feedback on relevant clinical trial design and end points related to patient meaningful benefits,
and to inform the FDA of the status of our product characterization. We believe that this meeting was a significant step forward
in streamlining the pathway to initial U.S. approval of RP-G28. The meeting and official meeting minutes provided valuable guidance
on the development path of RP-G28:
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The
FDA agreed with our decision to develop and validate a new analytical assay for RP-G28 drug substance and drug product. This
adjustment will provide additional information about GOS components and non-GOS impurities, which the FDA agrees should be
in place before we prepare batches of the drug substance for use in any pivotal Phase 3 clinical trials.
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Based
on our plan to conduct ICH-compliant Good Laboratory Practices, or GLP, embryo-fetal development toxicology studies (in two
species) and the ICH standard battery of genotoxicity tests using RP-G28, the FDA agreed that no additional nonclinical studies
are needed to support Phase 3 studies.
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The
FDA advised us on potential end points and clinical trial design.
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We
addressed the FDA’s recommendation in its June 28, 2010 advice letter that we include a pharmacokinetic study in the
Phase 2b trial to assess the extent of systemic exposure of RP-G28. We explained to the FDA that we did not collect serum
samples for pharmacokinetic measurement in the Phase 2a study because at the time assays for measuring RP-G28 were not available
and significant systemic absorption was not anticipated. We then informed the FDA of our plan to evaluate alternatives, as
a surrogate for RP-G28 systemic exposure as part of our Phase 2b program. The FDA agreed with this approach.
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Following
analysis of the Phase 2a clinical trial, the Type C meeting with FDA in 2013, and further discussions with our regulatory consultants,
we initiated a Phase 2b/3 clinical trial of RP-G28 in March 2016. We believe this trial could serve as one of two pivotal trials
should the resulting data and the FDA be supportive of this trial as a pivotal trial. We did not discuss the Phase 2b/3 trial
design and development plan with the FDA before initiating the study in March 2016.
Phase
2b/3 Clinical Trial
Enrollment
in our Phase 2b/3 clinical trial of RP-G28 was initiated in March 2016 and completed in August 2016. The final patient completed
dosing and all monitoring visits in October 2016.
The
Phase 2b/3 trial was a multi-center, randomized, double-blinded, placebo-controlled, parallel group trial of approximately 377
subjects to evaluate safety, efficacy and tolerability of two dosing regimens of RP-G28 in patients with moderate to severe lactose
intolerance symptoms.
The
trial assessed patients with lactose intolerance symptoms as measured by a pain Likert scale after a lactose challenge. Entry
criteria in the Phase 2b/3 trial included a hydrogen breath test to validate lactase deficiency. The Phase 2b/3 trial design included
a screening phase; a 30-day course treatment phase and a 30-day post-treatment evaluation phase. The study was designed to gradually
escalate the dose beyond the 15 gm/day dose level evaluated in the Phase 2a study. Study subjects abstained from lactose containing
food products and were then randomized evenly (1:1:1) to receive one of two doses of RP-G28 or placebo for 30 days. Subjects were
then followed post-treatment for an additional 30 days while lactose containing food products were re-introduced into their diets.
The
primary endpoint for the Phase 2b/3 clinical trial was a durable reduction in abdominal symptom response at day 31. A response
was based on change from baseline (Day -7, visit 1) to end of treatment period at Day 31 (visit 5), combined average of four maximum
symptom scores taken over 0.5, 1, 2, 3, 4, and 5 hours for each abdominal symptom (abdominal pain, abdominal cramping, abdominal
bloating, and abdominal gas) after a lactose challenge test (SZA). A response was defined as a 4-point or greater decrease from
baseline or a composite score of zero at Day 31. The Phase 2b/3 trial further required the collection of fecal samples from patients
enrolled to evaluate the baseline and changes to the patient’s microbiome that correlate to symptom reduction and lactose
tolerance.
We
held a Type C meeting with the FDA in March 2017, prior to the unblinding of the Phase 2b/3 data.
The
focus of our Type C meeting with the FDA was to gain feedback about our statistical analysis plan, and best position the SAP so
that the trial could be considered a pivotal registration trial upon receipt of positive results. Per the FDA’s recommendation,
we evaluated blinded data from the then current trial (study G28-003) to obtain qualitative and quantitative (psychometric) evidence
from the trial. Using these exploratory blinded data analyses, the FDA recommended certain revisions to the SAP, including a change
to the primary endpoint, which was changed from percentage change from baseline to day 31 of area under the curve (AUC) abdominal
pain symptom score post-lactose challenge (SZA) to abdominal symptom response at day 31, based on a composite of the maximum scores
of 4 abdominal symptoms (abdominal pain, abdominal cramping, abdominal bloating, and abdominal gas).
The
protocol design and the assessment utilized to collect lactose intolerance symptoms remained unchanged.
In
order to gather long-term data on subjects exposed to RP-G28, we also offered enrollment in an observational 12-month extension
study, G28-003XA, to subjects who completed the Phase 2b/3 protocol. As RP-G28 is expected to provide extended relief from lactose
intolerance symptoms beyond the initial 30-day treatment phase, this extension study for the Phase 2b/3 program will assess the
long-term treatment effect. The study is also evaluating each participant’s microbiome, expanding our knowledge of the effects
that RP-G28 may have on adapting the gut microbiota in a beneficial manner. The subjects are expected to complete the 12-month
evaluation during the fourth quarter of 2017. We intend for the results from this study to support durability of treatment and
guide the need to evaluate an additional 30-day course of treatment in subjects who experience the return of lactose intolerance
symptoms after an initial course of RP-G28.
Topline
results of the Phase 2b/3 clinical trial were announced in March 2017. Results showed a clinically meaningful benefit to subjects
in the reduction of lactose intolerance symptoms across a variety of outcome measures. The majority of analyses showed positive
outcome measures and the robustness of the data point to a clear drug effect. Treatment patients not only reported meaningful
reduced symptoms, but also 30-days after taking the treatment, patients reported adequate relief from lactose intolerance symptoms
and satisfaction with the results of the treatment, with RP-G28 preventing or treating their lactose intolerance symptoms. Greater
milk and dairy product consumption was also reported by patients.
Because
the efficacy data from one study site was found to be significantly different from that of the other study sites, the data from
this site was excluded from the primary analysis population (Efficacy Subset mITT. n=296). The Company is continuing to examine
the data results from this one anomalous study site. It was decided that, in addition to the efficacy analysis for the mITT Population,
an additional population would be used to perform all efficacy analyses. The additional population was the Efficacy Subset, which
was defined as data from the mITT Population minus data from the one anomalous study site.
In
the Efficacy Subset mITT Analysis group, the primary endpoint met statistical significance, in which 41.2% of the pooled dosing
group and 25.8% of the placebo group responded (p=0.0159). Because the primary analysis was statistically significant, the primary
endpoint comparison between the high dose group and the placebo group was then tested and also met statistical significance.
This endpoint compared the high dose group, of which 38% of whom were treatment responders compared to the placebo group of which
26% of whom were treatment responders (p=0.0294). The comparison between the low dose group and the placebo group further met
statistical significance (p=0.0434).
In
the entire study population (mITT population) taking at least one dose of drug (n=368), including the excluded data, the comparison
between the pooled treatment groups and the placebo group narrowly missed statistical significance (p=0.0618), in which 40% of
the pooled treatment group responded compared to 31% of the placebo group. Both low dose and high dose group arms demonstrated
a higher proportion of responders than the placebo group.
No
significant adverse events (SAEs) were reported from treatment. Safety measurements showed no difference between treatment
and placebo patients.
Consistent
treatment benefit was further observed when looking at those patients with complete elimination of individual lactose intolerance
symptoms, scoring a 0 out of 10 on a likert pain scale post-treatment (Efficacy Subset PP)
Observing
global patient assessments (Efficacy Subset PP) 30 days after treatment, 83% of treatment patients reported adequate relief from
lactose intolerance symptoms compared to 73% in the placebo group (0.042). In addition, 66% of treatment patients (Efficacy Subset
PP) reported very or extremely satisfied benefits preventing or treating their lactose intolerance symptoms from RP-G28 compared
to 52% of the placebo group (p=0.0464).
Further,
at baseline lactose intolerance patients reported consuming a low 0.3 cups/d of milk a day. After taking treatment/placebo, treatment
patients consumed 1.5 cups/d of milk compared to the placebo group consuming 1.1 cups/d of milk (p= 0.008) (Efficacy Subset PP).
We believe this is significant because the USDA recommends healthy individuals to consume 1.5 cups/d.
We
have requested an End of Phase 2 meeting by the end of 2017, which the FDA has granted. The End of Phase 2 meeting will be an
important venue to consult with the FDA on finalizing the Phase 3 clinical program and remaining NDA-enabling package necessary
for obtaining commercial approval of RP-G28 for the treatment of lactose intolerance. We plan to discuss many aspects of the Phase
2b/3 trial results, including use of the Phase 2b/3 data as supportive for registration and the number of subjects expected in
the remaining clinical program for a satisfactory NDA filing. In preparation for the Phase 3 program, we have also commenced manufacturing
efforts and hope to commence our Phase 3 clinical trial in the first half of 2018.
Given
the established safety profile of GOS in humans and the lack of significant safety concerns with RP-G28 administered to subjects
in the Phase 2a and 2b/3 trial to date, no additional non-clinical safety studies are planned to support continued evaluation
of RP-G28 in the Phase 2 program.
Guidelines
adopted by the FDA and established by ICH require nonclinical studies that specifically address female fertility to be completed
before the inclusion of women of childbearing potential in large-scale or long-duration clinical trials (e.g., Phase 3 trials).
In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using precautions to prevent
pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue to evaluate females
of child-bearing potential who are willing to use appropriate contraception throughout the duration of any study.
Master
Service Agreement
On
December 30, 2015, we entered into a Master Service Agreement with Covance, with an effective date of December 29, 2015. Pursuant
to the terms of the Master Service Agreement, Covance (or one or more of its affiliates) will provide Phase 1, 2, 3, and 4 clinical
services for a clinical study or studies to us, and, at our request, assist us with the design of such studies, in accordance
with the terms of separate individual project agreements to be entered into by the parties. The term of the agreement is for three
years and will renew automatically for successive one year periods unless Covance is no longer providing services under the agreement
or either party has terminated the agreement upon written notice. We may terminate the Master Service Agreement or any individual
project agreement entered into under the Master Service Agreement prior to the applicable study’s completion at any time
for any reason upon 30 days written notice to Covance, except when the reason for termination is the safety of subjects, in which
case it may be terminated immediately. Covance may not terminate any individual project agreement without cause, except when the
reason for the termination is the safety of subjects, in which case it may be terminated immediately. In the event of a termination
of the Master Service Agreement, Covance will be entitled to full payment for (i) work performed on the applicable project upon
through the date work on such project is concluded and (ii) reimbursement for all non-cancellable and non-refundable expenses
and financial obligations which Covance (or an affiliate) has incurred or undertaken on our behalf.
Manufacturing
We
do not own or operate manufacturing facilities for the production of RP-G28 or any other product candidates we may develop, nor
do we have plans to develop our own manufacturing operations in the foreseeable future. We have an exclusive worldwide supply
agreement with RSM, or the Supply Agreement, to manufacture Improved GOS in connection with the clinical and nonclinical studies
we will need to conduct prior to receiving regulatory approval for RPG-28. RSM has also agreed that it will not, except as necessary
for RSM to perform its obligations under the supply agreement, market or sell Improved GOS, or any GOS that are of greater purity
to any third party.
Pursuant
to the terms of the Supply Agreement, as amended on July 24, 2015, we purchased the exclusive worldwide assignment of all right,
title and interest to the Improved GOS, or the Improved GOS IP, on July 30, 2015 for $800,000. We also issued 100,000 shares of
our common stock to RSM pursuant to a stock purchase agreement. The shares issued to RSM are subject to a lock-up agreement, pursuant
to which RSM has agreed that it will not sell these shares for a period ending on the earlier of (i) the public release by us
of the final results of our Phase 2b/3 clinical trial of RP-G28 and (ii) the filing of a Form 10-Q with the SEC for the fiscal
quarter in which we receive the results of our Phase 2b/3 clinical trial of RP-G28.
The
terms of the Supply Agreement, as amended, require us to pay RSM $400,000 within 10 days following FDA approval of a new drug
application for the first product owned or controlled by us using Improved GOS as its active pharmaceutical ingredient and to
pay RSM the sum of $250 per kilo for clinical supply of Improved GOS. Under the terms of this agreement, if we fail to make any
future option payment to RSM, we may be required to return the Improved GOS IP to RSM.
Commercialization
Given
our stage of development, we have not yet established a commercial organization or distribution capabilities. RP-G28, if approved,
is intended to be prescribed to patients suffering from lactose intolerance. These patients are normally under the care of a gastroenterologist
and/or a primary care physician. Our current plan is to evaluate a possible partnership to commercialize RP-G28 for the treatment
of lactose intolerance in patients in the United States and Europe if it is approved. We may also build our own commercial infrastructure
or utilize contract reimbursement specialists, sales people and medical education specialists, and take other steps to establish
the necessary commercial infrastructure at such time as we believe that RP-G28 is approaching marketing approval. Outside of the
United States and Europe, subject to obtaining necessary marketing approvals, we will likely seek to commercialize RP-G28 through
distribution or other collaboration arrangements for patients suffering from lactose intolerance.
Competition
The
biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we know of no drug candidate,
other than RP-G28, in advanced clinical trials for treating lactose intolerance, other biopharmaceutical companies may be able
to develop compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational
pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research
institutions. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome-based development
companies such as Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix, Inc. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large,
established companies. We will also compete with providers of a wide variety of lactase supplements (the most widely used supplement
in the United States being Lactaid
®
), probiotic/dietary supplements, and lactose-free and dairy-free products.
We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy,
safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
Intellectual
Property
The
proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important
to our business. We have sought patent protection in the United States and internationally for uses of RP-G28 and our discovery
programs, and any other inventions to which we have rights, where available and when appropriate. Our policy is to pursue, maintain
and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions
and improvements that are commercially important to the development of our business. We also rely on trade secrets that may be
important to the development of our business. We do not have composition of matter patent protection in the United States for
RP-G28, which may result in competitors being able to offer and sell products so long as these competitors do not infringe any
other patents that we hold, including patents directed to methods of manufacturing and purified RP-G28 or directed to methods
of using RP-G28.
Patents
and Proprietary Rights As To Our Drug Candidates
We
strive to protect our product candidates and exclusivity rights, as well as both maintain and fortify our position in the field
of lactose intolerance. We believe our intellectual property portfolio consists of early and broad filings in the area. We have
focused on patents and patent applications directed to use of our products in disease treatment. We have sought and continue to
seek the strongest possible intellectual property protection available to us in order to prevent others from directly competing
with us, as well as to exclude competition around our products, their manufacture, and methods for use of the products in disease
treatment. Our intellectual property portfolio directed to RP-G28 contains seven issued U.S. patents relating to pharmaceutical
compositions containing RP-G28, methods of using RP-G28, and methods of making RP-G28. That portfolio also includes at least seven
other related, issued patents in countries other than the United States, including issued patents in Europe, China and Japan.
One of the patent families that we own includes claims generally directed to processes for producing an improved form of GOS mixtures
(higher purity); this family includes issued patents in United States (not expiring, subject to payment of maintenance fees, until
2030), Italy (not expiring, subject to payment of annuities, until 2029), and China
,
Germany, and the Netherlands (not
expiring, subject to payment of annuities, until 2030), as well as applications pending in the United States, Japan, India, and
other jurisdictions that, if issued, would not expire, subject to payment of maintenance fees or annuities, until 2030.
This
portfolio includes the following issued U.S. patents:
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U.S.
Patent No. 8,486,668, which has a current expiry date of February 17, 2030, (subject to the payment of maintenance fees),
and includes claims generally directed to methods for treating lactose intolerance comprising administering, for a predetermined
number of days, a high purity GOS pharmaceutical composition, and wherein the administration leads to a persistent decrease
in at least one symptom of lactose intolerance;
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U.S.
Patent No. 8,492,124, which has a current expiry date of February 17, 2030 (subject to the payment of maintenance fees), and
includes claims generally directed to methods for treating lactose intolerance comprising administering, for a predetermined
number of days, a controlled release pharmaceutical composition that contains GOS, but does not contain a probiotic;
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U.S.
Patent No. 8,785,160, which has a current expiry date of February 17, 2030 (subject to the payment of maintenance fees), and
includes claims generally directed to methods for treating lactose intolerance comprising administering a hydrogen breath
test, diagnosing lactose intolerance based upon the hydrogen breath test, and administering a high purity GOS pharmaceutical
composition;
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U.S.
Patent No. 9,200,303, which has a current expiry date of August 6, 2030 (subject to the payment of maintenance fees), and
includes claims generally directed to the processes for producing ultra-pure GOS pharmaceutical compositions by utilizing
sequential microbiological purifications;
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U.S.
Patent No. 9,370,532, which has a current expiry date of February 17, 2030 (subject to the payment of maintenance fees), and
includes claims generally directed to methods for preventing or reducing diarrhea associated with lactose intolerance, and
methods for the reduction of severity of diarrhea associated with lactose intolerance, comprising administering a high purity
GOS having 1-10% by weight pentasaccharides and at least a 45% by weight trisaccharides.
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U.S.
Patent No. 9,579,340, which has a current expiry date of February 17, 2030 (subject to
the payment of maintenance fees), and includes claims generally directed to oral dosage
forms comprising a prebiotic composition, wherein the prebiotic composition comprises
95% or more GOS by weight and less than 5% digestible saccharides by weight, wherein
the GOS comprises at least 45% by weight trisaccharides.
;
and
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U.S.
Patent No. 9,592,248, which has a current expiry date of February 17, 2030 (subject to the payment of maintenance fees), and
includes claims generally directed to pharmaceutically acceptable oral dosage forms of GOS, comprising one or more dosing
units, each of said dosing units comprising 0.1 to 10 g of a GOS composition, wherein said GOS composition is a liquid encapsulated
in a gelatin capsule, and wherein the GOS composition comprises at least about 95% GOS by weight and less than about 5% digestible
saccharides by weight, wherein the GOS comprises at least 45% by weight trisaccharides.;
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We
also are pursuing patent applications. These applications are pending in the United States, Europe, Japan and other jurisdictions,
and, if they issue as patents, will not expire until at least 2030, subject to payment of annuities, and include claims generally
directed to (i) oral dosage forms of a higher purity GOS, (ii) use of GOS for treating lactose intolerance, and (iii) methods
of preventing or reducing certain symptoms of lactose intolerance using GOS dosage forms.
Trade
Secrets
In
addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and
know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and
invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These
agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of
our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of
our information technology systems.
Government
Regulation and Product Approval
Governmental
authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other
things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing
and export and import of products such as those we are developing. Our product candidates must be approved by the FDA through
the NDA process before they may be legally marketed in the United States and by the EMA through the MAA process before they may
be legally marketed in Europe. Our product candidates will be subject to similar requirements in other countries prior to marketing
in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state,
local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
United
States Government Regulation
NDA
Approval Processes
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations.
Failure to comply with the applicable U.S. requirements at any time during the product development process or approval process,
or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse
effect on us. These sanctions could include:
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refusal
to approve pending applications;
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withdrawal
of an approval;
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imposition
of a clinical hold;
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warning
letters;
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product
seizures and/or condemnation and destruction;
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total
or partial suspension of production or distribution; or
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injunctions,
fines, disgorgement, or civil or criminal penalties.
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The
process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion
of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices,
or GLPs, or other applicable regulations;
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submission
to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance
of adequate and well-controlled human clinical trials according to Good Clinical Practices (“GCPs”), to establish
the safety and efficacy of the proposed drug for its intended use;
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submission
to the FDA of a NDA;
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satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with cGMPs to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength,
quality and purity; and
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FDA
review and approval of the NDA.
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Once
a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical
tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor
must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part
of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the
nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial,
the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself
to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within
the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one
or more specific studies or all studies conducted under the IND.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must
be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion
criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the
IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must
timely report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected
adverse reaction over that listed in the protocol or investigation brochure, or any findings from other studies or animal or in
vitro testing that suggest a significant risk in humans exposed to the drug. An institutional review board, or IRB, at each institution
participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution
and must also approve the information regarding the trial and the consent form that must be provided to each research subject
or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase
1
. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially
when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often
conducted in patients.
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Phase
2
. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage. Although there are no statutory or regulatory definitions for Phase 2a and Phase 2b, Phase 2a is commonly
used to describe a Phase 2 clinical trial designed to evaluate efficacy, adverse effects and safety risks and Phase 2b is
commonly used to describe a subsequent Phase 2 clinical trial that also evaluates dosage tolerance and optimal dosage.
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Phase
3
. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population
at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of
the product and provide an adequate basis for product labeling.
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Adaptive
clinical trial designs, such as the Phase 2b/3 clinical trial for RP-G28 that we completed enrolling and dosing in October 2016,
are aimed at interweaving the two phases of full development by combining them into one single, uninterrupted study.
Human
clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or
the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects
or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the
drug has been associated with unexpected serious harm to patients.
During
the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior
to the submission of an IND, at the End of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. For
instance, we held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February 20,
2013. The purpose of the meeting was to obtain the FDA’s feedback on the planned clinical development program and future
necessary clinical studies, inform the FDA of our ongoing development plans, gain feedback on relevant clinical trial design and
end points related to patient meaningful benefits, and to inform the FDA of the status of our product characterization. Following
analysis of the Phase 2a clinical trial, discussions with the FDA during the Type C Meeting in early 2013 about our clinical development
plan, and further discussions with our regulatory consultants, we initiated an adaptive design Phase 2b/3 clinical trial of RPG-28
in March 2016 and completed final enrollment and dosing in October 2016. As part of this process, we submitted a supplement to
the IND detailing the protocols for the adaptive study.
We
have had subsequent communications with FDA regarding our clinical program and regulatory path towards getting our product adequately
studied and possibly approved. We held a Type C meeting with the FDA in March 2017, prior to the unblinding of our Phase 2b/3
data, to discuss our development plans and Phase 2b/3 clinical trial. The focus of the meeting was to gain feedback about our
statistical analysis plan, or SAP, and best position the SAP so that the trial could be considered a pivotal registration trial
upon receipt of positive results. The meeting with the FDA focused on best defining clinically meaningful benefits to patients
suffering from lactose intolerance and how to reflect these benefits in endpoints. Per FDA’s recommendation, we evaluated
blinded data from the then current study (study G28-003) to obtain qualitative and quantitative (psychometric) evidence from the
study. Using these exploratory blinded data analyses, FDA recommended revisions to the SAP accordingly. We subsequently modified
aspects of our SAP to address these recommendations, including changing our primary endpoint to combine abdominal pain with relevant
secondary endpoints to establish a composite score (abdominal pain, abdominal cramping, abdominal bloating and abdominal gas).
FDA meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to
provide advice on the next phase of development. Sponsors typically use the meeting at the End of Phase 2 to discuss their Phase
2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval
of the new drug. We have requested an End of Phase 2 meeting by the end of 2017, which the FDA has encouraged us to schedule.
The End of Phase 2 meeting will be an important opportunity to consult with the FDA on finalizing the Phase 3 clinical program
and remaining NDA-enabling package that may lead to approval of RP-G28 for the treatment of lactose intolerance.
Concurrent
with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about
the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product
in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the
drug and the manufacturer must develop methods for testing the quality, purity and potency of the drug. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not
undergo unacceptable deterioration over its proposed shelf-life.
The
results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part
of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver
of such fees may be obtained under specified circumstances. The FDA has 60 days from its receipt of an NDA to determine whether
the application will be accepted for filing based on the agency’s threshold determination of whether it is sufficiently
complete to permit substantive review. It may request additional information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the
FDA accepts it for filing.
Once
the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug
representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may
refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data.
Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA
reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its
manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee,
but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where
the product is manufactured and tested.
Patent
Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the
time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an
NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the
application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply
for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration
date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Market
exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another
company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required
for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or
non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an approved
NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are
deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of
an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does
not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity
will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct
or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Pediatric
Exclusivity and Pediatric Use
Under
the Best Pharmaceuticals for Children Act, or BPCA, certain drugs may obtain an additional six months of exclusivity, if the sponsor
submits information requested in writing by the FDA (a Written Request) relating to the use of the active moiety of the drug in
children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it determines that
information relating to the use of a drug in a pediatric population, or part of the pediatric population, may not produce health
benefits in that population.
We
have not received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request for such
studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from
the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement,
in accordance with commonly accepted scientific principles, and submit reports of the studies. A Written Request may include studies
for indications that are not currently in the labeling if the FDA determines that such information will benefit the public health.
The FDA will accept the reports upon its determination that the studies were conducted in accordance with and are responsive to
the original Written Request or commonly accepted scientific principles, as appropriate, and that the reports comply with the
FDA’s filing requirements.
In
addition, the Pediatric Research Equity Act, or PREA, requires all applications (or supplements to an application) submitted under
section 505 of the FDCA (21 U.S.C. §355) for a new active ingredient, new indication, new dosage form, new dosing regimen
or new route of administration to contain a pediatric assessment unless the applicant has obtained a waiver or deferral. It also
authorizes the FDA to require holders of approved NDAs for marketed drugs to conduct pediatric studies under certain circumstances.
In general, PREA applies only to those drugs developed for diseases and/or conditions that occur in both the adult and pediatric
populations. Products intended for pediatric-specific indications will be subject to the requirements of PREA only if they are
initially developed for a subset of the relevant pediatric population.
As
part of the Food and Drug Administration Safety and Innovation Act, Congress reauthorized both BPCA and PREA, which were slated
to expire on September 30, 2012, and made both laws permanent.
Orphan
Drugs
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition,
defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of
developing and making available the drug or biologic in the United States will be recovered from sales in the United States for
that drug or biologic.
If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for
the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA
may not approve any other applications, including a full NDA, to market the same product for the same indication for seven years,
except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the
FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same
drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for
certain research and a waiver of the NDA application user fee.
A
designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. Orphan drug exclusive marketing rights in the United States also may be lost if the
FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition.
We
intend to explore orphan drug designation for RP-G28 for any orphan indication in which there is a medically plausible basis for
treatment of the indication through colonic adaptation of gut bacteria.
Post-approval
Requirements
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions
on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review
and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that
have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including,
among other things:
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with current good manufacturing practices;
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requirements;
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reporting
of adverse experiences with the drug;
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providing
the FDA with updated safety and efficacy information;
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drug
sampling and distribution requirements;
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notifying
the FDA and gaining its approval of specified manufacturing or labeling changes; and
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complying
with FDA promotion and advertising requirements.
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Drug
manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some
state agencies for compliance with cGMP and other laws.
We
rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products.
Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt
production or distribution, or require substantial resources to correct.
From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions
governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance
are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible
to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact
of such changes, if any, may be.
Regulation
Outside of the United States
In
addition to regulations in the United States, we will be subject to regulations of other countries governing clinical trials and
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval
by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such
countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market
products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required
for FDA approval.
Under
European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized
procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended
to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides
for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization
may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report,
each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization,
the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Reimbursement
Sales
of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors,
such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly
challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become
a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state
legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and
cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could
further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared
to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level of
payment may not be sufficient to allow us to sell our products on a profitable basis.
The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed new requirements for the distribution
and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription
drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both
stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike
Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for
all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and
at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class
of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription
drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of
prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices
for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover,
while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and
payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar
reduction in payments from non-governmental payors.
The
American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different
treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the
Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research
and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended
to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the
sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also
possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect
the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other
available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not
be sufficient to allow us to sell our products on a profitable basis.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010,
or collectively, the ACA , enacted in March 2010, is a sweeping law intended to broaden access to health insurance, reduce or
constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare
and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs
covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. Although it is
too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical pricing,
especially under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition, some members
of the U.S. Congress have been seeking to repeal in full or amend portions of the legislation and we expect they will continue
to review and assess this legislation and alternative health care reform proposals. Ongoing Congressional efforts to repeal or
amend the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.
In
addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options
for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product
or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product
on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical
products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched
in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Properties
We
lease office space for our headquarters in California. On July 9, 2015, we entered into a lease with Century Park, pursuant to
which we lease approximately 2,780 square feet of office space in Los Angeles, California for our headquarters. The lease provides
for a term of sixty-one (61) months, which commenced October 1, 2015. We paid no rent for the first month of the term, paid base
rent of $9,174 per month for months two through 13 of the term, and will pay base rent of $9,449 per month for months 14 to 25,
with increasing base rent for each twelve-month period thereafter under the term of the lease to a maximum of $10,325 per month
for months 50 through 61. We have the option to extend the term of the lease for one five-year term, provided that the rent would
be subject to market adjustment at the beginning of the renewal term. We believe that our facility is suitable and adequate for
our current needs.
Employees
As
of the date of this prospectus, we have seven employees, all of whom are full time employees. None of our employees are represented
by a labor union, and we consider our relationship with our employees to be good.
Legal
Proceedings
We
are not a party to any material legal proceedings.
MANAGEMENT
The
Board of Directors in General
Our
board of directors currently consists of eight members. Biographical information with respect to our directors is provided below.
Our
directors hold office for one year or until their successors have been duly elected and qualified or until the earlier of their
death, resignation or removal. Our amended and restated bylaws provide that the authorized number of directors comprising our
board of directors will be fixed, from time to time, by a majority of the total number of directors.
There
are no family relationships among any of our directors or executive officers, other than Ira and Andrew Ritter, who are father
and son, respectively.
Name
|
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Position
with the Company
|
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Age
as
of the
Annual
Meeting
|
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Director
Since
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Michael
D. Step
|
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Chief
Executive Officer and Director
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58
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2012
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Andrew
J. Ritter
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President
and Director
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34
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2008
|
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Ira
E. Ritter
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Executive
Chairman, Chief Strategic Officer and Director
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68
|
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2008
|
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Noah
J. Doyle
|
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Director
|
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49
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2008
|
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Matthew
W. Foehr
|
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Director
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44
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2015
|
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Paul
V. Maier
|
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Director
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69
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2015
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Dr.
William M. Merino
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Director
|
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74
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2017
|
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Gerald
T. Proehl
|
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Director
|
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58
|
|
|
2015
|
|
Michael
D. Step
became our Chief Executive Officer on October 1, 2014. He has served as a director of the Company since 2012.
Mr. Step has over 20 years of business development and corporate development experience in the pharmaceutical industry. Prior
to joining the Company as its Chief Executive Officer, Mr. Step served as Senior Vice President of Corporate Development at Santarus,
Inc., or Santarus, and a member of its executive committee, from 2005 to January 2014, when Santarus was sold to Salix Pharmaceuticals,
Ltd. At Santarus, Mr. Step was responsible for corporate development activities. Prior to joining Santarus, he served as Vice
President, Corporate Development for Amylin Pharmaceuticals, Inc., or Amylin, from 2000 to 2005. In this capacity, he was responsible
for leading corporate development activities, including product licensing, strategic planning, and mergers and acquisitions evaluations.
Before joining Amylin, Mr. Step served as Senior Director, Business Development at Dura Pharmaceuticals, Inc., or Dura Pharmaceuticals,
from 1997 to 2000. In this position, his duties included licensing of marketed pharmaceutical products. Prior to joining Dura
Pharmaceuticals, he served in corporate development and strategic planning at Hoffmann-La Roche, from 1996 to 1997, and held various
sales and management roles at Roche Labs, from 1994 to 1996, and Syntex Labs, from 1992 to 1994. Mr. Step holds a B.A. in political
science from Vanderbilt University and a M.B.A. from the University of Southern California.
Qualifications
:
We believe that Mr. Step is well qualified to serve on our board of directors and as Chief Executive Officer of the Company due
to his over 20 years’ experience in the pharmaceutical industry, serving in senior leadership roles within public pharmaceutical
companies including in the gastrointestinal disease segment. Mr. Step has served in various executive management positions in
sales and sales management, and has had experience with many aspects of pharmaceutical commercialization, strategic planning,
business development and licensing providing both strategic and operational vision and guidance. His extensive experience gives
him valuable insight into our industry as well as seasoned business judgment.
Andrew
J. Ritter
co-founded the predecessor in interest to the Company in March 2004 and served as the President and Chief Executive
Officer of that predecessor until the Company’s formation in 2008. He served as President and Chief Executive Officer of
the Company since its formation, until relinquishing the role of Chief Executive Officer to Mr. Step in October 2014. Mr. Ritter
was a member of the board of directors of the Company’s predecessor since its inception in 2004 and has been a member of
our board of directors since 2008 when the Company was formed. Mr. Ritter has been actively studying the field of lactose intolerance
for over 15 years and currently holds six patents and over fifteen pending international patent applications. In addition, he
has co-published articles in Nutrition Journal, Gastroenterology and Food Technology. He has also given presentations at major
healthcare and medical conferences such as Digestive Disease Week, among others, and has been a guest lecturer of entrepreneurship
at various graduate and undergraduate schools throughout Los Angeles including: University of Southern California Marshall School
of Business, University of California at Los Angeles Anderson School of Business and Pepperdine University Graziadio School of
Business and Management. Since 2010, Mr. Ritter has also acted as a managing partner of Stonehenge Partners, a private investment
fund, which provides working capital and executive leadership to a variety of businesses and industries including: real estate,
technology, biotechnology, entertainment and service businesses. Mr. Ritter served as a Los Angeles City Commissioner on the Commission
for Children, Youth and Their Families from 2000 to 2002. He holds a B.A. in Political Science and a minor in Business from the
University of Southern California and was a member of the 2002 Pac-10 Championship baseball team. He graduated from the Stanford
Graduate School of Business’ Executive Education on Influence and Negotiation Strategies. Mr. Ritter received a Master of
Business Administration from the Wharton School of Business in May 2016.
Qualifications
:
We believe that Mr. Ritter is well qualified to serve on our board of directors due to his over 15 years of research experience
working in lactose intolerance and digestive diseases. Having founded the Company and invented Lactagen
™
, Mr.
Ritter has an in depth knowledge of the Company, and provides senior leadership on the clinical and product development matters
facing the Company. Mr. Ritter also brings to the board of directors an extensive scientific and operational background gained
previously at Ritter Natural Sciences and over the years at Ritter.
Ira
E. Ritter
served as Co-Founder, Chief Strategic Officer and Executive Chairman of the Company’s predecessor in interest
from its inception in 2004 through the formation of the Company in 2008 and has served in those positions with the Company since
2008. Mr. Ritter has extensive experience creating and building diverse business enterprises and has provided corporate management,
strategic planning and financial consulting for a wide range of market segments. Since 2010, Mr. Ritter has also acted as a managing
partner of Stonehenge Partners. Mr. Ritter served as President and Vice Chairman of Quality King, Inc., a national wholesale distributor
of healthcare products, from 1992 to 2000. From 1998 to 2001, he served as President and Chairman of Rockwood Investments Inc.,
a business he developed which produced private label health and beauty products for major national retailers, including GNC and
K-Mart. He also served as Chairman of ON-TV, a division of Oak Industries, Inc., from 1982 to 1985, where he managed the television
division initiating exclusive broadcasts of Los Angeles, Chicago, and New York professional baseball, basketball, and hockey games.
During this tenure, he produced the first televised home shopping program and directed development of the largest “pay-per-view”
channel system for its time. Mr. Ritter served on the board of directors for Martin Lawrence Art Galleries from 1980 to 1985 helping
take it public on The New York Stock Exchange. During his 20 years as a publisher, he produced monthly national consumer magazines
focused on health & fitness, women’s issues and the environment. Mr. Ritter also has a long history of public service
that includes appointments by three Governors to several State of California Commissions including eight years served as Commissioner
on the California Prison Industry Authority. He has guest lectured at University of Southern California Marshall School of Business
and Pepperdine University Graziadio School of Business where he also serves as an advisory board member to Pepperdine’s
Graduate School of Education and Psychology, Social Entrepreneurship and Change Program. Presently he serves on the board of directors
for Vitavis Laboratories. In 1981, Mr. Ritter was honored with the City of Hope’s Man of the Year award.
Qualifications
:
We believe that Mr. Ritter is well suited to serve on our board of directors due to his over 40 years’ experience overseeing
daily operations of diverse business enterprises, and his managing public as well as private companies. Mr. Ritter provides our
board of directors with extensive background in operational and strategic planning, as well as general executive and leadership
expertise. Mr. Ritter has served on the boards of several companies during his career.
Noah
J. Doyle
has served as a director of the Company since September 2008. He has been an entrepreneur and investor for over
20 years. Mr. Doyle is the managing director of Javelin GP, LLC, the general partner of Javelin GP, LP, which is the general partner
of Javelin and the manager of Javelin SPV. Prior to forming the first Javelin entities in 2008, Mr. Doyle supported over a dozen
start-ups as an angel investor, including Keyhole, Inc., or Keyhole (acquired by Google Inc. in 2004), Cantametrix, Inc. (acquired
by Gracenote, Inc. in 2002), Amae Software (acquired by Verint Systems, Inc. in 2006), Nuvon, Inc., Aquea Scientific Corporation,
Emdigo Inc., Magnacash Inc. (acquired by Yaga, Inc. in 2001), and i-mint India. Mr. Doyle most recently directed the enterprise
product line for Google’s geospatial products, Google Earth and Google Maps, from 2004 to 2007. From 2002 to 2004 he managed
the Sales and Corporate Development functions at Keyhole, which created the first Web hosted digital earth model. Prior to Keyhole,
Mr. Doyle helped establish the Internet loyalty rewards marketplace as a co-founder of MyPoints.com, or MyPoints, the largest
Internet loyalty program with over 6 million active members, where he led product management and business development functions
from the company’s inception in 1996 through its initial public offering and subsequent acquisition by United Airlines in
2002. Prior to joining MyPoints, Mr. Doyle was based in Tokyo where he managed overseas sales and marketing for the OEM channel
of Matsushita’s (Panasonic) communications equipment subsidiary in Japan, from 1990 to 1994. Mr. Doyle served on the board
of directors of MOL Global, Inc. from July 2014 to February 2016. He was also chairman of the management board of the University
of California, Berkeley’s campus bookstore, a $17 million retail operation, and also held product management and operations
management roles at IBM/Rational (Pure Atria) and Oracle, from 1989 to 1990. Mr. Doyle holds M.B.A. and B.A. Economics degrees,
as well as certificates in Management of Technology and Global Management from University of California — Berkeley.
Qualifications
:
We believe that Mr. Doyle is well suited to serve on our board of directors due to his over 20 years of experience as an entrepreneur
and investor. Mr. Doyle has experience as a venture capitalist building and serving on the boards of many public and private emerging
companies in leadership roles providing guidance on finance, development and operational growth.
Matthew
W. Foehr
has served as a director of the Company since February 2015. He currently serves as President and Chief Operating
Officer at Ligand Pharmaceuticals Incorporated, or Ligand, a commercial stage biopharmaceutical company. Prior to joining Ligand
in 2011, Mr. Foehr was Vice President and Head of Consumer Dermatology R&D, as well as Acting Chief Scientific Officer of
Dermatology, in the Stiefel division of GlaxoSmithKline, or GSK. Following GSK’s acquisition of Stiefel Laboratories, Inc.,
or Stiefel, in 2009, Mr. Foehr led the R&D integration of Stiefel into GSK. At Stiefel Laboratories, Inc., Mr. Foehr served
as Senior Vice President of Global R&D Operations, Senior Vice President of Product Development& Support, and Vice President
of Global Supply Chain Technical Services. Prior to joining Stiefel, Mr. Foehr held various executive roles at Connetics Corporation
including Senior Vice President of Technical Operations and Vice President of Manufacturing. Currently, he is a member of the
board of directors of Viking Therapeutics Inc. Mr. Foehr is the author of multiple scientific publications and is a named inventor
on numerous U.S. patents. He received his Bachelor of Science degree in Biology from Santa Clara University.
Qualifications
:
We believe that Mr. Foehr is well suited to serve on our board of directors due to his more than 20 years of experience in the
pharmaceutical industry and his experience managing global operations and research and development programs.
Paul
V. Maier
has served as a director of the Company since April 2015. From November 2009 through June 2014, Mr. Maier served
as the Chief Financial Officer of Sequenom Inc., a publicly held company serving the discovery, clinical research, and diagnostics
market. From February 2007 until November 2009, he served as an independent financial consultant. Previously, Mr. Maier was Senior
Vice President and Chief Financial Officer of Ligand from 1992 through 2007. From 1990 to 1992, Mr. Maier served as Vice President,
Finance of DFS West, a division of DFS Group LP, a private multinational retailer. From 1984 to 1990, Mr. Maier was employed by
ICN Pharmaceuticals, a pharmaceutical and biotechnology research products company, where he held various executive positions in
finance and general management in ICN as well as SPI Pharmaceuticals, a publicly held subsidiary. Mr. Maier currently serves on
the board of directors of International Stem Cell Corporation, Apricus Biosciences, MabVax Therapeutics, and Biological Dynamics.
Mr. Maier received an MBA from Harvard Business School and a BS from Pennsylvania State University.
Qualifications
:
We believe that Mr. Maier is well suited to serve on our board of directors due to his over 25 years of experience as a senior
executive in biotechnology and pharmaceutical companies and his extensive experience in finance.
Dr.
William M. Merino
has served as a director of the Company since January 17, 2017. Dr. Merino served as the Senior Vice
President of Worldwide Regulatory Affairs for Warner Lambert Pharmaceuticals from 1987 to 2000, where he was a member of the Office
of the Chairman and responsible for the registration and approval of pharmaceuticals products with regulatory agencies around
the world. He was also responsible for quality assurance, quality control and drug safety for the company, and led efforts to
gain expedited registration of Lipitor in the United States and abroad in 20 other countries. He also has previous experience
leading international regulatory affairs at Alcon Pharmaceuticals, G.D. Searle & Co., and Riker Laboratories. Dr. Merino has
served as a senior clinical and regulatory advisory to the Company. Dr. Merino received his PhD in Pharmacology from Purdue University.
Qualifications
:
We believe that Dr. Merino’s deep global experience in drug and device registration and his extensive work with senior members
of the FDA as well as several international regulatory authorities will bring important insight and acumen to our board of directors,
as the Company continues its interactions with the FDA in an effort to bring RP-G28 to market.
Gerald
T. Proehl
has served as a director of the Company since April 2015. Currently, Mr. Proehl is President, CEO, Founder and
Director of Dermata Therapeutics, LLC, a private biopharmaceutical company. From January 2002 to January 2014, he was the President,
Chief Executive Officer and a Director of Santarus, a company that he helped to found in 1999 and sold to Salix Pharmaceuticals
in January 2014 for $2.6 billion. From March 2000 through December 2001, Mr. Proehl was President and Chief Operating Officer
of Santarus, and from April 1999 to March 2000, Mr. Proehl was Vice President, Marketing and Business Development of Santarus.
Prior to joining Santarus, Mr. Proehl was with Hoechst Marion Roussel, Inc., or Hoechst, a global pharmaceutical company, for
14 years, where he served in various capacities, including Vice President of Global Marketing. During his career at Hoechst he
worked across numerous therapeutic areas, including CNS, cardiovascular, and gastrointestinal. Mr. Proehl currently serves on
the board of directors of two other public company boards, Sophiris Bio Inc. and Tenax Therapeutics, Inc. Mr. Proehl also serves
on a number of private company boards including Kinetek Sports, Patara Pharma LLC, MDRejuvena, Inc. and Dermata Therapeutics,
LLC. He also served on the board of directors of Auspex Pharmaceuticals, Inc. from January 2014 to May 2015. Mr. Proehl holds
a B.S. in education from the State University of New York at Cortland, an M.A. in exercise physiology from Wake Forest University
and an M.B.A. from Rockhurst College.
Qualifications
:
We believe that Mr. Proehl is well suited to serve on our board of directors due to his general business and commercial experience
in the pharmaceutical industry, as well as his strong background in business operations developed through his leadership at other
companies.
Board
of Directors Leadership Structure
The
roles of Chairman of the board of directors and Chief Executive Officer are held separately. Our Chief Strategic Officer also
serves as the Executive Chairman of our board of directors. Our board of directors has determined its leadership structure is
appropriate and effective for us at this time, given our stage of development.
Director
Independence
Under
NASDAQ’s continued listing requirements, a majority of a listed company’s board of directors must be comprised of
independent directors, subject to certain exceptions and phase-in rules. In addition, NASDAQ’s continued listing requirements
require that, subject to certain exceptions and phase-in rules, each member of a listed company’s audit, compensation and
governance and nominating committees must be independent. Audit committee members must also satisfy the independence criteria
set forth in Rule 10A-3 under the Exchange Act. Under NASDAQ’s continued listing requirements, a director will only qualify
as an “independent director” if, in the opinion of that company’s board of directors, that person does not have
a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Based
upon information requested from and provided by each director concerning their background, employment and affiliations, including
family relationships, our board of directors has determined that each of Messrs. Doyle, Foehr, Maier, Proehl and Dr. Merino are
independent under the applicable rules and regulations of NASDAQ. In making such determinations, the board of directors considered
the relationships that each such non-employee director has with our company and all other facts and circumstances the board of
directors deemed relevant in determining their independence.
Board
Diversity
Our
Nominating and Corporate Governance Committee is responsible for reviewing with the board of directors, on an annual basis, the
appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members.
In evaluating the suitability of individual candidates (both new candidates and current members), the Nominating and Corporate
Governance Committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies,
appointing) such candidates, takes into account many factors, including the following:
|
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diversity
of personal and professional background, perspective, experience, age, gender, ethnicity and country of citizenship;
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personal
and professional integrity and ethical values;
|
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experience
in one or more fields of business, professional, governmental, scientific or educational endeavors, and a general appreciation
of major issues facing public companies similar in scope and size to us;
|
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experience
relevant to our industry or with relevant social policy concerns;
|
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relevant
academic expertise or other proficiency in an area of our operations;
|
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objective
and mature business judgment and expertise; and
|
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●
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any
other relevant qualifications, attributes or skills.
|
Board
of Director’s Role in Risk Oversight
Risk
is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of
risks, including risks relating to product candidate development, technological uncertainty, dependence on collaborative partners
and other third parties, uncertainty regarding patents and proprietary rights, comprehensive government regulations, having no
commercial manufacturing experience, marketing or sales capability or experience and dependence on key personnel, as more fully
discussed under “Risk Factors” in this prospectus. Management is responsible for the day-to-day management of risks
we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management.
In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes
designed and implemented by management are adequate and functioning as designed.
Our
board of directors is actively involved in oversight of risks that could affect us. This oversight is conducted primarily through
committees of the board of directors, but the full board of directors has retained responsibility for general oversight of risks.
Our board of directors satisfies this responsibility through full reports by each committee chair regarding the committee’s
considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular
risks within our company as our board of directors believes that full and open communication between management and the board
of directors is essential for effective risk management and oversight.
Committees
of the Board of Directors
Our
board of directors has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
Each committee operates under a charter. Copies of each committee’s charter are posted on the Investor Relations section
of our website, which is located at
www.ritterpharmaceuticals.com
. The composition and function of each of these committees
are described below.
Audit
Committee
. NASDAQ rules require us to have an audit committee of at least three members, each of whom must: (i) be independent
under NASDAQ’s general director independence requirements; (ii) meet the criteria for independence set forth in Rule 10A-3(b)(1)
under the Exchange Act; (iii) not have participated in the preparation of the financial statements of the company or any current
subsidiary of the company at any time during the past three years; and (iv) be able to read and understand fundamental financial
statements, including a company’s balance sheet, income statement, and cash flow statement. Additionally, each company must
certify that it has, and will continue to have, at least one member of the audit committee who has past employment experience
in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background
which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight responsibilities.
The
current members of our Audit Committee are Matthew W. Foehr, Paul V. Maier and Gerald T. Proehl, with Mr. Maier serving as chairman.
Our board of directors has determined that each member of our Audit Committee is independent under Rule 10A-3 of the Exchange
Act and the continued listing requirements of NASDAQ, and that each member of our Audit Committee satisfies the other continued
listing requirements of NASDAQ for audit committee membership. Our board of directors has also determined that Mr. Maier qualifies
as an “audit committee financial expert,” as such term is defined by the SEC, and that he has the requisite level
of financial sophistication required by the continued listing requirements of NASDAQ.
Under
the Audit Committee charter, our Audit Committee is authorized to take the following actions, among others:
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●
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approve
and retain the independent auditors to conduct the annual audit of our financial statements;
|
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|
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●
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review
the proposed scope and results of the audit;
|
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●
|
review
and pre-approve audit and non-audit fees and services;
|
|
|
|
|
●
|
review
accounting and financial controls with the independent auditors and our financial and accounting staff;
|
|
|
|
|
●
|
review
and approve transactions between us and our directors, officers and affiliates;
|
Compensation
Committee
. NASDAQ rules require us to have a compensation committee comprised of at least two members, each of whom must
be independent under NASDAQ’s general director independence requirements.
The
current members of our Compensation Committee are Matthew W. Foehr, Paul V. Maier and Dr. William M. Merino, with Mr. Foehr serving
as chairman. Our board of directors has determined that each member of our Compensation Committee is independent under the continued
listing requirements of NASDAQ.
Under
the Compensation Committee charter, our Compensation Committee is authorized to take the following actions, among others:
|
●
|
review
and approve the compensation arrangements for our chief executive officer and approve, for subsequent review and ratification
by the full board, the compensation arrangements for our other executive officers;
|
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|
|
●
|
review,
approve and recommend to the board general compensation policies with the objective to attract and retain superior talent,
to reward individual performance and to achieve our financial goals; and
|
|
|
|
|
●
|
administer
our stock incentive plans.
|
To
determine executive compensation, the Compensation Committee, with input from the chief executive officer and other members of
senior management (who do not participate in the deliberations regarding their own compensation), reviews, at least annually,
and makes recommendations to the board of directors appropriate compensation levels for each executive officer of the Company.
The Compensation Committee considers all factors it deems relevant in setting executive compensation.
Under
its charter, the Compensation Committee has the authority, in its sole discretion, to select, retain and obtain the advice of
a compensation consultant as necessary to assist with the execution of its duties and responsibilities as set forth in its charter,
but only after taking into account certain factors prescribed by NASDAQ bearing on the consultant’s independence. There
is no requirement, however, that a compensation consultant be independent.
During
the past fiscal year, the Compensation Committee engaged Barney & Barney, or B&B, as compensation consultants. The Compensation
Committee identified and selected B&B based on their reputation and experience consulting companies in the life sciences industry.
The Compensation Committee requested that B&B:
|
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|
develop
a peer group of companies for market assessment;
|
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conduct
a competitive compensation assessment for the senior management team;
|
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develop
severance and change-in-control policies;
|
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develop
a competitive board of directors compensation program;
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●
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conduct
a competitive assessment for the broad-based employee population;
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●
|
develop
a broad-based equity grant strategy; and
|
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|
●
|
develop
a competitive employee stock purchase plan and help to determine an appropriate share reserve number for the Company’s
equity incentive plan.
|
Nominating
and Corporate Governance Committee
. NASDAQ does not require a separate nominations committee. However, if a company does
not have a separate committee composed entirely of directors who are independent under NASDAQ’s general director independence
requirements, certain nominating decisions must be made by a majority of the independent directors of the board of directors.
The
current members of our Nominating and Corporate Governance Committee are Noah Doyle, Dr. William M. Merino and Gerald Proehl,
with Mr. Proehl serving as chairman. Our board of directors has determined that each member of our Nominating and Corporate Governance
Committee is independent under the continued listing requirements of NASDAQ.
Under
the Nominating and Corporate Governance Committee charter, our Nominating and Corporate Governance Committee is authorized to
take the following actions, among others:
|
●
|
identify
and nominate members of the board of directors;
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develop
and recommend to the board of directors a set of corporate governance principles applicable to our company; and
|
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oversee
the evaluation of our board of directors.
|
Director
Nominations
Director
nominees are considered by our Nominating and Corporate Governance Committee on a case-by-case basis. A candidate for election
to our board of directors must possess the ability to apply good business judgment and must be in a position to properly exercise
his or her duties of loyalty and care in his or her representation of the interests of stockholders. Candidates should also exhibit
proven leadership capabilities, high integrity and experience with a high level of responsibilities within their chosen fields,
and have the ability to quickly grasp complex principles of business, finance, and transactions regarding the Company’s
industry. In general, preferred candidates will currently hold, or have recently held, an established executive level position
and have extensive experience in business, finance, law, science, research, or government. The Nominating and Corporate Governance
Committee will consider these criteria for nominees identified by the Nominating and Corporate Governance Committee or the board
of directors, by stockholders, or through other sources. When current directors are considered for nomination for reelection,
the Nominating and Corporate Governance Committee will take into consideration their prior contributions and performance as well
as the composition of our board of directors as a whole, including whether the board of directors reflects the appropriate balance
of independence, sound judgment, business specialization, technical skills, diversity, and other desired qualities. The Nominating
and Corporate Governance Committee will make a preliminary assessment of each proposed nominee based upon the résumé
and biographical information, an indication of the individual’s willingness to serve, and other relevant information. This
information will be evaluated against the criteria set forth above and the specific needs of the Company at that time. Based upon
a preliminary assessment of the candidate(s), those who appear best suited to meet the needs of the Company may be invited to
participate in a series of interviews, which are used as a further means of evaluating potential candidates. On the basis of information
learned during this process, the Nominating and Corporate Governance Committee will determine which nominee(s) to submit for election.
The Nominating and Corporate Governance Committee will use the same process for evaluating all nominees, regardless of the original
source of the nomination.
It
is our Nominating and Corporate Governance Committee’s responsibility to consider stockholder proposals for nominees for
election as directors that are nominated in accordance with our certificate of incorporation and our bylaws, and other applicable
laws, including the rules and regulations of the SEC and any stock market on which our stock is listed for trading or quotation.
Generally, such recommendations made by a stockholder entitled to notice of, and to vote at, the meeting at which such proposed
nominee is to be considered are required to be written and received by the Secretary of the Company by no later than the close
of business on the 90
th
day, nor earlier than the close of business of the 120
th
day in advance of the first
anniversary of the preceding year’s annual meeting of stockholders. The notice must set forth all of the information required
by the Company’s bylaws.
Meetings
and Attendance During 2016
The
board of directors held six meetings in 2016. Each director who served as a director during 2016 participated in 75% or more of
the meetings of the board of directors and of the committees on which he served during the year ended December 31, 2016 (during
the period that such director served). At each regular meeting of the board of directors, the independent directors meet in private
without members of management.
We
encourage all of our directors to attend our annual meeting of stockholders. In 2016, all of our directors attended the annual
meeting of stockholders.
Code
of Business Conduct and Ethics
We
adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers
responsible for financial reporting prior to the closing of our initial public offering. The code of business conduct and ethics
is available on our website at
www.ritterpharmaceuticals.com
. Any amendments to the code of business conduct and ethics,
or any waivers of its requirements that apply to our principal executive officer, principal financial officer or principal accounting
officer, will be disclosed on our website.
Communications
with the Board of Directors
The
board of directors has not established a formal process for security holders to send communications to the board of directors
and the Board has not deemed it necessary to establish such a process at this time. Historically, almost all communications that
the Company receives from security holders are administrative in nature and are not directed to the board of directors. If the
Company should receive a security holder communication directed to the board of directors, or to an individual director, said
communication will be relayed to the board of directors or the individual director as the case may be.
Executive
Officers
Our
Executive Officers as of the date of this prospectus are as follows:
Name
|
|
Age
|
|
Position
with the Company
|
Michael
D. Step
|
|
58
|
|
Chief
Executive Officer
|
Andrew
J. Ritter
|
|
34
|
|
President
|
Ira
E. Ritter
|
|
68
|
|
Executive
Chairman and Chief Strategic Officer
|
Ellen
Mochizuki
|
|
50
|
|
Vice
President Finance
|
Officers
serve at the discretion of the board of directors. There are no family relationships among any of our directors or executive officers,
other than Ira and Andrew Ritter, who are father and son, respectively. There is no arrangement or understanding between any executive
officer and any other person pursuant to which the executive officer was selected.
Michael
D. Step.
For Mr. Step’s biography, please see above under “Board of Directors.”
Andrew
J. Ritter.
For Mr. Ritter’s biography, please see above under “Board of Directors.”
Ira
E. Ritter.
For Mr. Ritter’s biography, please see above under “Board of Directors.”
Ellen
Mochizuki
has served as our Vice President, Finance since September 18, 2015. From August 2014 to June 2015, Ms. Mochizuki
consulted with various biopharmaceutical clients with respect to their initial public offerings and related financial statements.
From 2007 to 2014, she was a Director of Accounting (Benefits) for Northrop Grumman Corporation, or NGC, and was responsible for
the overall accounting and accounting operations of its $35 billion benefit assets. From 2006 to 2007, Ms. Mochizuki consulted
with NGC. From 2002 to 2005, she was a Senior Vice President at IndyMac Bank, overseeing human resources operations. Ms. Mochizuki
started her career as an auditor with PricewaterhouseCoopers. Ms. Mochizuki is an adjunct faculty at Pasadena City College teaching
accounting (2014 to 2015) and is licensed in the State of California as a certified public accountant though is currently on inactive
status.
EXECUTIVE
AND DIRECTOR COMPENSATION
Summary
Compensation Table (2016 and 2015)
The
following table sets forth the compensation paid or earned for the fiscal years ended December 31, 2016 and 2015 to our named
executive officers for each of those years, who are comprised of (1) our principal executive officer for such year, and
(2) our next two highest compensated executive officers other than the principal executive officer (whose compensation exceeded
$100,000).
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards
(1)
($)
|
|
|
Non-equity
Incentive
Compensation
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Michael
D. Step
|
|
|
2016
|
|
|
|
376,269
|
|
|
|
—
|
|
|
|
126,280
|
|
|
|
—
|
|
|
|
—
|
|
|
|
502,549
|
|
Chief
Executive Officer
|
|
|
2015
|
|
|
|
348,692
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
348,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
J. Ritter
|
|
|
2016
|
|
|
|
324,010
|
|
|
|
117,180
|
(2)
|
|
|
490,394
|
|
|
|
—
|
|
|
|
—
|
|
|
|
931,584
|
|
President
|
|
|
2015
|
|
|
|
259,260
|
|
|
|
124,000
|
(2)
|
|
|
—
|
|
|
|
225,000
|
(3)
|
|
|
109,952
|
(4)
|
|
|
718,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ira
E. Ritter
|
|
|
2016
|
|
|
|
308,332
|
|
|
|
97,571
|
(2)
|
|
|
490,394
|
|
|
|
—
|
|
|
|
—
|
|
|
|
896,297
|
|
Executive
Chairman and
|
|
|
2015
|
|
|
|
249,980
|
|
|
|
103,250
|
(2)
|
|
|
—
|
|
|
|
225,000
|
(3)
|
|
|
7,157
|
(4)
|
|
|
585,387
|
|
Chief
Strategic Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents
the aggregate grant date fair value of options awards granted during the years presented, determined in accordance with FASB
ASC Topic 718. For a discussion of the assumptions and methodologies used to value the options awards granted, see Note 8
“Stock Based Compensation” to our financial statements for the year ended December 31, 2016, which are incorporated
by reference in this prospectus.
|
|
|
(2)
|
Represents
annual bonuses earned for 2016 and 2015 based upon the achievement of specific performance goals, pursuant to the terms of
their respective offer letters. For 2016, the annual bonuses earned were equal to 90% of the target bonus opportunities for
each of Andrew Ritter (target bonus equal to 40% of his base salary) and Ira Ritter (target bonus equal to 35% of his base
salary). For 2015, the annual bonuses earned were equal to 100% of the target bonus opportunities for each of Andrew Ritter
(target bonus equal to 40% of his base salary) and Ira Ritter (target bonus equal to 35% of his base salary).
|
|
|
(3)
|
For
2015, represents cash bonuses of $75,000 and $150,000 attributable to the Clinical Trial Funding Commitment Bonus Opportunities
and the Fundraising Bonus Opportunities, respectively (as described below under “Compensation Arrangements with Andrew
Ritter and Ira Ritter”), paid to each of Andrew Ritter and Ira Ritter.
|
|
|
(4)
|
For
2015, represents auto allowances of $4,952 and $7,157 paid on behalf of Andrew Ritter and Ira Ritter, respectively. Also represents
$105,000 paid as tuition reimbursement pursuant to Andrew Ritter’s offer letter.
|
Narrative
to Summary Compensation Table
Letter
Agreement with Michael D. Step
On
December 2, 2014, we entered into a letter agreement (the “Step Letter Agreement”), with Mr. Step, our current Chief
Executive Officer, setting forth the terms of his employment. The Step Letter Agreement provides that Mr. Step will be entitled
to an annual base salary of $360,000. Pursuant to the Step Letter Agreement, Mr. Step was also entitled to receive three
stock options.
The
first two options entitle Mr. Step to purchase 646,537 and 73,377 shares of Common Stock of the Company, respectively, for an
exercise price of $5.86 per share. Each of these options was immediately exercisable in full as of the date of the grant,
with 44/48
ths
of the total number of shares covered by each option subject to a right of repurchase by the Company
upon termination of Mr. Step’s employment with us for any reason. This right of repurchase will lapse over a period of 44
months, with 1/44
th
of the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and
on the first day of each month thereafter. In addition, the right of repurchase will lapse in its entirety upon a termination
of the employment of Mr. Step by us without Cause or by Mr. Step with Good Reason and upon a Termination upon a Change in Control.
The
third option became exercisable upon the closing of our initial public offering on June 29, 2015. Pursuant to the terms of the
agreement, the option is exercisable for a total of 163,799 shares of our Common Stock, which, together with the shares subject
to the first option, represent 7.5% of the shares of Common Stock deemed to be outstanding at June 29, 2015 on a fully-diluted
basis, after giving effect to the number of shares subject to the third option. Seventy-five percent of the shares subject to
the third option are subject to a right of repurchase by us upon termination of Mr. Step’s employment for any reason. This
right of repurchase will lapse with respect to 1/36
th
of the total number of shares subject to the right of repurchase
on the first day of each month following the date on which the third option first becomes exercisable. In addition, the right
of repurchase will lapse in its entirety upon Mr. Step’s termination of employment under certain circumstances.
For
purposes of the Step Letter Agreement, the terms “Cause,” “Good Reason,” and “Termination upon a
Change in Control” each have the meanings ascribed to such terms in the Executive Severance & Change in Control Agreement
described below.
Compensation
Arrangements with Andrew Ritter and Ira Ritter
On
September 25, 2013, our board of directors approved the Executive Compensation Plan setting forth certain compensation to be paid
to Andrew Ritter and Ira Ritter for their contributions to the Company. Effective June 29, 2015, in connection with our initial
public offering, Andrew Ritter and Ira Ritter accepted offer letters from us setting for the terms of their employment as President
and Chief Strategic Officer, respectively. The offer letter superseded the Executive Compensation Plan.
Executive
Compensation Plan
Pursuant
to the terms of the Executive Compensation Plan Andrew Ritter’s salary was $225,000 per year and Ira Ritter’s salary
was $210,000 per year. Andrew Ritter was entitled to an annual car allowance of up to $8,400 and Ira Ritter was entitled to an
annual car allowance of up to $12,000. Any car allowance claimed by Andrew or Ira Ritter would result in an automatic reduction
in such person’s base salary then in effect.
Under
the Executive Compensation Plan, each of Andrew and Ira Ritter had bonus opportunities to receive cash payments and options to
purchase up to 48,951 shares of the Common Stock (each referred to in this section as an “Executive Option Grant”)
as described below. On December 2, 2014, they also each received an option to purchase up to 432,434 shares of the Common Stock.
See “Outstanding Equity Awards at 2015 Fiscal Year-End” for additional information regarding these options.
Pursuant
to the terms of the Executive Compensation Plan, Andrew and Ira Ritter were entitled to the following cash and equity payments
upon the satisfaction of the events described below:
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FDA
Meeting Bonus Opportunities.
In April 2013, Andrew and Ira Ritter each received a one-time cash bonus of $10,000
for meeting with the FDA regarding RP-G28’s pathway to FDA approval. Upon satisfaction of this milestone, 2,360 shares
under the Executive Option Grant vested and became exercisable as of September 25, 2013. An additional 1,136 shares were to
vest ratably on a monthly basis beginning on September 30, 2013.
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Clinical
Trial Funding Commitment Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira
Ritter were each entitled to receive a one-time cash bonus of $75,000 upon the Company’s receipt of a commitment by
a third party to fund a Phase 2 or later clinical trial whether or not any such committed funds were paid directly to the
Company; provided, however, that no such bonus would be paid at any time the Company has less than $2,000,000 in available
cash. In addition, the Executive Compensation Plan provided that upon the satisfaction of this milestone, 35% of 10,489 shares
of each of their Executive Option Grants would vest, with the balance of such 10,489 shares vesting in 36 equal monthly installments
beginning on the last day of the following month. The board of directors determined that this milestone was satisfied; accordingly,
each executive received the cash bonus and 3,671 shares of the Executive Options vested and became exercisable as of June
29, 2015, with the balance of 6,818 shares vesting ratably on a monthly basis beginning July 31, 2015.
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Fundraising
Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter were each entitled
to receive (i) a one-time cash bonus of $50,000 upon the sale of additional equity capital for cash, in one or more
closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial in an aggregate
amount in excess of $2,000,000 and (ii) a one-time cash bonus of $150,000 upon the sale of additional equity capital
for cash, in one or more closings after July 17, 2012 and/or the actual deployment of funds by a third party for a clinical
trial in an aggregate amount in excess of $10,000,000 (which such bonus would be reduced by any cash bonus paid under
subsection (i)); provided, however, that no bonus under subsection (i) or (ii) would be paid at any time the Company has less
than $2,000,000 in available cash. In addition, upon the satisfaction of the milestone described in subsection (i), 35% of
6,993 shares of each of their Executive Option Grants would vest, with the balance of the 6,993 shares vesting in 36 equal
monthly installments beginning on the last day of the following month, and, upon satisfaction of the milestone described in
subsection (ii), 35% of 13,986 shares of each of their Executive Option Grants would vest, with the balance of the 13,986
shares vesting in 36 monthly installments beginning on the last day of the following month. The board of directors determined
that the milestone as described in subsection (ii) above was satisfied upon the closing of the Company’s initial public
offering on June 29, 2015 raising approximately $17.4 million, net of offering costs; accordingly, each executive received
a bonus of $150,000 and 4,895 shares of the Executive Options vested and became exercisable as of June 29, 2015, with the
balance of 9,091 shares vesting ratably on a monthly basis beginning July 31, 2015.
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Further,
pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter were each entitled to receive the following cash
and equity bonus payments in connection with the closing of an exclusive license of RP-G28 and/or any future product candidate
developed by the Company from time to time during the term of the Executive Compensation Plan by and/or any option to exclusively
license such product candidate to a third party (referred to under the Executive Compensation Plan as a “License Event”)
with a minimum upfront payment to the Company of $2,000,000:
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A
graduated cash bonus equal to (i) 5% of the Initial Period License Payment (as defined below) up to $5,000,000; (ii) 4% of
the Initial Period License Payment in excess of $5,000,000 up to $10,000,000; and (iii) 3% of the Initial Period License
Payment in excess of $10,000,000. In addition, upon the Company’s receipt of an Initial Period License Payment
of more than $2,000,000, 35% of 45,454 shares of their Executive Option Grants would vest, with the balance of the 45,454
shares vesting in 36 monthly installments beginning on the last day of the following month.
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A
cash bonus equal to 3% of any Annual Excess Milestone Payments (as defined below); provided, however that no such bonus would
be paid at any time the Company has less than $1,000,000 in available cash. In addition, upon the Company’s receipt
of an Annual Excess Milestone Payment, 35% of 6,993 shares of their Executive Option Grants would vest and become exercisable,
with the balance of the 6,993 shares vesting in 36 monthly installments beginning on the last day of the following month.
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Notwithstanding
any of the vesting provisions described above, the total potential number of shares under the Executive Option Grant that could
vest would not exceed 48,951 and the Executive Option Grant automatically terminated for any shares for which a vesting date or
performance condition had not been met by September 25, 2015. Accordingly, as of September 30, 2015, 27,972 of the maximum 48,951
Executive Option Grants potentially issuable to Andrew and Ira Ritter had been issued to each executive subject to the vesting
conditions described above.
For
purposes of the Executive Compensation Plan, the term “Initial Period License Payment” meant the aggregate amount
in cash received by the Company (not including any amount placed in escrow or subject to earn-outs, contingencies or other deferrals
or earmarked to pay or reimburse the Company for research and development activities) in respect of the License Event over a 24
month period beginning on the closing date of such License Event (which period is referred to therein as the “Initial Period”).
The term “Annual Excess Milestone Payments” meant the amount in cash in excess of $2,000,000 (not including
any amounts placed in escrow or subject to earn-outs, contingencies or other deferrals) that was received by the Company in respect
of any Post-Closing Milestones (as defined below) in each 12-month period beginning on the expiration of the Initial Period. The
term “Post-Closing Milestones” meant any post-closing payouts set forth in the definitive transaction documentation
executed in connection with a License Event; provided, however, that such amounts would not include any amounts that were determined
by the board of directors to comprise all or any portion of any upfront payment made in connection with a License Event and any
royalty payment based on product sales.
Under
the terms of the Executive Compensation Plan, receipt by the Company of more than one
bona fide
term sheet for a proposed
License Event with respect to RP-G28 would result in the payment of an additional 10% of any cash bonus earned as Clinical Trial
and Fundraising Bonus or a License Event Bonus.
Offer
Letters with Andrew Ritter and Ira Ritter
The
compensation terms outlined in the offer letters, which became effective June 29, 2015, superseded and replaced those provided
in the Executive Compensation Plan, which is described above, other than certain provisions related to the bonus opportunities.
The offer letters provide that Andrew Ritter is entitled to an annual base salary of $310,000 and Ira Ritter is entitled to an
annual base salary of $295,000. In accordance with his offer letter, Andrew Ritter also became entitled to receive up to $180,000
payable over a three year period for tuition reimbursement.
Pursuant
to their respective offer letters, Andrew Ritter and Ira Ritter each have the opportunity to earn an annual bonus based upon a
percentage of their base salary and the achievement of specific performance as determined by the Company. The initial target bonus
opportunities are 40% and 35% of the base salary for Andrew Ritter and Ira Ritter, respectively.
2008
Stock Plan
Our
2008 Stock Plan permitted us to grant non-statutory stock options, incentive stock options and restricted stock to our employees,
directors and consultants; however, incentive stock options may only be granted to our employees. The maximum aggregate number
of shares of Common Stock that were issuable under the 2008 Stock Plan was 2,046,158 shares, after giving effect to the 1-for-7.15
reverse stock split. Beginning June 29, 2015, no further awards may be issued under the 2008 Stock Plan.
The
2008 Stock Plan is administered by either our board of directors or a committee of our board of directors, which in either case,
we refer to as the Administrator. The Administrator has full authority and discretion to, among other things, determine the terms
and conditions of any awards granted under the 2008 Stock Plan, and construe and interpret the terms of the 2008 Stock Plan and
any awards granted thereunder.
Stock
Options
. Each option will be designated in the option agreement as either an incentive stock option or a nonstatutory stock
option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value (as defined in the 2008
Stock Plan) of the shares with respect to which an incentive stock option is exercisable for the first time by the optionee during
any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated
as nonstatutory stock options. The term of any stock option awarded under the 2008 Stock Plan will not exceed 10 years from the
date of grant. In the case of an incentive stock option granted to a person who, at the time the stock option is granted, owns
stock representing more than 10% of the voting power of all classes of our stock or any parent or subsidiary, who we refer to
as a 10% Holder, the term of the option will be five years from the date of grant or such shorter period as may be provided in
the option agreement. The per share exercise price for shares to be issued upon exercise of an option will be such price as is
determined by the Administrator, but will be (i) in the case of an incentive stock option, (A) granted to an employee who, at
the time of grant of such option, is a 10% Holder, no less than 110% of the Fair Market Value per share on the date of grant;
or (B) granted to any other employee, no less than 100% of the Fair Market Value per share on the date of grant; and (ii) in the
case of a nonstatutory stock option, no less than 100% of the Fair Market Value per share on the date of grant. The consideration
to be paid for the shares to be issued upon exercise of a stock option, including the method of payment, will be determined by
the Administrator (and, in the case of an incentive stock option, will be determined at the time of grant). Such consideration
may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other shares (provided that such shares have
a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares as to which such option may be
exercised and provided that accepting such shares, in the sole discretion of the Administrator, will not result in any adverse
accounting consequences to the Company), (5) consideration received by us under a cashless exercise program we have implemented
in connection with the 2008 Stock Plan, or (6) such other consideration and method of payment for the issuance of shares to the
extent permitted by applicable laws, or (7) any combination of the foregoing methods of payment.
Restricted
Stock
. Restricted stock may be issued either alone, in addition to, or in tandem with other awards granted under the 2008
Stock Plan and/or cash awards made outside of the 2008 Stock Plan, at a purchase price determined by the Administrator. Any restricted
stock granted under the 2008 Stock Plan will be subject to the terms and conditions of a restricted stock purchase agreement,
which, unless the Administrator determines otherwise, will grant us a repurchase option according to terms the Administrator determines.
The term of each restricted stock award will be no more than 10 years from the date of grant.
Under
the 2008 Stock Plan, if an optionee ceases to be an employee, director, consultant, such optionee may exercise his or her option
within 30 days of termination, or such longer period of time as specified in the option agreement, to the extent that the option
is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the
option agreement). Unless the Administrator provides otherwise, if, on the date of termination, the optionee is not vested as
to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If,
after termination, the optionee does not exercise his or her option within the time specified by the Administrator, the option
will terminate, and the shares covered by such option will revert to the 2008 Stock Plan. Unless the Administrator provides otherwise,
or except as otherwise required by applicable laws, vesting of options granted to employees, officers and directors will be suspended
during any unpaid leave of absence. For purposes of incentive stock options, no such leave may exceed 90 days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved
by us is not so guaranteed, then six months following the first day of such leave, any incentive stock option held by the optionee
will be treated for tax purposes as a nonstatutory stock option.
If
an optionee ceases to be an employee, director, consultant as a result of the optionee’s Disability (as defined in the 2008
Stock Plan), the optionee may exercise his or her option within six months of termination, or such longer period of time as specified
in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration
of the term of the option as set forth in the option agreement). Unless the Administrator provides otherwise, if, on the date
of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option
will revert to the 2008 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified,
the option will terminate, and the shares covered by such option will revert to the 2008 Stock Plan.
If
an optionee dies while an employee, director, consultant, the option may be exercised within six months following the optionee’s
death, or such longer period of time as specified in the option agreement, to the extent the option is vested on the date of termination
(but in no event later than the expiration of the term of the option as set forth in the option agreement) by the optionee’s
designated beneficiary; provided such beneficiary has been designated prior to optionee’s death in a form acceptable to
the Administrator. If no such beneficiary has been designated by the optionee, then such option may be exercised by the personal
representative of the optionee’s estate or by the person(s) to whom the option is transferred pursuant to the optionee’s
will or in accordance with the laws of descent and distribution. If, at the time of death, the optionee is not vested as to his
or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If the option
is not so exercised within the time specified, the option will terminate, and the shares covered by such option will revert to
the 2008 Stock Plan.
If
an option or restricted stock purchase right expires or becomes unexercisable without having been exercised in full, or is surrendered
pursuant to an exchange program, the unpurchased shares that were subject to such award will become available for future grant
or sale under the 2008 Stock Plan (unless the 2008 Stock Plan has terminated). However, shares that have actually been issued
under the 2008 Stock Plan, upon exercise of either an option or restricted stock purchase right, will not be returned to the 2008
Stock Plan and will not become available for future distribution under the 2008 Stock Plan, except that if unvested shares of
restricted stock are repurchased by us at their original purchase price, such shares will become available for future grant under
the 2008 Stock Plan.
Unless
determined otherwise by the Administrator, options and restricted stock purchase rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner, and may be exercised only by the optionee during such person’s lifetime.
In
the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase
or exchange of our shares or other securities, or other change in our corporate structure affecting the shares occurs, the Administrator,
in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2008
Stock Plan, will adjust the number of and class of shares that may be delivered under the 2008 Stock Plan and/or the number, class
and price of shares covered by each outstanding option or stock purchase right; provided, however, that the Administrator will
make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
The
board of directors may at any time amend, alter, suspend or terminate the 2008 Stock Plan, but must obtain stockholder approval
of any amendment to the extent necessary and desirable to comply with applicable laws. No amendment, alteration, suspension or
termination of the 2008 Stock Plan may impair the rights of any optionee, unless otherwise mutually agreed in writing by the optionee
and the Administrator. The 2008 Stock Plan will continue in effect for a term of ten years from the later of (a) the effective
date of the Plan or (b) the earlier of the most recent board or stockholder approval of an increase in the number of shares reserved
for issuance under the 2008 Stock Plan.
2009
Stock Plan
Our
2009 Stock Plan permitted us to grant non-statutory stock options, incentive stock options and stock purchase rights to our employees,
outside directors and consultants; however, incentive stock options could only be granted to our employees. The maximum aggregate
number of shares of Common Stock that were issuable under the 2009 Stock Plan was 69,930 shares, after giving effect to the 1-for-7.15
reverse stock split. Beginning June 29, 2015, no further awards may be issued under the 2009 Stock Plan.
The
2009 Stock Plan is administered by either our board of directors or a committee of our board of directors, which in either case,
we refer to as the Administrator. The Administrator has full authority and discretion to, among other things, determine the terms
and conditions of any awards granted under the 2009 Stock Plan, and construe and interpret the terms of the 2009 Stock Plan and
any awards granted thereunder.
Stock
Options
. Each option will be designated in the option agreement as either an incentive stock option or a nonstatutory stock
option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value (as defined in the 2009
Stock Plan) of the shares with respect to which an incentive stock option is exercisable for the first time by the optionee during
any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated
as nonstatutory stock options. The term of any stock option awarded under the 2009 Stock Plan shall not exceed 10 years from the
date of grant. In the case of an incentive stock option granted to a person who, at the time the stock option is granted, owns
stock representing more than 10% of the voting power of all classes of our stock or any parent or subsidiary of, who we refer
to as a 10% Holder, the term of the option will be five years from the date of grant or such shorter period as may be provided
in the option agreement. The per share exercise price for shares to be issued upon exercise of an option will be such price as
is determined by the Administrator, but will be (i) in the case of an incentive stock option, (A) granted to an employee who,
at the time of grant of such option, is a 10% Holder, no less than 110% of the Fair Market Value per share on the date of grant;
or (B) granted to any other employee, no less than 100% of the Fair Market Value per share on the date of grant; and (ii) in the
case of a nonstatutory stock option, no less than 100% of the Fair Market Value per share on the date of grant. The consideration
to be paid for the shares to be issued upon exercise of a stock option, including the method of payment, will be determined by
the Administrator (and, in the case of an incentive stock option, will be determined at the time of grant). Such consideration
may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other shares (provided shares acquired directly
from us (x) have been owned by the optionee for more than six months of the date of surrender and (y) have a Fair Market Value
of the date of surrender equal to the aggregate exercise price of the shares as to which such option may be exercised), (5) consideration
received by us under a cashless exercise program we have implemented in connection with the 2009 Stock Plan, or (6) any combination
of the foregoing methods of payment.
Stock
Purchase Rights
. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted
under the 2009 Stock Plan and/or cash awards made outside of the 2009 Stock Plan, and will entitle the recipient to purchase shares
of our Common Stock at a purchase price determined by the Administrator. Any stock purchase rights granted under the 2009 Stock
Plan will be subject to the terms and conditions of a restricted stock purchase agreement, which, unless the Administrator determines
otherwise, will grant us a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s
service with us for any reason (including death or disability) at the original price paid by the purchase, which may be paid by
us by cancellation of any indebtedness of the purchaser to us, and which right will lapse at such rate as the Administrator may
determine.
Under
the 2009 Stock Plan, if an optionee ceases to be an employee, director, consultant (or other permitted recipient under Rule 701
under the Securities Act), such optionee may exercise his or her option within 30 days of termination, or such longer period of
time as specified in the option agreement, to the extent that the option is vested on the date of termination (but in no event
later than the expiration of the term of the option as set forth in the option agreement, and in the case of an incentive stock
option, in no event later than the earlier of three months after the date of termination and the expiration of the term of the
option as set forth in the option agreement). If, on the date of termination, the optionee is not vested as to his or her entire
option, the shares covered by the unvested portion of the option will revert to the 2009 Stock Plan. If, after termination, the
optionee does not exercise his or her option within the time specified by the Administrator, the option will terminate, and the
shares covered by such option will revert to the 2009 Stock Plan. Unless the Administrator provides otherwise, vesting of options
granted to employees, officers and directors will be suspended during any unpaid leave of absence. For purposes of incentive stock
options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by us is not so guaranteed, then following the 91
st
day of such leave, any incentive stock option held by the optionee will cease to be treated as an incentive stock option and will
instead be treated for tax purposes as a nonstatutory stock option.
If
an optionee ceases to be an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act),
as a result of the optionee’s Disability (as defined in the 2009 Stock Plan), the optionee may exercise his or her option
within six months of termination, or such longer period of time as specified in the option agreement, to the extent the option
is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the
option agreement, and in the case of an incentive stock option, in no event later than the earlier of three months after the date
of termination and the expiration of the term of the option as set forth in the option agreement). If, on the date of termination,
the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert
to the 2009 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified by the
Administrator, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan.
If
an optionee dies while an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act),
the option may be exercised within six months following the optionee’s death, or such longer period of time as specified
in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration
of the term of the option as set forth in the option agreement) by the optionee’s designated beneficiary; provided such
beneficiary has been designated prior to optionee’s death in a form acceptable to the Administrator. If no such beneficiary
has been designated by the optionee, then such option may be exercised by the personal representative of the optionee’s
estate or by the person(s) to whom the option is transferred pursuant to the optionee’s will or in accordance with the laws
of descent and distribution. If, at the time of death, the optionee is not vested as to his or her entire option, the shares covered
by the unvested portion of the option will revert to the 2009 Stock Plan. If the option is not so exercised within the time specified
above, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan.
If
an option or stock purchase right expires or becomes unexercisable without having been exercised in full, the unpurchased shares
that were subject to such award will become available for future grant or sale under the 2009 Stock Plan (unless the 2009 Stock
Plan has terminated). However, shares that have actually been issued under the 2009 Stock Plan, upon exercise of either an option
or stock purchase right, will not be returned to the 2009 Stock Plan and will not become available for future distribution under
the 2009 Stock Plan, except that if unvested shares of restricted stock are repurchased by us at their original purchase price,
such shares will become available for future grant under the 2009 Stock Plan.
Unless
determined otherwise by the Administrator, options and stock purchase rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner, and may be exercised only by the optionee during such person’s lifetime.
In
the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase
or exchange of our shares or other securities, or other change in our corporate structure affecting the shares occurs, the Administrator,
in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2009
Stock Plan, may (in its sole discretion) adjust the number of and class of shares that may be delivered under the 2009 Stock Plan
and/or the number, class and price of shares covered by each outstanding option or stock purchase right; provided, however, that
the Administrator will make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
The
board of directors may at any time amend, alter, suspend or terminate the 2009 Stock Plan, but must obtain stockholder approval
of any amendment to the extent necessary and desirable to comply with applicable laws. The 2009 Stock Plan will also be subject
to approval by our stockholders prior to the later of (i) 12 months after the 2009 Stock Plan is adopted or (ii) the date
of first grant of an option or stock purchase right to an employee, director or consultant (or other permitted recipient under
Rule 701 under the Securities Act) in California. No amendment, alteration, suspension or termination of the 2009 Stock Plan may
impair the rights of any optionee, unless otherwise mutually agreed in writing by the optionee and the Administrator.
2015
Equity Incentive Plan
On
June 15, 2015, our board of directors approved the 2015 Equity Incentive Plan, and on June 17, 2015, the 2015 Equity Incentive
Plan was approved by our stockholders. The 2015 Equity Incentive Plan was subsequently amended by the stockholders of the Company
on June 3, 2016 and on June 2, 2017.
The
purposes of the 2015 Equity Incentive Plan, as amended, or the 2015 Plan, are to optimize the profitability and growth of the
Company through long-term incentives that are consistent with the Company’s objectives and that link the interests of award
recipients, or Grantees, to those of the Company’s stockholders; to give award recipients an incentive for excellence in
individual performance; to promote teamwork among Grantees; and to give the Company flexibility in attracting and retaining key
employees, directors and consultants.
Selected
employees, officers and directors of the Company or any subsidiary, and consultants, advisors and independent service providers
to the Company and any subsidiary who qualify as a “consultant” under the applicable rules of the SEC for registration
of shares on a Form S-8 registration statement, are eligible to receive awards under the 2015 Plan. The plan administrator may
also grant awards to individuals in connection with hiring, retention or otherwise before the date the individual first performs
services for the Company or any subsidiary; provided, however, that those awards will not become vested or exercisable before
the date the individual first performs services for the Company or any subsidiary.
The
number of shares of Common Stock that we may issue pursuant to awards under the 2015 Plan is (i) 1,641,289 plus (ii) any shares
which were available for grant under the 2008 Stock Plan or the 2009 Stock Plan, or, collectively, the Prior Plans, on the effective
date of the 2015 Plan or were subject to awards under the Prior Plans which, after the effective date of the 2015 Plan, were or
are forfeited or lapse unexercised or are settled in cash and are not issued under the Prior Plans. No more than 1,641,289 shares
of Common Stock may be issued pursuant to incentive stock options intended to qualify under Section 422 of the Internal Revenue
Code, or the Code. No awards may be granted under any Prior Plan; however, any awards granted under any Prior Plan that were outstanding
as of the effective date of the 2015 Plan continue to be subject to the terms and conditions of such Prior Plan. The maximum number
of shares of Common Stock subject to awards of any combination that may be granted under the 2015 Plan during any calendar year
to any one individual is limited to 300,000 shares; provided, however, that the foregoing limitation will not apply until the
earliest of (a) the first material modification of the 2015 Plan (including any increase in the number of shares reserved
for issuance under the 2015 Plan); (b) the issuance of all of the shares reserved for issuance under the 2015 Plan; (c) the first
meeting of stockholders at which members of the board of directors are elected that occurs after the close of the third calendar
year following the calendar year in which occurred the first registration of an equity security of the Company under Section 12
of the Exchange Act; or (d) such other date required by Section 162(m) of the Code.
These
limits will be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation
or other distribution and/or similar transactions. To the extent that (i) an award terminates, expires, lapses or is forfeited
for any reason, (ii) any award is settled in cash (in whole or in part) without the delivery of shares to the Grantee, or (iii)
any shares subject to an award under any Prior Plan terminate, expire, lapse or are forfeited for any reason or an award under
any Prior Plan is settled for cash (in whole or in part), then any shares subject to the award, to the extent of such termination,
expiration, lapse, forfeiture or cash settlement, will again be available for the grant of an award pursuant to the 2015 Plan.
Any shares tendered or withheld to satisfy the grant or exercise prior or tax withholding obligation pursuant to any award will
again be available for the grant of an award pursuant to the 2015 Plan.
The
2015 Plan may be administered by a committee or subcommittee of the board of directors as the board of directors may appoint from
time to time, or by our full board of directors if no committee is designated or for other specific purposes. At present, the
2015 Plan is administered by our Compensation Committee. The plan administrator has the full authority and discretion to administer
the 2015 Plan and to take any action that is necessary or advisable in connection with the administration of the 2015 Plan, including
without limitation the authority and discretion to interpret and administer the 2015 Plan and any award agreement relating to
the 2015 Plan or any award made thereunder, the authority to designate Grantees to receive awards under the 2015 Plan and to determine
the type or types of awards to be granted to such Grantees, the authority to determine the terms and conditions of awards granted
under the 2015 Plan, and the authority to determine whether, to what extent, and pursuant to what circumstances and award may
be settled in, or the exercise price of an award may be paid in, cash, shares, other awards, or other property, or an award may
be canceled, forfeited or surrendered. The plan administrator’s determinations will be final and conclusive. The plan administrator
may delegate certain of its authority to others as specified in the 2015 Plan.
The
2015 Plan provides for grants of stock options (including incentive stock options qualifying under Section 422 of the Code and
nonstatutory stock options), restricted stock awards, stock appreciation rights, restricted stock units, performance awards, other
stock-based awards or any combination of the foregoing.
Stock
options
. The 2015 Plan allows the plan administrator to grant incentive stock options, as that term is defined in Section
422 of the Code, or nonqualified stock options. No incentive stock option award may be granted to any person who is not an employee
of the Company or any subsidiary. Options must have an exercise price at least equal to the fair market value of the underlying
shares on the date of grant. In addition, in the case of incentive stock options granted to a greater than 10% stockholder of
the Company, such exercise price may not be less than 110% of the fair market value of the underlying shares on the date of grant.
The option holder may pay the exercise price in cash or by check, by tendering shares of Common Stock (including shares issuable
in settlement of the award), payment through a broker or by any other means that the plan administrator approves. Options granted
under the 2015 Plan will have a term of no more than 10 years, or five years in the case of incentive stock options granted to
a greater than 10% stockholder of the Company; however, the options will expire earlier if the option holder’s service relationship
with us terminates or as otherwise provided in an award agreement.
Restricted
stock awards
. The 2015 Plan allows the plan administrator to grant restricted stock awards, which issue to the holder a certain
number of shares of Common Stock that are subject to restrictions or conditions as the plan administrator deems appropriate, such
as time-based or performance-based criteria, and which become vested upon the lapse or satisfaction of such conditions. The plan
administrator may apply limitations to any restricted stock award and establish the purchase price (or provide for no purchase
price), provided that if a purchase price is established, it may not be less than par value of the shares to be purchased.
Stock
appreciation rights
. The 2015 Plan allows the plan administrator to grant awards of stock appreciation rights, which entitle
the holder to receive a payment in cash, in shares of Common Stock, or in a combination of both, having an aggregate value equal
to the spread on the date of exercise between the fair market value of the underlying shares on that date and the base price of
the shares specified in the grant agreement, multiplied by the number of shares specified in the award being exercised and as
otherwise provided in an award agreement. Stock appreciation rights may not have a base price of less than 100% of the fair market
value of the underlying shares on the date of grant.
Restricted
stock units
. The 2015 Plan allows the plan administrator to grant awards of restricted stock units, which entitle the holder
to a number of shares of Common Stock, a cash payment or some combination thereof, upon satisfaction of vesting and other criteria
for issuance or upon such later date as specified in the award agreement, as established by the plan administrator in the award
agreement.
Other
stock-based awards
. The 2015 Plan allows the plan administrator to grant other stock-based stock awards to eligible participants,
including dividend equivalent rights, stock payments and/or deferred stock. A dividend equivalent may be granted alone or in conjunction
with another type of award, and generally provides for payment, in cash, Common Stock or some combination thereof, of an amount
equal to the dividends that would have been payable with respect to a specified number of underlying shares. A stock payment is
an award to a Grantee, only upon satisfaction of performance-based criteria or other criteria specified by the plan administrator,
of a specified number of shares of Common Stock, or an option to purchase Common Stock, which may be (but is not required to be)
in lieu of base salary, bonus, fees or other cash consideration to the Grantee. A deferred stock award is a grant to a Grantee,
only upon satisfaction of performance-based criteria or other criteria specified by the plan administrator, of a specified number
of shares of Common Stock.
Performance
awards
. The 2015 Plan allows the plan administrator to grant performance awards which become payable in Common Stock, in cash
or in a combination of Common Stock and cash, on account of attainment of one or more performance goals established by the plan
administrator on one or more specified dates or over a specified period or periods. The plan administrator may establish performance
goals relating to any of the following: (i) gross or net earnings (either before or after one or more of the following: interest,
taxes, depreciation and amortization); (ii) gross or net sales or revenue; (iii) gross or net income or adjusted income (either
before or after taxes); (iv) operating earnings or profit; (v) cash flow (including, but not limited to, operating cash flow and
free cash flow); (vi) return on assets; (vii) return on capital; (viii) return on stockholders’ equity; (ix) return on sales;
(x) gross or net profit or operating margin; (xi) costs; (xii) funds from operations; (xiii) expenses; (xiv) working capital;
(xv) earnings per share or adjusted earnings per share; (xvi) price per share of Common Stock; (xvii) regulatory body approval
for commercialization of a product; (xviii) implementation or completion of critical projects; (xix) market share; or (xx) total
stockholder return; any of which may be measured either in absolute terms or as compared to any incremental increase or decrease
or as compared to results of a peer group or to market performance indicators or indices.
The
plan administrator may, in its sole discretion, provide that one or more objectively determinable adjustments will be made to
one or more of the performance goals described above, such as adjustments to account for changes in the Company’s or segment’s
business (e.g., restructuring, acquisition or disposal or discontinuance of a business segment), accounting or financial reporting
(e.g., change in accounting principles, significant income or expense or amortization of assets) or for other unusual or non-recurring
events, all as further detailed in the 2015 Plan. For all awards intended to qualify as performance-based compensation, such determinations
shall be made within the time periods prescribed by, and otherwise in compliance with, Section 162(m) of the Code.
Amendment
and termination.
No award will be granted under the 2015 Plan after the tenth anniversary of the effective date of the 2015
Plan. Subject to applicable laws and exchange limitations, our board of directors or the plan administrator may terminate, amend
or modify the 2015 Plan, or any portion thereof, at any time. Stockholder approval will be required to (i) increase the limits
imposed on the maximum number of shares which may be issued under the 2015 Plan or as incentive stock options (other than an appropriate
adjustment due to stock dividend, stock split, combination or exchange of shares, merger, consolidation or similar circumstance),
(ii) reduce the price per share of any outstanding option or stock appreciation right or cancel any such award in exchange for
cash when the exercise price per share exceeds the fair market value of the underlying shares, or (iii) materially change the
class of persons who are eligible to participate in the 2015 Plan; provided, however, that no amendment, suspension or termination
of the 2015 Plan may, without the consent of the Grantee, materially impair any rights or obligations under any award granted
or awarded thereunder, unless the award itself otherwise expressly so provides.
Outstanding
Equity Awards at 2016 Fiscal Year-End
The
following table presents the outstanding equity awards held by each of the named executive officers as of December 31, 2016.
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
Michael
D. Step
|
|
|
26,163
|
|
|
|
—
|
|
|
|
1.14
|
|
|
8/16/2022
|
|
|
|
646,537
|
(1)
|
|
|
—
|
|
|
|
5.86
|
|
|
12/2/2024
|
|
|
|
73,377
|
(2)
|
|
|
—
|
|
|
|
5.86
|
|
|
12/2/2024
|
|
|
|
163,799
|
(3)
|
|
|
—
|
|
|
|
5.86
|
|
|
12/2/2024
|
|
|
|
8,542
|
(4)
|
|
|
73,458
|
(4)
|
|
|
1.54
|
|
|
7/5/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
J. Ritter
|
|
|
19,575
|
(5)
|
|
|
8,397
|
(5)
|
|
|
1.27
|
|
|
9/25/2023
|
|
|
|
20,979
|
|
|
|
—
|
|
|
|
5.86
|
|
|
12/2/2024
|
|
|
|
243,245
|
(6)
|
|
|
189,190
|
(6)
|
|
|
(6
|
)
|
|
12/2/2024
|
|
|
|
8,542
|
(7)
|
|
|
73,458
|
(7)
|
|
|
1.54
|
|
|
7/5/2026
|
|
|
|
—
|
|
|
|
140,044
|
(8)
|
|
|
2.60
|
|
|
10/25/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ira
E. Ritter
|
|
|
19,575
|
(9)
|
|
|
8,397
|
(9)
|
|
|
1.27
|
|
|
9/25/2023
|
|
|
|
20,979
|
|
|
|
—
|
|
|
|
5.86
|
|
|
12/2/2024
|
|
|
|
243,245
|
(10)
|
|
|
189,190
|
(10)
|
|
|
(10
|
)
|
|
12/2/2024
|
|
|
|
8,542
|
(11)
|
|
|
73,458
|
(11)
|
|
|
1.54
|
|
|
7/5/2026
|
|
|
|
—
|
|
|
|
140,044
|
(12)
|
|
|
2.60
|
|
|
10/25/2026
|
|
(1)
|
This
option was granted to Mr. Step on December 2, 2014 and was immediately exercisable in full as of the date of grant. Of the
shares subject to this option, 592,659 shares are subject to a right of repurchase in favor of us at a price of $5.86
per share, which right expires ratably over 44 months commencing January 1, 2015 and in full upon a change of control or upon
Mr. Step’s employment termination by us without Cause, subject to his continued employment with us (as described in
the stock option award agreement).
|
|
|
|
|
(2)
|
This
option was granted to Mr. Step on December 2, 2014 and was immediately exercisable in full as of the date of grant. Of the
shares subject to this option, 67,262 shares are subject to a right of repurchase in favor of us at a price of $5.86
per share, which rights expires ratably over 44 months commencing January 1, 2015 and in full upon a change of control or
upon Mr. Step’s employment termination by us without Cause, subject to his continued employment with us (as described
in the stock option award agreement).
|
|
|
|
|
(3)
|
This
option was granted to Mr. Step on December 2, 2014. The total number of shares issued under this option equaled the number
of shares of Common Stock, together with the 646,537 shares subject to the option granted to Mr. Step on December 2, 2014,
representing in the aggregate 7.5% of the shares of Common Stock deemed to be outstanding on a fully-diluted basis as of the
date that we raised in the aggregate a minimum of $15,000,000 in one or more private and/or public offerings, or a
Qualified Financing, after giving effect to (i) the issuance of the shares issued in the Qualified Financing, (ii) the issuance
of this option and (iii) any adjustments. 75% of the shares subject to the third option are subject to a right of repurchase
upon termination of Mr. Step’s employment for any reason, which right expires ratably over 36 months commencing with
July 1, 2015 and in full upon a change of control or upon Mr. Step’s employment termination by us without Cause, subject
to his continued employment with us (as described in the stock option award agreement).
|
|
(4)
|
This
option was granted to Mr. Step on July 5, 2016 for an aggregate of 82,000 shares. The option vests in 48 equal monthly installments,
the first of which vested on July 20, 2016 with the balance vesting on the 20th day of each calendar month thereafter until
vested in full.
|
|
|
|
|
(5)
|
This
option was granted to Andrew Ritter on September 25, 2013 for an aggregate of up to 48,951 shares, subject to the achievement
of certain milestones. The option included 2,360 shares that vested and became exercisable as of the date of grant (with a
balance of 1,137 shares vesting ratably on a monthly basis from September 30, 2013 over 36 months) attributable to the FDA
Meeting Bonus milestone. An additional 3,671 shares vested and became exercisable as of June 29, 2015 (with a balance of 6,818
shares vesting ratably on a monthly basis from July 31, 2015 over 36 months) attributable to the Clinical Trial Funding Commitment
Bonus Opportunity milestone. An additional 4,895 shares vested and became exercisable as of June 29, 2015 (with a balance
of 9,091 shares vesting ratably on a monthly basis beginning July 31, 2015 over 36 months) attributable to the Fundraising
Bonus Opportunities milestone. The option for the remaining balance of the 20,979 shares expired unvested as of September
30, 2015.
|
|
(6)
|
This
option was granted to Andrew Ritter on December 2, 2014 and vests as follows: 25% of the shares vest on September 1, 2015
and the remaining 75% of the shares will vest in 36 equal monthly installments beginning on the last day of the first full
month thereafter, subject to his continued employment with us. The exercise price for this option is as follows: (i) $5.86
for the first 152,347 shares; (ii) $9.30 for the next 140,044 shares; and (iii) $13.23 for the remaining 140,043 shares
|
|
|
|
|
(7)
|
This
option was granted to Andrew Ritter on July 5, 2016 for an aggregate of 82,000 shares. The option vests in 48 equal monthly
installments, the first of which vested on July 20, 2016 with the balance vesting on the 20th day of each calendar month thereafter
until vested in full.
|
|
|
|
|
(8)
|
This
option was granted to Andrew Ritter on October 25, 2016 for an aggregate of 140,044 shares. The option vests ratably in 48
equal monthly installments following the public disclosure of top-line data results from the Company’s Phase 2b/3 clinical
trial (which occurred on March 28, 2017).
|
|
|
|
|
(9)
|
This
option was granted to Ira Ritter on September 25, 2013 and is subject to the same vesting schedule as the option granted to
Andrew Ritter on this date as reflected in footnote (5) above.
|
|
|
|
|
(10)
|
This
option was granted to Ira Ritter on December 2, 2014 and is subject to the same vesting schedule as the option granted to
Andrew Ritter on this date as reflected in footnote (6) above.
|
|
|
|
|
(11)
|
This
option was granted to Ira Ritter on July 5, 2016 for an aggregate of 82,000 shares. The option vests in 48 equal monthly installments,
the first of which vested on July 20, 2016 with the balance vesting on the 20th day of each calendar month thereafter until
vested in full.
|
|
|
|
|
(12)
|
This
option was granted to Ira Ritter on October 25, 2016 for an aggregate of 140,044 shares. The option vests ratably in 48 equal
monthly installments following the public disclosure of top-line data results from the Company’s Phase 2b/3 clinical
trial (which occurred on March 28, 2017).
|
Payments
Due Upon Termination of Employment or a Change in Control
Executive
Severance & Change in Control Agreements
We
have entered into Executive Severance & Change in Control Agreements, or Severance Agreements, with each of our named executive
officers. The Severance Agreements provide that if we terminate the executive’s employment without Cause, or the executive
terminates his employment for Good Reason, the executive will be entitled to: (i) the Accrued Obligations; (ii) an amount equal
to twelve (12) months of base salary, as in effect immediately prior to the termination date; (iii) medical, dental benefits provided
by the Company to the executive and his spouse and dependents at least equal to the levels of benefits provided to other similarly
situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the
date of termination or (b) the date that the executive becomes covered under a subsequent employer’s medical and dental
plans; and (iv) acceleration of vesting of all equity and equity-based awards.
Pursuant
to the terms of the Severance Agreements, in the event that within one (1) month prior to or the twelve (12) months following
a Change in Control, the Company terminates the executive’s employment without Cause, or the executive terminates his employment
for Good Reason, then, in lieu of the payments and benefits otherwise due to the executive in the preceding paragraph, the executive
will be entitled to: (i) the Accrued Obligations; (ii) an amount equal to the sum of twelve (12) months of base salary, as in
effect on the date of termination or the date of the Change in Control, whichever is greater; (iii) medical, dental benefits provided
by the Company to the executive and his spouse and dependents at least equal to the level of benefits provided to other similarly
situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the
date of termination or (b) the date that the executive becomes covered under a subsequent employer’s medical and dental
plans; and (iv) acceleration of vesting of all equity and equity-based awards.
In
the event the executive’s employment is terminated by him without Good Reason, by the Company for Cause or due to the executive’s
death or disability, the executive and/or his estate or beneficiaries will be solely entitled to the Accrued Obligations.
The
executive’s entitlement to the payments (other than the Accrued Obligations) and benefits described above is expressly contingent
upon him providing the Company with a signed release satisfactory to the Company.
For
purposes of the Severance Agreements:
“
Accrued
Obligations
” means (i) earned but unpaid base salary through the date of termination; (ii) payment of any annual, long-term,
or other incentive award which relates to a completed fiscal year or performance period, as applicable, and is payable (but not
yet paid) on or before the date of termination; (iii) a lump-sum payment in respect of accrued but unused vacation days at the
executive’s per-business-day base salary rate in effect as of the date of termination; and (iv) any unpaid expense or reimbursements
due pursuant to Company expense reimbursement policy.
“
Cause
”
means a finding by the Company that the executive has (i) been convicted of a felony or crime involving moral turpitude; (ii)
disclosed trade secrets or confidential information of the Company (or any parent or subsidiary) to persons not entitled to receive
such information; (iii) engaged in conduct in connection with the executive’s employment or service to the Company (or any
parent or subsidiary), that has, or could reasonably be expected to result in, material injury to the business or reputation of
the Company (or any parent or subsidiary), including, without limitation, act(s) of fraud, embezzlement, misappropriation and
breach of fiduciary duty; (iv) violated the operating and ethics policies of the Company (or any parent or subsidiary) in any
material way, including, but not limited to those relating to sexual harassment and the disclosure or misuse of confidential information;
(v) engaged in willful and continued negligence in the performance of the duties assigned to the executive by the Company, after
the executive has received notice of and failed to cure such negligence; or (vi) breached any material provision of any agreement
between the executive and the Company (or any parent or subsidiary), including, without limitation, any confidentiality agreement.
“
Change
in Control
” means the occurrence of any of the following events:
|
(i)
|
Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more
than 50% of the voting power of the then outstanding securities of the Company; provided that a Change of Control will not
be deemed to occur as a result of a change of ownership resulting from the death of a shareholder, and a Change of Control
will not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation
and in which the shareholders of the Company, immediately prior to the transaction, will beneficially own, immediately after
the transaction, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the parent
corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote);
|
|
|
|
|
(ii)
|
A
change in the effective control of the Company which occurs on the date that a majority of members of the board of directors
is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of
the members of the board of directors prior to the date of the appointment or election; or
|
|
|
|
|
(iii)
|
The
consummation of (A) a merger or consolidation of the Company with another corporation where the shareholders of the
Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation,
shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would
be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by
a separate class vote); (B) a sale or other disposition of all or substantially all of the assets of the Company; or (C) a
liquidation or dissolution of the Company.
|
“
Good
Reason
” means, without the executive’s express written consent, the occurrence of any one or more of the following:
(i) a substantial and material diminution in the executive’s duties or responsibilities; (ii) a material reduction in the
executive’s Base Salary; or (iii) the relocation of the executive’s principal place of employment to a location more
than 50 miles from the executive’ principal work location to a location that is more than 50 miles from the prior location.
Notwithstanding the foregoing, a relocation of Mr. Step’s principal place of employment to a location closer to Mr. Step’s
principal residence in San Diego, California shall not constitute “Good Reason.” A termination of employment by the
executive for Good Reason will be effectuated by giving the Company written notice, or Notice of Termination for Good Reason,
not later than 90 days following the occurrence of the circumstance that constitutes Good Reason, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which
the executive relied. The Company will be entitled, during the 30-day period following receipt of a Notice of Termination for
Good Reason, to cure the circumstances that gave rise to Good Reason, provided that the Company shall be entitled to waive its
right to cure or reduce the cure period by delivery of written notice to that effect to the executive (such 30-day or shorter
period, the “Cure Period”). If, during the Cure Period, such circumstance is remedied, the executive will not be permitted
to terminate his employment for Good Reason as a result of such circumstance. If, at the end of the Cure Period, the circumstance
that constitutes Good Reason has not been remedied, the executive will terminate employment for Good Reason on the date of expiration
of the Cure Period.
2008
Stock Plan
The
2008 Stock Plan provides that in the event of a merger or a Change in Control (as defined below) occurs, each outstanding award
will be treated as the administrator determines, including, without limitation, that each award be assumed or an equivalent award
be substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event of a Change in
Control in which the successor corporation does not assume or substitute for the award, awards outstanding under the 2008 Plan
will become fully vested and exercisable, including shares as to which such award would not otherwise be vested or exercisable,
and all restrictions on outstanding restricted stock awards will lapse.
For
purposes of the 2008 Stock Plan, “
Change in Control
” means the occurrence of any of the following events:
|
(i)
|
A
change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group
(“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person,
constitutes more than 50% of the total voting power of the stock of the Company, except that any change in the ownership of
the stock of the Company as a result of a private financing of the Company that is approved by the board of directors will
not be considered a Change in Control;
|
|
|
|
|
(ii)
|
If
the Company has a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control
of the Company which occurs on the date that a majority of members of the board of directors is replaced during any twelve
(12) month period by directors whose appointment or election is not endorsed by a majority of the members of the board of
directors prior to the date of the appointment or election.
|
|
|
|
|
(iii)
|
A
change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any person acquires
(or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons)
assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market
value of all of the assets of the Company immediately prior to such acquisition or acquisitions
|
2009
Stock Plan
The
2009 Stock Plan provides that in the event we merge with or into another corporation, or a Change in Control (as defined below)
occurs, each outstanding option and stock purchase right will be assumed or an equivalent option substituted by the successor
corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation in a merger or
Change in Control refuses to assume or substitute for the option or stock purchase right, then the optionee will fully vest in
and have the right to exercise the option or stock purchase right as to all of the optioned stock, including shares as to which
it would not otherwise be vested or exercisable; provided, however, that such exercise will only be permitted as and to the extent
it complies with Code Section 409A or does not cause the option or stock purchase right to cease to be exempt from that statute.
For
purposes of the 2009 Stock Plan, “
Change in Control
” means the occurrence of any of the following events:
|
(i)
|
Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial
owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities representing fifty percent
(50%) or more of the total voting power represented by our then outstanding voting securities; or
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|
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(ii)
|
The
consummation of the sale or disposition by us of all or substantially all of our assets; or
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(iii)
|
The
consummation of a merger or our consolidation with any other corporation, other than a merger or consolidation which would
result in our voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or its parent) at least 50% of the total voting power
represented by the our voting securities or such surviving entity or its parent outstanding immediately after such merger
or consolidation. Notwithstanding the foregoing, only a Change in Control event that also qualifies as a “change in
the ownership” or a “change in the effective control” of the Company or a “change in the ownership
of a substantial portion” of our assets within the meaning of Treasury Regulation Section 1.409A-3(i)(5) shall be recognized
as a Change of Control for purposes of triggering exercise, distribution or settlement rights under any option or stock purchase
right granted under the Stock Plan that is subject to Code Section 409A.
|
2015
Equity Incentive Plan
The
2015 Plan provides that notwithstanding any other provision of the 2015 Plan, in the event of a Change in Control (as defined
below), unless otherwise determined by the plan administrator, each outstanding award under the plan will be assumed or an equivalent
award substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that, or to
the extent that, the successor corporation in a Change in Control refuses to assume or substitute for the award, or if the plan
administrator determines that such assumption or substitution is not desirable or is only desirable for a portion of any outstanding
award, then the plan administrator may take any or all of the following actions: (i) determine that an outstanding award will
accelerate and become exercisable, or determine that the restrictions and conditions on an outstanding award will lapse, in whole
or in part, as applicable, upon the Change of Control or upon such other event as the plan administrator determines; (ii) require
that a Grantee surrender his or her outstanding award, or any portion of such outstanding award, in exchange for a payment by
the Company, in cash or stock, as determined by the plan administrator, in an amount equal to the fair market value of the vested
portion of the award (with respect to options or stock appreciation rights, or other similar appreciation value awards, such value
shall be determined by the amount by which the then fair market value of the shares subject to the Grantee’s unexercised
award exceeds the any applicable exercise price or other grant price or base value or the award); or (iii) after giving the Grantee
an opportunity to exercise the vested portion of his or her outstanding award, terminate any or all unexercised portion of the
award at such time as the plan administrator deems appropriate. Such surrender or termination will take place as of the date of
the Change of Control or such other date as the plan administrator may specify.
For
purposes of the 2015 Plan, “Change in Control” means the occurrence of any of the following events:
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(i)
|
A
change in our ownership which occurs on the date that any one person, or more than one person acting as a group, or Person,
acquires ownership of our stock that, together with the stock held by such Person, constitutes more than 50% of the total
voting power of our stock, except that any change in the ownership of our stock as a result of a private financing that is
approved by our board of directors will not be considered a Change in Control; or
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|
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(ii)
|
If
we have a class of securities registered pursuant to Section 12 of the Exchange Act, a change in our effective control which
occurs on the date that a majority of members of our board of directors is replaced during any twelve (12) month period by
directors whose appointment or election is not endorsed by a majority of the members of our board of directors prior to the
date of the appointment or election. For purposes of this paragraph (ii), if any Person is considered to be in effective control
of our company, the acquisition of additional control of our company by the same Person will not be considered a Change in
Control; or
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(iii)
|
A
change in the ownership of a substantial portion of our assets which occurs on the date that any Person acquires (or has acquired
during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from
us that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of our
assets immediately prior to such acquisition or acquisitions. For purposes of this paragraph (iii), gross fair market value
means the value of our assets, or the value of the assets being disposed of, determined without regard to any liabilities
associated with such assets.
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Persons
will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase
or acquisition of stock, or similar business transaction with us.
Compensation
of Directors
Non-Employee
Director Compensation Program
Our
non-employee directors are entitled to receive the following compensation for their services:
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●
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Annual
Cash Retainer — $20,000
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●
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Chairman
of the Board Cash Retainer — $15,000
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●
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Audit
Committee Chair Retainer — $7,500
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●
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Compensation
Committee Chair Retainer — $5,000
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●
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Nominating
and Corporate Governance Committee Chair Retainer — $3,500
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●
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Initial
Equity Grant — 10,000 shares
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|
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●
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Annual
Equity Grant — 7,000 shares
|
2016
Director Compensation
The
following table sets forth the compensation paid or earned for the fiscal year ended December 31, 2016 to our non-employee directors.
Compensation paid to Michael D. Step, Andrew Ritter, and Ira Ritter is presented as part of the “Summary Compensation Table
(2016 and 2015)” above. Our employee directors do not receive compensation for their service as directors. Dr. Merino is
not included in the table below, as he was not appointed to our board of directors until January 17, 2017.
Name
of Director
|
|
Fees
Earned and
Paid in Cash
($)
|
|
|
Option
Awards
(2)
($)
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|
All
other
compensation
($)
|
|
|
Total
($)
|
|
Noah
Doyle
(1)
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|
|
—
|
|
|
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—
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|
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|
—
|
|
|
|
—
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|
Matthew
W. Foehr
|
|
|
25,000
|
|
|
|
16,590
|
|
|
|
—
|
|
|
|
41,590
|
|
Paul
V. Maier
|
|
|
27,500
|
|
|
|
16,590
|
|
|
|
—
|
|
|
|
44,090
|
|
Gerald
T. Proehl
|
|
|
23,500
|
|
|
|
16,590
|
|
|
|
—
|
|
|
|
40,090
|
|
(1)
|
Mr.
Doyle has declined to receive any compensation for his service as director.
|
|
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(2)
|
Represents
the aggregate grant date fair value of the options to purchase 7,000 shares of our Common Stock granted to each of our non-employee
directors on November 29, 2016, determined in accordance with FASB ASC 718. These options vest 25% upon the first anniversary
of the nonemployee director’s approximate date of joining the board of directors with the remaining options vesting
monthly in equal installments over 25 months. Of the 7,000 shares granted pursuant to these options, 730 shares were vested
as of the grant date and the remaining 6,270 shares vest ratably over the 43 months thereafter. For a discussion of the assumptions
and methodologies used to value the options awards granted, see Note 8 “Stock Based Compensation” to our financial
statements for the year ended December 31, 2016, incorporated by referenced in this prospectus. As of December 31, 2016, each
of our non-employee directors (other than Mr. Doyle) held option awards to purchase an aggregate of 17,000 shares of our Common
Stock and no stock awards. Mr. Doyle held no stock awards or option awards as of December 31, 2016.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial ownership of our Common Stock as of June 30, 2017 by:
|
●
|
our
named executive officers;
|
|
|
|
|
●
|
each
of our directors;
|
|
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|
|
●
|
all
of our current directors and executive officers as a group; and
|
|
|
|
|
●
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each
stockholder known by us to own beneficially more than five percent of our Common Stock.
|
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities.
Shares of Common Stock that may be acquired by an individual or group within 60 days of July 14, 2017, pursuant to the
exercise of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
The percentage of beneficial ownership of our Common Stock is calculated based on an aggregate of 14,756,521 shares outstanding
as of July 14, 2017.
Except
as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment
power with respect to all shares of Common Stock shown to be beneficially owned by them, based on information provided to us by
such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Ritter Pharmaceuticals,
Inc., 1880 Century Park East, #1000, Los Angeles, California 90067.
Beneficial Owner
|
|
Number of Shares
Beneficially Owned
|
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|
Percentage of
Common Stock
Beneficially Owned
|
|
Five Percent Stockholders
|
|
|
|
|
|
|
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|
Javelin Entities
(1)
|
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2,776,534
|
|
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18.3
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%
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Stonehenge Partners LLC
(2)(3)(4)
|
|
|
817,271
|
|
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5.5
|
%
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Knoll Capital Management, LP
(5)
|
|
|
952,434
|
|
|
|
6.5
|
%
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Alyeska Investment Group, L.P.
(6)
|
|
|
652,285
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
Executive Officers, Directors and Director Nominees
|
|
|
|
|
|
|
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|
Michael D. Step
(7)
|
|
|
990,542
|
|
|
|
6.3
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%
|
Andrew J. Ritter
(3)(8)
|
|
|
1,229,174
|
|
|
|
8.1
|
%
|
Ira E. Ritter
(4)(9)
|
|
|
1,229,174
|
|
|
|
8.1
|
%
|
Noah J. Doyle
(1) (10)
|
|
|
2,799,261
|
|
|
|
18.5
|
%
|
Matthew W. Foehr
(11)
|
|
|
43,646
|
|
|
|
*
|
|
Paul V. Maier
(12)
|
|
|
8,229
|
|
|
|
*
|
|
Gerald T. Proehl
(13)
|
|
|
58,229
|
|
|
|
*
|
|
Dr. William M. Merino
|
|
|
2,481
|
|
|
|
*
|
|
All current executive officers and directors as a group
(9 persons)
(14)
|
|
|
5,137,708
|
|
|
|
30.3
|
%
|
*
Represents beneficial ownership of less than 1% of the shares of Common Stock.
|
(1)
|
Based
upon information contained in a Schedule 13D filed with the SEC on July 10, 2015 by Javelin Venture Partners, L.P., or Javelin,
Javelin Venture Partners I SPV I, LLC, or Javelin SPV, Javelin Venture Partners GP, L.P., or Javelin GP, LP, and Javelin Venture
Partners GP, LLC, or Javelin GP-LLC, together with Javelin, and Javelin SPV the “Javelin Entities”. Javelin holds
2,047,804 shares directly and has the right to acquire 83,224 shares upon exercise of a warrant. Javelin SPV holds 322,753
shares directly and has the right to acquire 322,753 shares upon exercise of a warrant. The address of the Javelin Entities
is One Rincon Center, 101 Spear Street, Suite 255, San Francisco, California 94105. As a Manager of Javelin GP-GP, Noah Doyle
may be deemed the beneficial owner of these shares. Mr. Doyle expressly disclaims beneficial ownership over these shares except
to the extent of his pecuniary interest therein.
|
|
(2)
|
The
address of Stonehenge Partners LLC is 21800 Oxnard Street, Suite 250, Woodland Hills, California 91367.
|
|
|
|
|
(3)
|
As
a managing partner of Stonehenge Partners LLC, Andrew Ritter may be deemed the beneficial owner of these shares. Andrew Ritter
expressly disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
|
|
|
|
|
(4)
|
As
a managing partner of Stonehenge Partners LLC, Ira Ritter may be deemed the beneficial owner of these shares. Ira Ritter expressly
disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
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|
|
|
|
(5)
|
Based
solely upon information contained in a Schedule 13G/A filed with the SEC on February 14, 2017, 2016 by Knoll Capital Management,
LP, Fred Knoll and Gakasa Holdings, LLC. According to such filing, each of the reporting persons has shared voting and dispositive
power with respect to these shares. The address for the reporting persons is 5 East 44th Street, Suite 12, New York, NY 10017.
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|
|
|
|
(6)
|
Based
solely upon information contained in a Schedule 13G filed with the SEC on February 14, 2017 by Alyeska Investment Group, L.P.,
Alyeska Fund GP, LLC, Alyeska Fund 2 GP, LLC and Anand Parekh. According to such filing, each of the reporting persons has
shared voting and dispositive power with respect to these shares. The address of the reporting persons is 77 West Wacker Drive,
7th Floor, Chicago, IL 60601.
|
|
|
|
|
(7)
|
Includes
940,542 shares underlying stock option awards that are currently exercisable or exercisable within 60 days of July
14, 2017. The number of shares issuable upon exercise of options includes 199,105 shares subject to options that
are currently exercisable, but are not subject to vesting within 60 days of July 14, 2017 and accordingly, if exercised,
are subject to a repurchase right until vested.
|
|
|
|
|
(8)
|
Includes
405,653 shares underlying stock option awards that are currently exercisable or exercisable within 60 days of July
14, 2017 and the shares beneficially owned by Stonehenge Partners LLC reflected in footnote (3) above.
|
|
|
|
|
(9)
|
Includes
405,653 shares underlying stock option awards that are currently exercisable or exercisable within 60 days of July
14, 2017 and the shares beneficially owned by Stonehenge Partners LLC reflected in footnote (4) above.
|
|
|
|
|
(10)
|
Includes
22,727 shares owned directly by Mr. Doyle and the shares beneficially owned by the Javelin Entities reflected in footnote
(1) above.
|
|
|
|
|
(11)
|
Includes
8,646 shares underlying a stock option award that are currently exercisable or exercisable within 60 days of July
14, 2017.
|
|
|
|
|
(12)
|
Includes
8,229 shares underlying a stock option award that are currently exercisable or exercisable within 60 days of July
14, 2017.
|
|
|
|
|
(13)
|
Includes
8,229 shares underlying a stock option award that are currently exercisable or exercisable within 60 days of July
14, 2017.
|
|
|
|
|
(14)
|
Includes
2,190,158 shares underlying stock options and warrants that are currently exercisable or exercisable within
60 days of July 14, 2017.
|
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Our
Audit Committee is responsible for reviewing, approving and overseeing any transaction between the Company and its directors,
director nominees, executive officers, greater than 5% beneficial owners, and each of their respective immediate family members,
where the amount involved exceeds the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year
end for the prior two fiscal years (which for 2016 and 2015 was approximately $116,383). Since January 1, 2015, there have been
no such transactions, except as described below.
Initial
Public Offering
Certain
of our existing stockholders, as well as certain of our directors, purchased an aggregate of $4.3 million of shares of our Common
Stock in our initial public offering at the initial public offering price of $5.00 per share. Specifically, Javelin purchased
800,000 shares, Gerald T. Proehl purchased 50,000 shares, and Matthew W. Foehr purchased 4,000 shares.
DESCRIPTION
OF SECURITIES
The
following description of our capital stock and the provisions of our certificate of incorporation and our bylaws are summaries
and are qualified by reference to the certificate of incorporation and the bylaws that will be in effect upon the closing of this
offering. We have filed copies of these documents with the SEC as exhibits to our registration statement of which this prospectus
forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur
prior to and upon the closing of this offering.
General
Our
authorized capital stock consists of 30,000,000 shares, all with a par value of $0.001 per share, 25,000,000 of which are designated
as common stock and 5,000,000 of which are designated as preferred stock.
The
following description of our capital stock and certain provisions of our amended and restated certificate of incorporation and
amended and restated bylaws are summaries and are qualified by reference to our amended and restated certificate of incorporation
and our amended and restated bylaws.
All
share numbers have been adjusted to reflect the 1-for-7.15 reverse stock split of our common stock. Preferred share issuances
referred to below are as of their date of issuance. The preferred stock described below converted into shares of our common stock
on a 7.15-for-1 basis prior to the closing of our initial public offering.
As
of July 14, 2017, we had 14,756,521 shares of our common stock outstanding and zero shares of preferred stock outstanding.
As of July 14, 2017, we also had outstanding options to acquire 2,559,924 shares of our common stock, having a weighted-average
exercise price of $5.91 per share, and warrants to purchase an aggregate of 578,323 shares of our common stock, at a weighted
average exercise price of $8.45.
Common
Stock
Pursuant
to the terms of our amended and restated certificate of incorporation, the holders of common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders, except on matters relating solely to terms of preferred stock. Subject
to preferences that may be applicable to any outstanding preferred stock, the holders of common stock will be entitled to receive
ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available
therefor. See ‘Dividend Policy.’ In the event of our liquidation, dissolution or winding up, the holders of our common
stock will be entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights
of preferred stock, if any, then outstanding. The holders of our common stock will have no preemptive or conversion rights or
other subscription rights. There will be no redemption or sinking fund provisions applicable to our common stock.
Warrants
In
December 2014, we issued an aggregate of 2,369,228 shares of Series C preferred stock and warrants, or the 2014 Warrants, to purchase
a like number of shares of our common stock, for aggregate gross proceeds of $3,081,893. All of the shares of Series C
preferred stock were converted into 331,358 shares of our common stock prior to the closing of the initial public offering. Each
2014 Warrant has a term of seven years and provides for the holder to purchase each share of our common stock covered thereby
at a purchase price of $9.30 per share of common stock.
In
connection with the Series C Financing, all of the 2014 Notes were converted into shares of Series C preferred stock. A total
of $535,000 unpaid principal plus accrued interest of $18,342 on the convertible notes converted into 567,529 shares of Series
C preferred stock, which were later converted into 79,374 shares of our common stock prior to the closing of our initial public
offering, and 79,374 2014 warrants. A total of $70,000 unpaid principal plus accrued interest of $537 on a note payable was extinguished
and converted into 54,259 shares of Series C preferred stock, which were later converted into 7,589 shares of our common stock
prior to the closing of our initial public offering and 7,589 2014 warrants.
Warrants
to Representative in Initial Public Offering
In
connection with our initial public offering, we issued to the representative of the underwriters warrants to purchase up to a
total of 160,000 shares of common stock. The warrants are exercisable at any time, and from time to time, in whole or in part,
during the four-year period commencing one year from the effective date of our initial public offering, and ending on the date
that is five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(i). The warrants are exercisable
at a per share price equal to $6.25 per share. The warrants provide for registration rights upon request, in certain cases. The
demand registration right provided will not be greater than five years from the effective date of the offering in compliance with
FINRA Rule 5110(f)(2)(G)(iv). The piggyback registration right provided will not be greater than seven years from the effective
date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(v). We will bear all fees and expenses attendant to registering
the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The
exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including
in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise
price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise
price.
Warrants
to be Issued in this Offering
The following is a summary
of the material terms of the warrants. This summary is not complete. The following summary of the terms and provisions of the
warrants is qualified in its entirety by reference to the warrants, the form of which has been filed as an exhibit to the registration
statement of which this prospectus is a part. Corporate Stock Transfer, Inc. will act as Warrant Agent with respect to the
warrants issued in this offering.
Form
.
The warrants will be issued in electronic book-entry form to the investors. You should review a copy of the form of warrant, which
is filed as an exhibit to the registration statement of which this prospectus forms a part, for a complete description of the
terms and conditions applicable to the warrants.
Exercisability
.
The warrants are exercisable at any time after their original issuance, expected to be ,
2017, and at any time up to the date that is three years after their original issuance. The warrants will be exercisable, at the
option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration
statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act is effective
and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the
issuance of such shares, by payment in full in immediately available funds for the number of shares of common stock purchased
upon such exercise. If a registration statement registering the issuance of the shares of common stock underlying the warrants
under the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available
for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise,
in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the
formula set forth in the warrant. No fractional shares of common stock will be issued in connection with the exercise of a warrant.
In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise
price.
Exercise
Limitation
. A holder will not have the right to exercise any portion of the warrant if the holder (together with its affiliates)
would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect
to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants.
Exercise
Price
. The exercise price per whole share of common stock purchasable upon exercise of the warrants is $ .
The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits,
stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets,
including cash, stock or other property to our stockholders.
Transferability.
Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange
Listing.
We do not plan on making an application to list the warrants on any national securities exchange or other nationally
recognized trading system.
Fundamental
Transactions.
In the event of a fundamental transaction, as described in the warrants and generally including any reorganization,
recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all
of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our
outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding
common stock, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities,
cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental
transaction.
Rights
as a Stockholder.
Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of
our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any
voting rights, until the holder exercises the warrant.
Preferred
Stock
Pursuant
to the terms of our amended and restated certificate of incorporation, our board of directors has the authority to issue preferred
stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications, limitations
or restrictions thereof, including dividend rights, conversion right, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any class or series, without further vote or action by the stockholders. Although we have
no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights
to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common
stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of
delaying, deterring or preventing a change of control of us or an unsolicited acquisition proposal.
Series
A Convertible Preferred Stock
The
following is a summary of the material terms of the Series A Preferred. This summary is not complete. The following summary of
the terms and provisions of the Series A Preferred is qualified in its entirety by reference to the Series A Preferred, the form
of which has been filed as an exhibit to the registration statement of which this prospectus is a part.
General.
Our board of directors has designated up to shares
of the 5,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock. When issued, the shares of Series
A Preferred will be validly issued, fully paid and non-assessable. Each share of Series A Preferred will have a stated value of
$1,000 per share.
Rank.
The Series A Preferred will rank on parity to our common stock.
Conversion.
Each share of Series A Preferred is convertible into shares of our common stock (subject to adjustment as provided in the
related certificate of designation of preferences, rights and limitations) at any time at the option of the holder at a conversion
price equal to the stated value of the Series A Preferred of $1,000 divided by the public offering price of the Class A Units
in this offering. Holders of Series A Preferred will be prohibited from converting Series A Preferred into shares of our common
stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number
of shares of our common stock then issued and outstanding.
Liquidation
Preference.
In the event of our liquidation, dissolution or winding-up, holders of Series A Preferred will be entitled to
receive the same amount that a holder of our common stock would receive if the Series A Preferred were fully converted
into shares of our common stock at the conversion price (disregarding for such purposes any conversion limitations) which amounts
shall be paid
pari passu
with all holders of common stock.
Voting
Rights.
Shares of Series A Preferred will generally have no voting rights, except as required by law and except that the affirmative
vote of the holders of a majority of the then outstanding shares of Series A Preferred is required to, (a) alter or change adversely
the powers, preferences or rights given to the Series A Preferred, (b) amend our certificate of incorporation or other charter
documents in any manner that materially adversely affects any rights of the holders, (c) increase the number of authorized shares
of Series A Preferred, or (d) enter into any agreement with respect to any of the foregoing.
Dividends.
Shares of Series A Preferred will not be entitled to receive any dividends, unless and until specifically declared by our
board of directors. The holders of the Series A Preferred will participate, on an as-if-converted-to-common stock basis, in any
dividends to the holders of common stock.
Redemption.
We are not obligated to redeem or repurchase any shares of Series A Preferred. Shares of Series A Preferred are not otherwise
entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.
Exchange
Listing.
We do not plan on making an application to list the Series A Preferred on any national securities exchange or other
nationally recognized trading system.
Registration
Rights
On
September 15, 2008, we entered into an Investors’ Rights Agreement with certain holders of our preferred stock. Such Investors’
Rights Agreement was amended and restated on November 17, 2010. The Amended and Restated Investors’ Rights Agreement was
amended on each of January 13, 2011, February 6, 2012, December 4, 2014 and June 9, 2015. The Amended and Restated Investors’
Rights Agreement, as amended, provides such holders with certain demand and piggyback registration rights with respect to shares
of our common stock into which the shares of our preferred stock are convertible.
Aspire
Capital Registration Rights
Concurrently
with entering into the Purchase Agreement, we also entered into the Registration Rights Agreement, in which we agreed to file
one or more registration statements as permissible and necessary to register under the Securities Act, the sale of the shares
of our common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. This registration statement
is being registered pursuant to the Registration Rights Agreement.
Anti-Takeover
Effects of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
The
provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws, could discourage
or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder
of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish,
or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests.
These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors
and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual
or threatened change of our control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal
and to discourage certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes
in our management.
Delaware
Statutory Business Combinations Provision
. We are subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, or the DGCL. Section 203 prohibits a publicly-held Delaware corporation from engaging in a ‘business combination’
with an ‘interested stockholder’ for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested
stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a ‘business
combination’ is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to
the interested stockholder, and, subject to certain exceptions, an ‘interested stockholder’ is a person who, together
with his or her affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation’s
voting stock.
Election
and Removal of Directors
. Except as may otherwise be provided by the DGCL, any director or the entire board of directors may
be removed, with or without cause, at an annual meeting or a special meeting called for that purpose, by the affirmative vote
of the majority of the votes cast by the shares of our capital stock present in person or represented by proxy at such meeting
and entitled to vote thereon, provided a quorum is present. Vacancies on our board of directors resulting from the removal of
directors and newly created directorships resulting from any increase in the number of directors may be filled solely by the affirmative
vote of a majority of the remaining directors then in office (although less than a quorum) or by the sole remaining director.
This system of electing and removing directors may discourage a third party from making a tender offer or otherwise attempting
to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of our directors.
Our amended and restated certificate of incorporation and amended and restated bylaws do not provide for cumulative voting in
the election of directors.
Advance
Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors
. Our amended and restated bylaws provide
that, for nominations to the board of directors or for other business to be properly brought by a stockholder before a meeting
of stockholders, the stockholder must first have given timely notice of the proposal in writing to our Secretary. For an annual
meeting, a stockholder’s notice generally must be delivered not less than 90 days or more than 120 days prior to the anniversary
of the previous year’s annual meeting.
Special
Meetings of Stockholders
. Special meetings of the stockholders may be called at any time only by the board of directors, the
Chairman of the board of directors, the Chief Executive Officer or the President, subject to the rights of the holders of any
series of preferred stock then outstanding.
Blank-Check
Preferred Stock
. Our board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights
of which will be determined at the discretion of the board of directors and that, if issued, could operate as a ‘poison
pill’ to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors
does not approve.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Corporate Stock Transfer, Inc.
UNDERWRITING
Aegis
Capital Corp. is acting as the representative of the underwriters and the sole book-running manager in this offering. We have
entered into an underwriting agreement dated , 2017 with the representative.
Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and
each underwriter named below has severally and not jointly agreed to purchase from us, at the public offering price per share
less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of Units listed next
to its name in the following table:
Underwriters
|
|
Number
of
Class A Units
|
|
|
Number
of
Class B Units
|
|
Aegis
Capital Corp.
|
|
|
11,700,000
|
|
|
|
2,395
|
|
The
underwriters are committed to purchase all the Units offered by us other than those covered by the option to purchase additional
shares of common stock and/or warrants to purchase common stock described below, if they purchase any Units. The obligations
of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore,
pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions and representations
and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and
legal opinions.
We
have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect thereof.
The
underwriters are offering the Units, subject to prior sale, when, as and if issued to and accepted by them, subject to approval
of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Over-allotment
Option.
We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days
after the date of this prospectus, permits the underwriters to purchase a maximum of 2,307,691 additional shares
of common stock (15% of the shares of common stock included in the Class A Units and the shares of common stock underlying
the shares of Series A Preferred included in the Class B Units sold in this offering) and/or warrants to purchase a maximum
of 1,153,845 shares of common stock from us to cover over-allotments, if any. If the underwriters exercise all or part of
this option, they will purchase such common stock covered by the option at the public offering price
per Class A Unit, minus once cent and the warrants covered by the option at a price of one
cent per warrant, in each case less the underwriting discounts and commissions. If this option is exercised in full, the
total offering price to the public will be approximately $11.5 million and the total net proceeds, after expenses, to
us will be approximately $10.5 million .
Discounts,
Commissions and Expense Reimbursement.
The following table shows the public offering price, underwriting discount and proceeds,
before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment
option.
|
|
Per
Class B
Unit
|
|
|
Per
Class A
Unit
|
|
|
Total
Without
Over-Allotment
Option
|
|
|
Total
With
Over-Allotment
Option
|
|
Public
offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting
discount (7%)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds,
before expense, to us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
The
underwriters propose to offer the Units offered by us to the public at the public offering price per respective Unit set forth
on the cover of this prospectus. In addition, the underwriters may offer some of the Units to other securities dealers at such
price less a concession of up to $ per Class A Unit
and $ per Class B Unit.
If
all of the Units offered by us are not sold at the respective public offering prices per Unit, the underwriters may change the
offering price per Unit and other selling terms by means of a supplement to this prospectus.
We
have also agreed to reimburse certain of the representative’s out of pocket expenses not to exceed $72,000, including the
fees of underwriters’ counsel, which will not exceed $50,000.
We
estimate that the total expenses of the offering payable by us, excluding the total underwriting discounts, commissions and underwriter
expense reimbursement will be approximately $0.2 million.
Lock-Up
Agreements.
We have agreed with the representative that we will not offer or sell any securities for a period ending on
the earlier of (i) 60 days from the closing date of this offering or (ii) the date we have our End-of-Phase
2 meeting with the FDA, subject to certain exceptions. In addition, all of our directors and executive officers have entered
into lock up agreements with the representative prior to the commencement of this offering pursuant to which each of these persons,
for a period of 90 days from the closing date of this offering, without the prior written consent of the representative, agree
not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares
of our securities or any securities convertible into or exercisable or exchangeable for common shares owned or acquired on or
prior to the closing date of this offering (including any common shares acquired after the closing date of this offering upon
the conversion, exercise or exchange of such securities); (2) file or caused to be filed any registration statement relating to
the offering of any shares of our capital shares; or (3) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common shares, whether any such transaction described in clause
(1), (2), or (3) above is to be settled by delivery of common shares or such other securities, in cash or otherwise, except for
certain exceptions and limitations.
Electronic
Offer, Sale and Distribution of Securities.
A prospectus in electronic format may be made available on the websites maintained
by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters
participating in this offering may distribute prospectuses electronically. The representative may agree to allocate a number of
either class of Unit to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions
will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other
allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated
by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved
or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
NASDAQ
Capital Market Listing.
Our Common Stock is listed on The NASDAQ Capital Market under the symbol “RTTR.”
Stabilization.
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering
transactions, penalty bids and purchases to cover positions created by short sales. Stabilizing transactions permit bids to purchase
shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or
retarding a decline in the market price of the shares while the offering is in progress.
Over-allotment
transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase.
This creates a syndicate short position that may be either a covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not greater than the number of shares that naked short position,
the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out
any short position by exercising their over-allotment option and/or purchasing shares in the open market.
Syndicate
covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open market as compared with the price at which they may
purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise
of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares
in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there
could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in
the offering.
Penalty
bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by that
syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These
stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market
price of our shares or Common Stock or preventing or retarding a decline in the market price of our shares or Common Stock. As
a result, the price of our Common Stock in the open market may be higher than it would otherwise be in the absence of these transactions.
Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may
have on the price of our Common Stock. These transactions may be effected on The NASDAQ Capital Market, in the over-the-counter
market or otherwise and, if commenced, may be discontinued at any time.
Passive
market making.
In connection with this offering, underwriters and selling group members may engage in passive market making
transactions in our Common Stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act,
during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution.
A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However,
if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified
purchase limits are exceeded.
Certain
Relationships
The
underwriters and their affiliates have provided, or may in the future provide, various investment banking, commercial banking,
financial advisory, brokerage, and other services to us and our affiliates for which services they have received, and may in the
future receive, customary fees and expense reimbursement.
The
underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary
course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their
various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively
trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their
own accounts and for the accounts of their customers, and such investment and securities activities may involve securities and/or
instruments of our company. The underwriters and their affiliates may also make investment recommendations and/or publish or express
independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that
they acquire, long and/or short positions in such securities and instruments.
Offer
Restrictions Outside the United States
Other
than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities
offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus
may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in
connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances
that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution
of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered
by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
LEGAL
MATTERS
The
validity of the shares of the common stock offered by this prospectus will be passed upon for us by Reed Smith LLP, New York,
New York. The underwriters are being represented by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York.
EXPERTS
Mayer
Hoffman McCann P.C., our independent registered public accounting firm, has audited our balance sheets as of December 31, 2016
and 2015, and the related statements of operations, changes in securities subject to redemption and shareholders’ deficit
and cash flows for each of the two years in the period ended December 31, 2016, as set forth in their report, which report expresses
an unqualified opinion and includes an explanatory paragraph relating to our ability to continue as a going concern. We have incorporated
by reference the financial statements in this prospectus and in this registration statement in reliance on the report of Mayer
Hoffman McCann P.C. given on their authority as experts in accounting and auditing
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock
and warrants to purchase common stock we are offering to sell. This prospectus, which constitutes part of the registration statement,
does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to
the registration statement. For further information with respect to us and our common stock, we refer you to the registration
statement and to the exhibits and schedules to the registration statement. Statements contained in this prospectus about the contents
of any contract, agreement or other document are not necessarily complete, and, in each instance, we refer you to the copy of
the contract, agreement or other document filed as an exhibit to the registration statement. Each of these statements is qualified
in all respects by this reference.
You
may read and copy the registration statement of which this prospectus is a part at the SEC’s public reference room, which
is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can request copies of the registration statement by writing
to the Securities and Exchange Commission and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more
information about the operation of the SEC’s public reference room. In addition, the SEC maintains an Internet website,
which is located at
http://www.sec.gov
, that contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at
the SEC’s Internet website. Upon completion of this offering, we will be subject to the information reporting requirements
of the Exchange Act, and we will file reports, proxy statements and other information with the SEC.
INCORPORATION
OF INFORMATION BY REFERENCE
We
“incorporate by reference” certain documents we have filed with the SEC, which means that we are disclosing important
information to you by referring you to those documents. The information incorporated by reference is an important part of this
prospectus, and any information contained in any document incorporated by reference in this prospectus will be deemed to be modified
or superseded to the extent that a statement contained in this prospectus or free writing prospectus provided to you in connection
with this offering modified or supersedes the original statement. Any statement so modified or superseded will not be deemed,
except as so modified or superseded, to be a part of this prospectus.
The
following documents filed with the SEC are hereby incorporated by reference in this prospectus; provided, however, that we are
not incorporating any information furnished under either Item 2.02 or Item 7.01 of any Current Report on Form 8-K:
|
●
|
our
Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 27, 2017;
|
|
●
|
our Proxy Statement on Schedule 14A filed with the SEC on April 21, 2017;
|
|
●
|
our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, filed with the SEC on May 9, 2017; and
|
|
●
|
our
Current Reports on Form 8-K, filed with the SEC on January 17, 2017, March 13, 2017, March 29, 2017, May 9, 2017, June 6,
2017, and June 9, 2017.
|
We
hereby undertake to provide without charge to each person, including any beneficial owner, to whom a copy of this prospectus is
delivered, upon written or oral request of any such person, a copy of any and all of the information that has been incorporated
by reference in this prospectus, other than exhibits to such documents, unless such exhibits have been specifically incorporated
by reference thereto. Requests for such copies should be directed to our Investor Relations department, at the following address:
Ritter
Pharmaceuticals, Inc.
1880 Century Park East #1000
Los
Angeles, CA 90067
(310)
203-1000
Copies
of these filings are also available through the “Investor” section of our website at
www.ritterpharmaceuticals.com.
For other ways to obtain a copy of these filings, please refer to “Where You Can Find More Information” above.
11,700,000
Class A Units Consisting of Common Stock and Warrants
and
2,395
Class B Units Consisting of Series A Convertible Preferred
Stock and Warrants
PROSPECTUS
Sole
Book-Running Manager
Aegis
Capital Corp
,
2017
PART
II — INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions,
in connection with our public offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing
fee and the NASDAQ listing fee:
SEC registration fee
|
|
$
|
2,068
|
|
FINRA filing fee
|
|
|
3,174
|
|
Legal fees and expenses
|
|
|
165,000
|
|
Accounting fees and expenses
|
|
|
25,000
|
|
Transfer agent, warrant agent and registrar’s fees and expenses
|
|
|
2,500
|
|
Printing expenses
|
|
|
5,000
|
|
Miscellaneous expenses
|
|
|
3,000
|
|
Total
|
|
$
|
205,742
|
|
Item
14. Indemnification of Directors and Officers.
Our
amended and restated certificate of incorporation provides that we shall indemnify, to the fullest extent authorized by the Delaware
General Corporation Law, each person who is involved in any litigation or other proceeding because such person is or was a director
or officer of Ritter Pharmaceuticals, Inc. or is or was serving as an officer or director of another entity at our request, against
all expense, loss or liability reasonably incurred or suffered in connection therewith. Our amended and restated certificate of
incorporation provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that such advance payment will only be made upon delivery to us of an
undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that
such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 30 days after
we receive a written claim for such indemnification, our certificate of incorporation and our bylaws authorize the claimant to
bring an action against us and prescribe what constitutes a defense to such action.
Section
145 of the Delaware General Corporation Law permits a corporation to indemnify any director or officer of the corporation against
expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in
connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer
of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe
his or her conduct was unlawful. In a derivative action, (
i.e
., one brought by or on behalf of the corporation), indemnification
may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person
shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or
suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Pursuant
to Section 102(b)(7) of the Delaware General Corporation Law, our certificate of incorporation eliminates the liability of a director
to us or our stockholders for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:
|
●
|
from
any breach of the director’s duty of loyalty to us or our stockholders;
|
|
|
|
|
●
|
from
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
|
|
|
|
|
●
|
under
Section 174 of the Delaware General Corporation Law; or
|
|
|
|
|
●
|
from
any transaction from which the director derived an improper personal benefit.
|
We
carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity
as directors and officers.
In
addition, we have entered into indemnification agreements with each of our current directors and executive officers. These agreements
require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise
by reason of their service to us and to advance expenses incurred as a result of any proceeding against them as to which they
could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.
Item
15. Recent Sales of Unregistered Securities.
In
the three years preceding the filing of this registration statement, we have issued the following securities that were not registered
under the Securities Act. The following issuances have been adjusted to reflect the 1-for-7.15 reverse stock split of our common
stock. Preferred share issuances referred to below are as of their date of issuance. The preferred stock described below converted
into shares of our common stock on a 7.15-for-1 basis prior to the closing of our initial public offering.
|
(a)
|
Issuances
of Capital Stock
|
On
December 4, 2014, we issued an aggregate of 1,149,397 shares of our Series C Preferred Stock and warrants to purchase an aggregate
of 160,754 shares of our common stock to certain investors, including Javelin and Javelin SPV, in the Initial Series C Closing
pursuant to the Series C Preferred Stock Purchase Agreement. The aggregate purchase price paid by the investors was approximately
$1.31 million (consisting of cash and cancellation of certain promissory notes issued in 2014, as described below).
On
December 8, 2014, we issued an aggregate of 1,833,927 shares of our Series C Preferred Stock and warrants to purchase an aggregate
of 256,493 shares of our common stock to Javelin SPV in our Second Series C Closing pursuant to the Series C Preferred Stock Purchase
Agreement. The aggregate purchase price paid by Javelin was approximately $2.39 million.
On
December 19, 2014, we issued an aggregate of 7,692 shares of our Series C Preferred Stock and warrants to purchase an aggregate
of 1,075 shares of our common stock to one investor in our Third Series C Closing pursuant to the Series C Preferred Stock Purchase
Agreement. The aggregate purchase price paid by the investor was $10,007.
As
consideration for Ricerche Sperimentali Montale SpA, or RSM, entering into Amendment No. 2 to the Clinical Supply and Cooperation
Agreement, on November 30, 2015, we issued 100,000 shares of common stock to RSM pursuant to a stock purchase agreement, dated
as of November 30, 2015.
On
December 18, 2015, we entered into the Common Stock Purchase Agreement with Aspire Capital Fund, LLC, or Aspire Capital, which
provides that, upon the terms and subject to the conditions and limitations set forth in the agreement, Aspire Capital is committed
to purchase up to an aggregate of $10.0 million shares of our common stock, or the Purchase Shares, over the 30-month term of
the agreement. Pursuant to the terms of this agreement, Aspire Capital purchased 500,000 shares of our common stock at $2.00 per
share and we issued 188,864 shares of our common stock to Aspire Capital in consideration for entering into the agreement. The
Purchase Shares may be sold by us to Aspire Capital on any business day we select in two ways: (i) through a regular purchase
of up to 100,000 shares at a known price based on the market price of our common stock prior to the time of each sale, and (ii)
through a VWAP purchase of a number of shares up to 30% of the volume traded on the purchase date at a price equal to the lesser
of the closing sale price or 97% of the volume weighted average price for such purchase date. Through December 9, 2016, we have
issued 1,577,699 shares of our common stock to Aspire Capital under the Purchase Agreement for proceeds of approximately $3.0
million.
Except
with respect to the Aspire Capital transaction, no underwriters were used in the foregoing transactions. The securities described
above were issued and sold in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act and/or
Rule 506 of Regulation D promulgated under the Securities Act. Each of the purchasers in these transactions represented to us
in connection with its purchase that it was acquiring the securities for investment and not for distribution and that it could
bear the risks of the investment. Each purchaser received written disclosures that the securities had not been registered under
the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from registration.
All of the foregoing securities were deemed restricted securities for the purposes of the Securities Act, except for the securities
that have been issued to or will be issued to Aspire Capital, which are being registered for sale by Aspire Capital in this prospectus.
We
issued two subordinated convertible notes with principal amounts of $25,000 and $350,000 on May 23, 2014, an $80,000 principal
amount subordinated convertible note on September 8, 2014, and an $80,000 principal amount subordinated convertible note on October
20, 2014, which notes bore interest at a rate of 8% per annum until paid in full. Each of these notes was converted into shares
of Series C preferred stock in the Series C Financing.
In
addition, we issued a $70,000 principal amount unsecured promissory note on October 9, 2014. This note bore interest at a rate
of 5% per annum until paid in full. This note was converted into shares of Series C preferred stock in the Series C Financing.
No
underwriters were used in the foregoing transactions. The securities described above were issued and sold in reliance on the exemptions
from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities
Act. Each of the purchasers in these transactions represented to us in connection with its purchase that it was acquiring the
securities for investment and not for distribution and that it could bear the risks of the investment. Each purchaser received
written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant
to a registration statement or an available exemption from registration. All of the foregoing securities were deemed restricted
securities for the purposes of the Securities Act.
(c)
Grants and Exercises of Stock Options
From
January 1, 2014 to October 30, 2015, we granted stock options to purchase an aggregate of 1,824,541 shares of our common stock
to employees and non-employees pursuant to our stock plans, with 1,230,365 of such stock options having an exercise price of
$5.86 per share, 280,088 of such stock options having an exercise price of $9.30 per share, 280,088 of such stock options
having an exercise price of $13.23 per share, and 34,000 of such stock options having an exercise price of $2.25
per share.
As
described in the section entitled ‘Outstanding Equity Awards at Fiscal Year-End,’ we also granted an option to Michael
Step on December 2, 2014 for a number of shares of common stock as would, together with the 646,537 shares subject to the option
granted to Mr. Step on December 2, 2014, represent in the aggregate 7.5% of the shares of common stock deemed to be outstanding
on a fully-diluted basis as of the date that we raised in the aggregate a minimum of $15,000,000 in one or more private
and/or public offerings, or a Qualified Financing, after giving effect to (i) the issuance of the shares issued in the Qualified
Financing, (ii) the issuance of this option, and (iii) any adjustments. This option became exercisable upon the closing of our
initial public offering on June 29, 2015. Pursuant to the terms of the agreement, the option is exercisable for a total of 163,799
shares of our common stock, which, together with the shares subject to an option granted to Mr. Step on December 2, 2014 to purchase
646,537 shares, represents 7.5% of the shares of common stock deemed to be outstanding at June 29, 2015 on a fully-diluted basis,
after giving effect to the number of shares subject to this option.
No
underwriters were used in the foregoing transactions. The securities were issued in reliance on the exemptions from registration
provided by Section 4(a)(2) of the Securities Act and/or Rule 701 promulgated under Section 3(b) of the Securities Act as a transaction
pursuant to a compensatory benefit plan or contract relating to compensation. Each purchaser received written disclosures that
the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement
or an available exemption from registration. All of the foregoing securities were deemed restricted securities for the purposes
of the Securities Act.
|
(d)
|
Prepaid
Forward Sale of Preferred Stock
|
On
November 30, 2010, we concurrently entered into a Research and Development Agreement & License, or the R&D Agreement,
and a Put and Call Option Agreement, or the KPM Option Agreement, with two commonly controlled entities, Kolu Pohaku Technologies,
LLC, or KPT, and Kolu Pohaku Management, LLC, or KPM. The agreement was subsequently amended on, July 6, 2011, September 30, 2011,
February 6, 2012 and November 4, 2013 to increase the funding received by us.
Pursuant
to the terms of the KPM Option Agreement, we had the right to put to KPM and KPM had the right to call from us 1,469,994 shares
of our Series B preferred stock at any time after December 31, 2014. The number of shares was determined by dividing the $1,750,000
of payments made by KPT to us under the R&D Agreement by the Series B preferred stock original issue price of $1.19
per share. On March 26, 2015, we exercised our right to put the KPM Option and issued 1,469,994 shares of Series B preferred stock
to KPM.
Item
16. Exhibits and Financial Statement Schedules.
The
exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this registration statement.
Item
17. Undertakings.
|
(a)
|
The
undersigned registrant hereby undertakes:
|
|
(1)
|
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration
statement.
|
|
(iii)
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
|
|
(6)
|
That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of
the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424 (§230.424 of this chapter);
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
(h)
|
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
|
|
(i)
|
The
undersigned Registrant hereby undertakes that:
|
|
(1)
|
For
purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
|
|
(2)
|
For
the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
|
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 2 to Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, California,
on the 19
th
day of July, 2017.
|
RITTER
PHARMACEUTICALS, INC.
|
|
|
|
|
By:
|
/s/
Michael D. Step
|
|
Name:
|
Michael
D. Step
|
|
Title:
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated below.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Michael D. Step
|
|
Chief
Executive Officer and Director
|
|
July
19 , 2017
|
Michael
D. Step
|
|
(
Principal
Executive Officer
)
|
|
|
|
|
|
|
|
/s/
Ellen Mochizuki
|
|
Vice
President, Finance
|
|
July
19 , 2017
|
|
Ellen
Mochizuki
|
(
Principal
Financial and Accounting Officer
)
|
|
|
|
|
|
|
|
/s/
Ira E. Ritter
|
|
Executive
Chairman, Chief Strategic Officer
|
|
July
19 , 2017
|
Ira
E. Ritter
|
|
and
Director
|
|
|
|
|
|
|
|
/s/
Andrew J. Ritter
|
|
President
and Director
|
|
July
19 , 2017
|
Andrew
J. Ritter
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
July
19 , 2017
|
Noah
Doyle
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
July
19 , 2017
|
Matthew
W. Foehr
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
July
19 , 2017
|
Paul
V. Maier
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
July
19 , 2017
|
William
M. Merino
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
July
19 , 2017
|
Gerald
T. Proehl
|
|
|
|
|
*By:
|
/s/
Andrew J. Ritter
|
|
|
Andrew
J. Ritter
|
|
|
Attorney-in-fact
|
|
EXHIBIT
INDEX
|
|
|
|
|
|
Incorporated
by Reference
|
Exhibit No.
|
|
Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
|
|
|
|
|
|
|
|
|
1.1* *
|
|
Form
of Underwriting Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of Ritter Pharmaceuticals, Inc.
|
|
8-K
|
|
001-37428
|
|
3.1
|
|
7/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of Ritter Pharmaceuticals, Inc.
|
|
8-K
|
|
001-37428
|
|
3.2
|
|
7/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
3.3* *
|
|
Form
of
Certificate of Designation of Series A Convertible Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Form
of Common Stock Certificate of Ritter Pharmaceuticals, Inc.
|
|
S-1/A
|
|
333-202924
|
|
4.1
|
|
5/22/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Amended
and Restated Investors’ Rights Agreement, dated as of November 17, 2010, by and among Ritter Pharmaceuticals, Inc. and
the persons and entities named therein
|
|
S-1
|
|
333-202924
|
|
4.2
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
Amendment
No. 1 to the Amended and Restated Investors’ Rights Agreement, dated as of January 13, 2011, by and among Ritter Pharmaceuticals,
Inc. and the persons and entities named therein
|
|
S-1
|
|
333-202924
|
|
4.3
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
Amendment
No. 2 to the Amended and Restated Investors’ Rights Agreement, dated as of February 6, 2012, by and among Ritter Pharmaceuticals,
Inc. and the persons and entities named therein
|
|
S-1
|
|
333-202924
|
|
4.4
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Amendment
No. 3 to the Amended and Restated Investors’ Rights Agreement, dated as of December 4, 2014, by and among Ritter Pharmaceuticals,
Inc. and the persons and entities named therein
|
|
S-1
|
|
333-202924
|
|
4.5
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
Amendment
No. 4 to the Amended and Restated Investors’ Rights Agreement, by and among Ritter Pharmaceuticals, Inc. and the persons
and entities named therein
|
|
S-1
|
|
333-208818
|
|
4.6
|
|
12/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
Form
of Common Stock Purchase Warrant
|
|
S-1
|
|
333-208818
|
|
4.7
|
|
12/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
Form
of Representative’s Warrant Agreement
|
|
S-1/A
|
|
333-202924
|
|
4.7
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Registration
Rights Agreement, dated May 2, 2017, by and between Ritter Pharmaceuticals, Inc. and Aspire Capital Fund, LLC
|
|
8-K
|
|
001-37428
|
|
4.1
|
|
5/9/2017
|
4.10* *
|
|
Form
of Warrant Agency Agreement by and between the Registrant and Corporate Stock Transfer, Inc. and Form of Warrant Certificate
for this Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1*
|
|
Opinion
of Reed Smith LLP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Office
Lease, dated June 25, 2013, by and between Douglas Emmett 1997, LLC and Ritter Pharmaceuticals, Inc.
|
|
S-1
|
|
333-202924
|
|
10.1
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.2+
|
|
Offer
Letter, dated December 2, 2014, by and between Michael D. Step and Ritter Pharmaceuticals, Inc.
|
|
S-1
|
|
333-202924
|
|
10.2
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.3+
|
|
Executive
Compensation Plan
|
|
S-1
|
|
333-202924
|
|
10.3
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.4+
|
|
Executive
Severance & Change in Control Agreement, dated October 1, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael
D. Step
|
|
S-1
|
|
333-202924
|
|
10.4
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.5+
|
|
2008
Stock Plan
|
|
S-8
|
|
333-207709
|
|
99.1
|
|
10/30/15
|
|
|
|
|
|
|
|
|
|
|
|
10.6+
|
|
2009
Stock Plan
|
|
S-1
|
|
333-202924
|
|
10.6
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.7+
|
|
2015
Equity Incentive Plan
|
|
S-8
|
|
333-207709
|
|
99.3
|
|
10/30/15
|
|
|
|
|
|
|
|
|
|
|
|
10.8+
|
|
Form
of Notice of Grant of Stock Option under the 2015 Equity Incentive Plan
|
|
S-8
|
|
333-207709
|
|
99.4
|
|
10/30/15
|
|
|
|
|
|
|
|
|
|
|
|
10.9+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
|
|
S-1
|
|
333-202924
|
|
10.8
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.10+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
|
|
S-1
|
|
333-202924
|
|
10.9
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.11+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
|
|
S-1
|
|
333-202924
|
|
10.10
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.12+
|
|
Stock
Option Agreement, dated September 25, 2013, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
|
|
S-1
|
|
333-202924
|
|
10.11
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.13+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
|
|
S-1
|
|
333-202924
|
|
10.12
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.14+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
|
|
S-1
|
|
333-202924
|
|
10.13
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.15+
|
|
Stock
Option Agreement, dated September 25, 2013, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
|
|
S-1
|
|
333-202924
|
|
10.14
|
|
5/8/2015
|
10.16+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
|
|
S-1
|
|
333-202924
|
|
10.15
|
|
5/8/2015
|
10.17+
|
|
Stock
Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
|
|
S-1
|
|
333-202924
|
|
10.16
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Research
and Development Agreement & License, dated November 30, 2010, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku
Management, LLC and Ritter Pharmaceuticals, Inc.
|
|
S-1
|
|
333-202924
|
|
10.17
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Amendment
No. 1 to Research and Development Agreement & License, dated July 6, 2011, by and among Kolu Pohaku Technologies, LLC,
Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
|
|
S-1
|
|
333-202924
|
|
10.18
|
|
5/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Amendment
No. 2 to Research and Development Agreement & License, dated September 30, 2011, by and among Kolu Pohaku Technologies,
LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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S-1
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333-202924
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10.19
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5/8/2015
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10.21
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Amendment
No. 3 to Research and Development Agreement & License, dated February 6, 2012, by and among Kolu Pohaku Technologies,
LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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S-1
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333-202924
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10.20
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5/8/2015
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10.22
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Amendment
No. 4 to Research and Development Agreement & License, dated November 4, 2013, by and among Kolu Pohaku Technologies,
LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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S-1
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333-202924
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10.21
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5/8/2015
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10.23
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Put
and Call Option Agreement, dated November 30, 2010, by and between Kolu Pohaku Technologies, LLC and Ritter Pharmaceuticals,
Inc.
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S-1
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333-202924
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10.22
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5/8/2015
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10.24
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Subordinated
Convertible Promissory Note to SJ Investment Company, LLC, dated May 23, 2014, in the principal amount of $25,000.00
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S-1
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333-202924
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10.23
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5/8/2015
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10.25
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Subordinated
Convertible Promissory Note to Javelin Venture Partners, L.P., dated May 23, 2014, in the principal amount of $350,000.00
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S-1
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333-202924
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10.24
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5/8/2015
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10.26
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Subordinated
Convertible Promissory Note to Javelin Venture Partners, L.P., dated September 8, 2014, in the principal amount of
$80,000.00
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S-1
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333-202924
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10.25
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5/8/2015
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10.27
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Unsecured
Promissory Note to Javelin Venture Partners, L.P., dated October 9, 2014, in the principal amount of $70,000.00
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S-1
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333-202924
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10.26
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5/8/2015
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10.28
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Subordinated
Convertible Promissory Note, dated October 20, 2014, in the principal amount of $80,000.00
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S-1
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333-202924
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10.27
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5/8/2015
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10.29
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Series
C Preferred Stock and Warrant Purchase Agreement, dated December 4, 2014, by and among Ritter Pharmaceuticals, Inc. and the
Investors named therein
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S-1
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333-202924
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10.28
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5/8/2015
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10.30+
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Form
of Indemnification Agreement between Ritter Pharmaceuticals, Inc. and each of its directors and executive officers
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S-1/A
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333-202924
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10.29
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4/24/2015
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10.31
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Clinical
Supply and Operation Agreement, dated December 16, 2009, by and among Ritter Pharmaceuticals, Inc. and Ricerche Sperimentali
Montale SpA and Inalco SpA
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S-1/A
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333-202924
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10.30
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4/24/2015
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10.32
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Amendment
1 to the Clinical Supply and Cooperation Agreement, dated September 25, 2010, by and among Ritter Pharmaceuticals, Inc. and
Ricerche Sperimentali Montale SpA and Inalco SpA
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S-1/A
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333-202924
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10.31
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4/24/2015
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10.33+
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Offer
Letter, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
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10-Q
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001-37428
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10.1
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8/12/2015
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10.34+
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Offer
Letter, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
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10-Q
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001-37428
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10.2
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8/12/2015
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10.35+
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Executive
Severance & Change in Control Agreement, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
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10-Q
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001-37428
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10.3
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8/12/2015
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10.36+
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Executive
Severance & Change in Control Agreement, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
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10-Q
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001-37428
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10.4
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8/12/2015
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10.37
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Lease
Agreement, dated July 9, 2015, between the Company and Century Park
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10-Q
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001-37428
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10.1
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11/10/2015
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10.38
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Amendment
No. 2 to Clinical Supply and Cooperation Agreement, effective July 24, 2015, between Ritter Pharmaceuticals, Inc., Ricerche
Sperimentali Montale SpA, and Inalco SpA
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10-Q
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001-37428
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10.2
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11/10/2015
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10.39+
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Offer
Letter, dated August 14, 2015, by and between Ritter Pharmaceuticals, Inc. and Ellen Mochizuki
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10-Q
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001-37428
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10.3
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11/10/2015
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10.40+
|
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Letter
of Agreement, dated October 20, 2015 between Ritter Pharmaceuticals, Inc. and Chord Advisors, LLC
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10-Q
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001-37428
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10.4
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11/10/2015
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10.41
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Master
Services Agreement, effective December 29, 2015, by and between Covance Inc. and Ritter Pharmaceuticals, Inc.
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S-1
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333-208818
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10.42
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12/30/2015
|
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10.42
|
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Amendment
to 2015 Equity Incentive Plan
|
|
8-K
|
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001-37428
|
|
10.1
|
|
06/06/2016
|
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10.43
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Common
Stock Purchase Agreement, dated December 18, 2015, by and between Ritter Pharmaceuticals, Inc. and Aspire Capital Fund, LLC
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8-K
|
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001-37428
|
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10.1
|
|
12/21/2015
|
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10.44
|
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Second
Amendment to 2015 Equity Incentive Plan
|
|
8-k
|
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001-37428
|
|
10.1
|
|
6/6/2017
|
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23.1*
|
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Consent
of Mayer Hoffman McCann P.C., independent registered public accounting firm
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24.1**
|
|
Power
of Attorney (included on signature page)
|
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|
*
Filed herewith.
**
Previously filed.
+
Indicates management contract or compensatory plan or arrangement.
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