UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
|
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
TRANSITION PERIOD FROM _______ TO ________
Commission
File Number: 000-52153
ARNO
THERAPEUTICS, INC.
(Exact
Name Of Registrant As Specified In Its Charter)
|
|
|
|
Delaware
|
52-2286452
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
4
Campus Drive, 2
nd
Floor
Parsippany,
New Jersey 07054
(Address
of Principal Executive Offices)(Zip Code)
(862)
703-7170
(Registrant’s
Telephone Number, Including Area Code)
Securities registered pursuant to
Section 12(b) of the Exchange Act:
None
|
Securities registered pursuant
to Section 12(g) of the Exchange Act:
Common Stock, par value
$0.0001
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
¨
No
ý
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.
Yes
¨
No
ý
Indicate by check mark whether the
registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
x
Yes
o
No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller
reporting company.Large accelerated filer
Accelerated filer Non-accelerated
filer Smaller reporting company
ý
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
The
aggregate market value of the issuer’s common stock held by non-affiliates as of
June 30, 2008, based on the closing price of the common stock as reported on the
OTC Bulletin Board on such date, was $32,451,414. The calculation of
the aggregate market value of voting and non-voting stock excludes 4,166,317
shares of the registrant’s common stock held by executive officers, directors,
and persons who beneficially own 10% or more of the registrant’s common stock.
Exclusion of such shares should not be construed to indicate that any such
person possesses the power, direct or indirect, to direct or cause the direction
of the management or policies of the registrant or that such person is
controlled by or under common control with the registrant.
As of
March 30, 2009 there were outstanding 20,392,024 shares of common stock, par
value $0.0001 per share.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of our definitive Proxy Statement for our 2009 Annual Meeting of Stockholders
(the “2009 Proxy Statement”) are incorporated by reference into Part III of this
Form 10-K, to the extent described in Part III. The 2009 Proxy Statement will be
filed within 120 days after the end of the fiscal year ended December 31,
2008.
TABLE
OF CONTENTS
|
|
|
Page
|
|
PART
I
|
|
|
|
Item
1
|
Business
|
2
|
|
Item
1A
|
Risk
Factors
|
12
|
|
Item
1B
|
Unresolved
Staff Comments
|
22
|
|
Item
2
|
Properties
|
22
|
|
Item
3
|
Legal
Proceedings
|
22
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
23
|
|
|
|
|
|
PART
II
|
|
|
|
Item
5
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
23
|
|
Item
6
|
Selected
Financial Data
|
23
|
|
Item
7
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
23
|
|
Item
7A
|
Quantitative
and Qualitative Disclosures About Market Risk
|
30
|
|
Item
8
|
Financial
Statements and Supplementary Data
|
30
|
|
Item
9
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
30
|
|
Item
9A(T)
|
Controls
and Procedures
|
30
|
|
Item
9B
|
Other
Information
|
31
|
|
|
|
|
|
PART
III
|
|
|
|
Item
10
|
Directors,
Executive Officers and Corporate Governance
|
31
|
|
Item
11
|
Executive
Compensation
|
31
|
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
31
|
|
Item
13
|
Certain
Relationships and Related Transactions, and Director
Independence
|
32
|
|
Item
14
|
Principal
Accountant Fees and Services
|
32
|
|
|
|
|
|
PART
IV
|
|
|
|
Item
15
|
Exhibits
and Financial Statement Schedules
|
33
|
|
|
Signatures
|
35
|
|
|
Index
to Consolidated Financial Statements
|
F-1
|
References
to the “Company,” the “Registrant,” “we,” “us,” or “our” in this Annual Report
on Form 10-K refer to Arno Therapeutics, Inc. a Delaware corporation, and its
consolidated subsidiaries, together taken as a whole, unless the context
indicates otherwise.
Forward-Looking
Statements
This
Annual Report on Form 10-K contains “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 Securities Exchange Act of 1934, as
amended, or the Exchange Act. The forward-looking statements are only
predictions and provide our current expectations or forecasts of future events
and financial performance and may be identified by the use of forward-looking
terminology, including the terms “believes,” “estimates,” “anticipates,”
“expects,” “plans,” “intends,” “may,” “will” or “should” or, in each case, their
negative, or other variations or comparable terminology, though the absence of
these words does not necessarily mean that a statement is not forward-looking.
Forward-looking statements include all matters that are not historical facts and
include, without limitation, statements concerning our business strategy,
outlook, objectives, future milestones, plans, intentions, goals, future
financial conditions, our research and development programs and planning for and
timing of any clinical trials, the possibility, timing and outcome of submitting
regulatory filings for our product candidates under development, research and
development of particular drug products, the development of financial, clinical,
manufacturing and marketing plans related to the potential approval and
commercialization of our drug products, and the period of time for which our
existing resources will enable us to fund our operations. Forward-looking
statements are subject to many risks and uncertainties that could cause our
actual results to differ materially from any future results expressed or implied
by the forward-looking statements. Examples of the risks and uncertainties
include, but are not limited to:
|
|
|
the
risk that recurring losses, negative cash flows and an inability to raise
additional capital could threaten our ability to continue as a going
concern;
|
|
|
|
|
|
|
|
the
risk that we may not successfully develop and market our product
candidates, and even if we do, we may not become
profitable;
|
|
|
|
risks
relating to the progress of our research and
development;
|
|
|
|
|
|
|
|
risks
relating to significant, time-consuming and costly research and
development efforts, including pre-clinical studies, clinical trials and
testing, and the risk that clinical trials of our product candidates may
be delayed, halted or fail;
|
|
|
|
risks
relating to the rigorous regulatory approval process required for any
products that we may develop independently, with our development partners
or in connection with any collaboration arrangements;
|
|
|
|
|
|
|
|
the
risk that changes in the national or international political and
regulatory environment may make it more difficult to gain U.S. Food and
Drug Administration, or FDA, or other regulatory approval of our drug
product candidates;
|
|
|
|
risks
that the FDA or other regulatory authorities may not accept any
applications we file;
|
|
|
|
|
|
|
|
risks
that the FDA or other regulatory authorities may withhold or delay
consideration of any applications that we file or limit such applications
to particular indications or apply other label
limitations;
|
|
|
|
risks
that, after acceptance and review of applications that we file, the FDA or
other regulatory authorities will not approve the marketing and sale of
our drug product candidates;
|
|
|
|
|
|
|
|
risks
relating to our drug manufacturing operations, including those of our
third-party suppliers and contract
manufacturers;
|
|
|
|
risks
relating to the ability of our development partners and third-party
suppliers of materials, drug substance and related components to provide
us with adequate supplies and expertise to support manufacture of drug
product for initiation and completion of our clinical studies;
and
|
|
|
|
|
|
|
|
risks
relating to the transfer of our manufacturing technology to third-party
contract manufacturers.
|
Other risks that may affect
forward-looking statements contained in this report are described below under
the caption “Risk Factors” in Item 1A of this Annual Report. These risks,
including those described above, could cause our actual results to differ
materially from those described in the forward-looking statements. We undertake
no
obligation to publicly release any revisions to the forward-looking statements
to reflect events or circumstances after the date of this document. The risks
discussed in this Annual Report should be considered in evaluating our prospects
and future performance.
PART I
ITEM
1. BUSINESS
Overview
of Arno’s Business
We are a
development stage company focused on developing innovative products for the
treatment of cancer. We seek to acquire rights to novel, pre-clinical or early
stage clinical oncology product candidates, primarily from academic and research
institutions, and then develop those drug candidates for commercial use. We
currently have the exclusive worldwide rights to commercially develop our three
oncology product candidates:
|
|
·
|
AR-67
- Our lead clinical product candidate is a novel, third-generation
campothecin analogue. We have completed patient enrollment of a
multi-center, ascending dose Phase I clinical trial of AR-67 in patients
with advanced solid tumors. During the first half of 2009, we
anticipate initiating a Phase II clinical trial of AR-67 in patients with
glioblastoma multiforme, or GBM, a highly aggressive form of brain
cancer. We also anticipate initiating a Phase II study in
patients with myelodysplastic syndrome, or MDS, a group of diseases marked
by abnormal production of blood cells by the bone marrow. In light of
current economic circumstances, we no longer plan to conduct these studies
ourselves, but rather we plan to pursue collaborations with oncology
cooperative groups and/or identify other researchers to conduct
investigator-initiated studies. We believe this action will
preserve our available cash resources, while continuing to advance the
development of this product
candidate.
|
|
|
·
|
AR-12
- We are also developing AR-12, an orally available pre-clinical
compound for the treatment of cancer. AR-12 is a novel
inhibitor of phosphoinositide dependent protein kinase-1, or PDK-1, that
targets the PI3K/Akt pathway while also possessing activity in the
endoplasmic reticulum stress and other pathways targeting apoptosis.
Pre-clinical studies suggest that AR-12 may provide therapeutic benefit
either alone or in combination with other therapeutic agents. We are
currently conducting pre-clinical toxicology and manufacturing studies
that we anticipate will provide the basis for the filing of an
investigational new drug application, or IND, in the first half of
2009. We anticipate commencing a Phase I clinical study of
AR-12 in the United States and the United Kingdom during
2009.
|
|
|
·
|
AR-42
– We are also developing AR-42,
an orally available pre-clinical compound for the treatment of
cancer. AR-42 is a broad spectrum inhibitor of deacetylase
targets, or Pan-DAC, as well as an inhibitor of Akt. In pre-clinical
models, AR-42 has demonstrated greater potency and a competitive profile
in tumors when compared with vorinostat (also known as SAHA and marketed
as Zolinza
®
by Merck), the leading marketed
histone deacetylase inhibitor. In March 2009, the FDA accepted our IND for
AR-42. We plan to pursue collaborations with oncology cooperative groups,
explore strategic partnerships and/or identify other researchers to
conduct a Phase I study of AR-42 and otherwise further its
development.
|
Corporate
History; Merger Transactions
On June
2, 2008, we were acquired by Laurier International, Inc., a Delaware
corporation, in a “reverse” merger whereby a wholly-owned subsidiary of Laurier
merged with and into Arno Therapeutics, with Arno Therapeutics remaining as the
surviving corporation and a wholly-owned subsidiary of Laurier. In accordance
with the terms of this merger, stockholders of Arno Therapeutics exchanged all
of their shares of common stock of Arno Therapeutics for shares of Laurier
common stock at a rate of 1.99377 shares of Laurier common stock for each share
of Arno Therapeutics common stock. As a result of the issuance of the shares of
Laurier common stock to the former Arno Therapeutics stockholders, following the
merger the former stockholders of Arno Therapeutics held 95 percent of the
outstanding common stock of Laurier, assuming the issuance of all shares
underlying outstanding options and warrants. Upon completion of the
merger, all of the former officers and directors of Laurier resigned and were
replaced by the officers and directors of Arno Therapeutics. Additionally,
following the merger Laurier changed its name to Arno Therapeutics,
Inc.
Oncology
Overview
Cancer is
the second leading cause of death in the United States, surpassed only by heart
disease. Since 1990, over 18 million new cancer cases have been diagnosed.
According to a 2008 report by the American Cancer Society, the National
Institutes of Health estimate direct costs for medical care for cancer related
treatments in the United States in 2007 were $89.0 billion. With a 65% 5-year
relative survival rate for all cancers from 1996-2002, oncology remains a
significant unmet medical need.
Different
types of cancer behave in unique ways and respond to different treatments. Many
types of drugs are used to treat cancer, including cytotoxics or
antineoplastics, hormones, and biologics. According to a March 2007 report by
Cowen and Company, the global cancer market was roughly $54.0 billion in 2006,
of which cytotoxics accounted for 33% or $17.6 billion.
Cytotoxics,
known as chemotherapeutics, tend to interfere with a few essential cellular
processes in order to kill cancer cells. Although there are many cytotoxic
agents, there is a considerable amount of overlap in their mechanisms of action.
As such, the choice of a particular agent or group of agents is generally based
on the result of empirical clinical trials and a desire to balance an aggressive
treatment regimen with considerations to the patient’s comfort and quality of
life, a consideration that makes the convenience of oral drugs more desirable
than ones delivered intravenously.
Camptothecins
and their analogues have demonstrated potent cytotoxic profiles throughout
clinical trials and their marketed usage. They represent a significant part of
the chemotherapeutics class with $1.1 billion in annual sales. Our lead drug
candidate, AR-67, is a novel, third-generation camptothecin analogue that has
demonstrated high potency in pre-clinical studies and improved pharmacokinetic
properties, characteristics that we believe may translate to superior clinical
activity.
Arno
Product Pipeline
Lead
Product - AR-67
Background
on Camptothecins
Camptothecin
and its analogues, together referred to as camptothecins, are a class of drugs
widely used to treat certain types of cancers, with worldwide annual sales
exceeding $1.1 billion. Camptothecins treat cancer by disrupting cell division
through the inhibition of topoisomerase I, a critical enzyme in DNA replication.
Through this inhibition and additional mechanisms of action, camptothecins
target cancer cells preferentially to normal tissues, making them a promising
class of drugs in this indication.
All
clinically relevant camptothecins react with water and exist in two forms under
physiologic conditions: a biologically active “lactone” form and a largely
inactive but toxic “carboxylate” form. In human blood, chemical equilibrium
greatly favors the carboxylate form, with rapid conversion of the active lactone
form to the inactive and toxic carboxylate form
in vivo
. Maintaining a
therapeutic level of the lactone form
in vivo
has proven to be a
significant challenge in the development of the class.
Second-generation
camptothecin analogues focused on improving lactone stability by increasing
lipophilicity and modifying binding profiles between the compound and blood
proteins. Two second generation therapies, topotecan (Hycamtin
®
,
Glaxo-Smith-Kline) and irinotecan (also known as CPT-11 and marketed as
Camptostar
®
by
Pfizer), are approved by the FDA. Topotecan, the first camptothecin to receive
marketing approval in the United States, is used as a second-line intravenous
therapy in several tumor types including ovarian, small cell lung cancer, and
cervical cancers. Irinotecan is a largely inactive intravenous pro-drug for
SN-38, a potent but insoluble camptothecin analogue. Irinotecan is used as a
front-line and second-line therapy for colorectal cancer and is by far the
leading drug in the class with over $903 million in worldwide annual sales.
While these drugs represent a marked improvement compared with the parent
compound, their
in vivo
stability profiles remain suboptimal. Exposure to the active lactone form can be
measured by lactone: total area under the curve ratio, or AUC ratio, which
measures the ratio of the drug forms over the course of drug exposure. Lactone
AUC ratios are 30-40% for topotecan, 40-45% for CPT-11, and 50-75% for
SN-38.
AR-67 is
a novel, third-generation camptothecin analogue that has demonstrated high
potency in pre-clinical studies and improved pharmacokinetic properties in
humans as compared with first and second-generation products. In the ongoing
Phase I study, preliminary pharmacokinetic data suggest a lactone AUC ratio of
approximately 90%.
We
believe that this unique profile may translate into superior efficacy in the
treatment of a variety of cancers. We believe these advantages could allow AR-67
to become a leading product in the camptothecin market. AR-67 has
concluded enrollment of a Phase I study in patients with advanced solid
tumors. Phase II studies are planned for initiation in 2009 in patients
with GBM and patients with MDS.
Potential
Advantages of AR-67
AR-67 has
demonstrated potent topoisomerase I inhibition and greatly improved
in vivo
stability of the
active lactone form when compared with topotecan and irinotecan. Structural
characteristics make AR-67 highly lipophilic, with pre-clinical evaluation
showing 10-fold and 250-fold increases in lipophilicity over SN-38 and
topotecan, respectively. Favorable plasma protein binding characteristics also
contribute to AR-67’s superior lactone AUC ratio compared with marketed
camptothecins. In the Phase I study, data suggests a lactone AUC ratio of
approximately 90%.
Pre-clinical
studies with AR-67 have demonstrated a unique anti-cancer profile, with
in vitro
cytotoxicity
comparable to topotecan and SN-38 in several tumor lines, including
non-small-cell lung and central nervous system cancers. AR-67 was used in
pre-clinical xenograft studies and showed particular promise in brain cancers,
where the drug significantly inhibited tumor growth and elicited complete
responses in subcutaneous and intracranial glioma models. We believe that the
pre-clinical evidence of AR-67’s potency combined with the preliminary
pharmacokinetic data observed in the Phase I study may lead to a superior
therapeutic profile.
Clinical
Development Program
We have
completed enrollment of our single agent, ascending dose Phase I clinical study
of AR-67 in patients with advanced solid tumors. The Phase I study results
established the maximum tolerated dose, or MTD, evaluated the safety of AR-67,
and characterized the plasma pharmacokinetic, or PK, profile. We plan to pursue
investigator-initiated Phase II studies of AR-67 in patients with GBM and
patients with MDS during 2009. We believe that AR-67’s high lipophilicity may
promote blood-brain-barrier penetration of therapeutic levels of the lactone
form and increase activity relative to other drugs in the class. While there can
be no assurances, demonstrated efficacy in GBM or MDS, orphan indications, may
provide an accelerated path to approval, increased market protection and
expanded sales potential.
AR-12
We are
also developing AR-12, a potentially first-in-class, orally available cancer
treatment in pre-clinical development. AR-12 is an inhibitor of phosphoinositide
dependent protein kinase-1, or PDK-1, that targets the Akt pathway, while also
possessing activity in the endoplasmic reticulum stress pathway and other
pathways targeting apoptosis. In pre-clinical studies, AR-12 has demonstrated
activity in a wide range of tumor types and synergistic effects with several
widely used anti-cancer agents, enhancing activity or overcoming drug-resistance
when used in combination with Avastin
®
(Genentech), Herceptin
®
(Genentech), Gleevec
®
(Novartis), Tarceva
®
(Genentech)
and tamoxifen. We have completed pre-clinical toxicology and manufacturing
studies that we anticipate will provide the basis for the filing of an IND, in
early 2009. We anticipate commencing a Phase I clinical study of
AR-12 in the United States and the United Kingdom during 2009.
AR-42
AR-42 is
a novel oral cancer therapy in pre-clinical development. AR-42 is a broad
spectrum deacetylace inhibitor, referred to as a pan-DAC inhibitor that also
inhibits Akt via the protein phosphate I pathway. In pre-clinical studies, AR-42
has demonstrated greater potency and activity in solid tumors when compared with
vorinostat (also known as SAHA and marketed as Zolinza
®
by
Merck), the leading marketed histone deacetylase inhibitor. The additional
mechanisms of AR-42 may contribute to the compound’s superior profile
in vitro
and
in vivo
. The FDA
accepted our IND in the first quarter of 2009. We plan to pursue
collaborations with oncology cooperative groups, explore strategic partnerships
and/or identify other researchers to conduct a Phase I study of AR-42 and
otherwise further its development.
Competition
We
compete primarily in the segment of the biopharmaceutical market that addresses
cancer therapeutics, which is highly competitive. We face significant
competition from many pharmaceutical, biopharmaceutical and biotechnology
companies that are researching and selling products designed to address the
cancer market. Many of our competitors have significantly greater financial,
manufacturing, marketing and drug development resources than we do. Large
pharmaceutical companies in particular have extensive experience in clinical
testing and in obtaining regulatory approvals for drugs. These companies also
have significantly greater research capabilities than we do. In addition, many
universities and private and public research institutes are active in cancer
research. We also compete with commercial biotechnology companies for the rights
to product candidates developed by public and private research institutes.
Smaller or early-stage companies are also significant competitors, particularly
those with collaborative arrangements with large and established companies. In
addition to the factors described above under Item 1A of this Annual Report, our
ability to compete in the cancer therapeutics market depends on the following
factors:
|
|
|
our
ability to develop novel compounds with attractive pharmaceutical
properties and to secure and protect intellectual property rights based on
our innovations;
|
|
|
|
the
efficacy, safety and reliability of our drug
candidates;
|
|
|
|
the
speed at which we develop our drug candidates;
|
|
|
|
our
ability to design and successfully complete appropriate clinical
trials;
|
|
|
|
our
ability to maintain a good relationship with regulatory
authorities;
|
|
|
|
the
timing and scope of regulatory approvals;
|
|
|
|
our
ability to manufacture and sell commercial quantities of future products
to the market; and
|
|
|
|
acceptance
of future products by physicians and other healthcare
providers.
|
If
approved, we expect that AR-67 would compete in a class of chemotherapeutic
agents known as camptothecins. The annual worldwide sales of camptothecins,
which have been used for many years, collectively exceed $1.1 billion. The
leading camtothecins on the market today include Hycamitin (topotecan), marketed
by GlaxoSmithKline, and Camptostar (irinotecan or CPT-11), which is marketed by
Pfizer. If approved, our product candidates may also compete with other
cytotoxic, or anticancer, therapies.
License
Agreements and Intellectual Property
General
Our goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights of
other parties, both in the United States and in other countries. Our policy is
to actively seek to obtain, where appropriate, the broadest intellectual
property protection possible for our current product candidates and any future
product candidates, proprietary information and proprietary technology through a
combination of contractual arrangements and patents, both in the U.S. and
abroad. However, even patent protection may not always afford us with complete
protection against competitors who seek to circumvent our patents. If we fail to
adequately protect or enforce our intellectual property rights or secure rights
to patents of others, the value of our intellectual property rights would
diminish. See Item 1A. Risk Factors – Risks Related to Our Intellectual
Property.
We will
continue to depend upon the skills, knowledge and experience of our scientific
and technical personnel, as well as that of our advisors, consultants and other
contractors, none of which is patentable. To help protect our proprietary
know-how, which is not patentable, and for inventions for which patents may be
difficult to enforce, we currently rely and will in the future rely on trade
secret protection and confidentiality agreements to protect our interests. To
this end, we require all of our employees, consultants, advisors and other
contractors to enter into confidentiality agreements that prohibit the
disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions
important to our business.
AR-67
License Agreement
Our
rights to AR-67 are governed by an October 2006 license agreement with the
University of Pittsburgh, or Pitt. Under this agreement, we hold an exclusive,
worldwide, royalty-bearing license for the rights to commercialize technologies
embodied by certain issued patents, patent applications and know-how relating to
AR-67 for all therapeutic uses. We have expanded, and intend to continue to
expand, our patent portfolio by filing additional patents covering expanded uses
for this technology.
Under the
terms of our license agreement with Pitt, we made a one-time cash payment of
$350,000 to Pitt and reimbursed it for past patent expenses. Additionally, Pitt
will receive performance-based cash payments upon successful completion of
clinical and regulatory milestones relating to AR-67. We will make the first
milestone payment to Pitt following the filing of the first New Drug
Application, or NDA, filed with the FDA for AR-67. We are also required to pay
to Pitt an annual maintenance fee on each anniversary of the license agreement,
and to pay Pitt a royalty equal to a percentage of net sales of AR-67. To the
extent we enter into a sublicensing agreement relating to AR-67, we will pay
Pitt a portion of all non-royalty income received from such
sublicensee.
Under the
license agreement with Pitt, we also agreed to indemnify and hold Pitt and its
affiliates harmless from any and all claims, actions, demands, judgments,
losses, costs, expenses, damages and liabilities (including reasonable
attorneys’ fees) arising out of or in connection with (i) the production,
manufacture, sale, use, lease, consumption or advertisement of AR-67, (ii) the
practice by us or any affiliate or sublicensee of the licensed patent; or (iii)
any obligation of us under the license agreement unless any such claim is
determined to have arisen out of the gross negligence, recklessness or willful
misconduct of Pitt. The license agreement will terminate upon the expiration of
the last patent relating to AR-67. Pitt may generally terminate the agreement at
any time upon a material breach by us to the extent we fail to cure any such
breach within 60 days after receiving notice of such breach or in the event we
file for bankruptcy. We may terminate the agreement for any reason upon 90 days’
prior written notice.
AR-12
and AR-42 License Agreements
Our
rights to AR-12 and AR-42 are governed by separate license agreements with The
Ohio State University Research Foundation, or Ohio State, entered into in
January 2008. Pursuant to each of these agreements, we have exclusive,
worldwide, royalty-bearing licenses to commercialize certain patent
applications, know-how and improvements relating to AR-12 and AR-42 for all
therapeutic uses.
Pursuant
to our license agreements for AR-12 and AR-42, we made one-time cash payments to
Ohio State in the aggregate amount of $450,000 and reimbursed it for past patent
expenses. Additionally, we are required to make performance-based cash payments
upon successful completion of clinical and regulatory milestones relating to
AR-12 and AR-42 in the U.S., Europe and Japan. The first milestone payment for
each of the licensed compounds will be due when the first patient is dosed in
the first company-sponsored Phase I clinical trial of each of AR-12 and AR-42.
To the extent we enter into a sublicensing agreement relating to either or both
of AR-12 or AR-42, we will be required to pay Ohio State a portion of all
non-royalty income received from such sublicensee.
The
license agreements with Ohio State further provide that we will indemnify Ohio
State from any and all claims arising out of the death of or injury to any
person or persons or out of any damage to property, or resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of
either AR-12 or AR-42, except to the extent that any such claim arises out of
the gross negligence or willful misconduct of Ohio State. The license agreements
for AR-12 and AR-42, respectively, expire on the later of (i) the expiration of
the last valid claim contained in any licensed patent and (ii) 20 years after
the effective date of the license. Ohio State will generally be able to
terminate either license upon our breach of the terms of the license the extent
we fail to cure any such breach within 90 days after receiving notice of such
breach or our bankruptcy. We may terminate either license upon 90 days’ prior
written notice.
Government Regulation and Product
Approval
The FDA
and comparable regulatory agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon the testing (pre-clinical
and clinical), manufacturing, labeling, storage, recordkeeping, advertising,
promotion, import, export, marketing and distribution, among other things, of
drugs and drug product candidates. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve our
marketing applications or allow us to manufacture or market our products, and we
may be criminally prosecuted. We and our manufacturers may also be subject to
regulations under other United States federal, state, and local
laws.
United States Government
Regulation
In the
United States, the FDA regulates drugs under the Food, Drug and Cosmetic Act, or
FDCA, and implementing regulations. The process required by the FDA before our
drug candidates may be marketed in the United States generally involves the
following (although the FDA is given wide discretion to impose different or more
stringent requirements on a case-by-case basis):
|
|
|
completion
of extensive pre-clinical laboratory tests, pre-clinical animal studies
and formulation studies, all performed in accordance with the FDA’s good
laboratory practice regulations and other
regulations;
|
|
|
|
submission
to the FDA of an IND application, which must become effective before
clinical trials may begin;
|
|
|
|
performance
of multiple adequate and well-controlled clinical trials meeting FDA
requirements to establish the safety and efficacy of the product candidate
for each proposed indication;
|
|
|
|
submission
of a new drug application, or NDA, to the FDA;
|
|
|
|
satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facilities at which the product candidate is produced, and potentially
other involved facilities as well, to assess compliance with current good
manufacturing practice, or cGMP, regulations and other applicable
regulations; and
|
|
|
|
FDA
review and approval of the NDA prior to any commercial marketing, sale or
shipment of the drug.
|
The
testing and approval process requires substantial time, effort and financial
resources, and we cannot be certain that any approvals for our drug candidates
will be granted on a timely basis, if at all. Risks to us related to these
regulations are described in Item 1A of this Annual Report under the caption
entitled “Risks Relating to the Clinical Testing, Regulatory Approval,
Manufacturing and Commercialization of Our Product Candidates.”
Pre-clinical
tests may include laboratory evaluation of product chemistry, formulation and
stability, as well as studies to evaluate toxicity and other effects in animals.
The results of pre-clinical tests, together with manufacturing information and
analytical data, among other information, are submitted to the FDA as part of an
IND application. Subject to certain exceptions, an IND becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, issues a clinical hold to delay a proposed clinical investigation due to
concerns or questions about the conduct of the clinical trial, including
concerns that human research subjects will be exposed to unreasonable health
risks. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Our submission of an IND, or those
of our collaboration partners, may not result in the FDA authorization to
commence a clinical trial. A separate submission to an existing IND must also be
made for each successive clinical trial conducted during product development.
The FDA must also approve changes to an existing IND. Further, an independent
institutional review board, or IRB, for each medical center proposing to conduct
the clinical trial must review and approve the plan for any clinical trial
before it commences at that center and it must monitor the study until
completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk. Clinical testing also must satisfy
extensive Good Clinical Practice requirements and regulations for informed
consent.
Clinical
Trials
For
purposes of NDA submission and approval, clinical trials are typically conducted
in the following three sequential phases, which may overlap (although additional
or different trials may be required by the FDA as well):
|
|
|
Phase I clinical trials
are initially conducted in a limited population to test the drug
candidate for safety, dose tolerance, absorption, metabolism, distribution
and excretion in healthy humans or, on occasion, in patients, such as
cancer patients. In some cases, particularly in cancer trials, a sponsor
may decide to conduct what is referred to as a “Phase Ib” evaluation,
which is a second safety-focused Phase I clinical trial typically designed
to evaluate the impact of the drug candidate in combination with currently
FDA-approved drugs or in a particular patient
population.
|
|
|
|
Phase II clinical trials
are generally conducted in a limited patient population to identify
possible adverse effects and safety risks, to determine the efficacy of
the drug candidate for specific targeted indications and to determine dose
tolerance and optimal dosage. Multiple Phase II clinical trials may be
conducted by the sponsor to obtain information prior to beginning larger
and more expensive Phase III clinical trials. In some cases, a sponsor may
decide to conduct what is referred to as a “Phase IIb” evaluation, which
is a second, confirmatory Phase II clinical trial that could, if accepted
by the FDA, serve as a pivotal clinical trial in the approval of a drug
candidate.
|
|
|
|
Phase III clinical trials
are commonly referred to as pivotal trials. When Phase II clinical
trials demonstrate that a dose range of the drug candidate is effective
and has an acceptable safety profile, Phase III clinical trials are
undertaken in large patient populations to further evaluate dosage, to
provide substantial evidence of clinical efficacy and to further test for
safety in an expanded and diverse patient population at multiple,
geographically dispersed clinical trial
sites.
|
In some
cases, the FDA may condition continued approval of an NDA on the sponsor’s
agreement to conduct additional clinical trials with due diligence. In other
cases, the sponsor and the FDA may agree that additional safety and/or efficacy
data should be provided; however, continued approval of the NDA may not always
depend on timely submission of such information. Such post-approval studies are
typically referred to as Phase IV studies.
New Drug
Application
The
results of drug candidate development, pre-clinical testing and clinical trials,
together with, among other things, detailed information on the manufacture and
composition of the product and proposed labeling, and the payment of a user fee,
are submitted to the FDA as part of an NDA. The FDA reviews all NDAs submitted
before it accepts them for filing and may request additional information rather
than accepting an NDA for filing. Once an NDA is accepted for filing, the FDA
begins an in-depth review of the application.
During
its review of an NDA, the FDA may refer the application to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved. The FDA may refuse to approve an NDA and issue a not approvable
letter if the applicable regulatory criteria are not satisfied, or it may
require additional clinical or other data, including one or more additional
pivotal Phase III clinical trials. Even if such data are submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval. Data
from clinical trials are not always conclusive and the FDA may interpret data
differently than we or our collaboration partners interpret data. If the FDA’s
evaluations of the NDA and the clinical and manufacturing procedures and
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which contains the conditions that must be met in order to
secure final approval of the NDA. If and when those conditions have been met to
the FDA’s satisfaction, the FDA will issue an approval letter, authorizing
commercial marketing of the drug for certain indications. The FDA may withdraw
drug approval if ongoing regulatory requirements are not met or if safety
problems occur after the drug reaches the market. In addition, the FDA may
require testing, including Phase IV clinical trials, 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 drug based on
the results of these post-marketing programs. Drugs may be marketed only for the
FDA-approved indications and in accordance with the FDA-approved label. Further,
if there are any modifications to the drug, including changes in indications,
other labeling changes, or manufacturing processes or facilities, we may be
required to submit and obtain FDA approval of a new NDA or NDA supplement, which
may require us to develop additional data or conduct additional pre-clinical
studies and clinical trials.
The
Hatch-Waxman Act
Under the
Hatch-Waxman Act, newly-approved drugs and new conditions of use may benefit
from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman
Act provides five-year marketing exclusivity to the first applicant to gain
approval of an NDA for a new chemical entity, meaning that the FDA has not
previously approved any other new drug containing the same active entity. The
Hatch-Waxman Act prohibits the submission of an abbreviated NDA, or ANDA, or a
Section 505(b)(2) NDA for another version of such drug during the five-year
exclusive period; however, submission of a Section 505(b)(2) NDA or an ANDA
for a generic version of a previously-approved drug containing a paragraph IV
certification is permitted after four years, which may trigger a 30-month stay
of approval of the ANDA or Section 505(b)(2) NDA. Protection under the
Hatch-Waxman Act does not prevent the submission or approval of another “full”
505(b)(1) NDA; however, the applicant would be required to conduct its own
pre-clinical and adequate and well-controlled clinical trials to demonstrate
safety and effectiveness. The Hatch-Waxman Act also provides three years of
marketing exclusivity for the approval of new and supplemental NDAs, including
Section 505(b)(2) NDAs, for, among other things, new indications, dosages, or
strengths of an existing drug, if new clinical investigations that were
conducted or sponsored by the applicant are essential to the approval of the
application. Some of our product candidates may qualify for Hatch-Waxman
non-patent marketing exclusivity.
In
addition to non-patent marketing exclusivity, the Hatch-Waxman Act amended the
FDCA to require each NDA sponsor to submit with its application information on
any patent that claims the drug for which the applicant submitted the NDA or
that claims a method of using such drug and with respect to which a claim of
patent infringement could reasonably be asserted if a person not licensed by the
owner engaged in the manufacture, use, or sale of the drug. Generic applicants
that wish to rely on the approval of a drug listed in the Orange Book must
certify to each listed patent, as discussed above. We intend to submit for
Orange Book listing all relevant patents for our product
candidates.
Finally,
the Hatch-Waxman Act amended the patent laws so that certain patents related to
products regulated by the FDA are eligible for a patent term extension if patent
life was lost during a period when the product was undergoing regulatory review,
and if certain criteria are met. We intend to seek patent term extensions,
provided our patents and products, if they are approved, meet applicable
eligibility requirements.
Pediatric
Studies and Exclusivity
The FDA
provides an additional six months of non-patent marketing exclusivity and patent
protection for any such protections listed in the Orange Book for new or
marketed drugs if a sponsor conducts specific pediatric studies at the written
request of the FDA. The Pediatric Research Equity Act of 2003, or PREA,
authorizes the FDA to require pediatric studies for drugs to ensure the drugs’
safety and efficacy in children. PREA requires that certain new NDAs or NDA
supplements contain data assessing the safety and effectiveness for the claimed
indication in all relevant pediatric subpopulations. Dosing and administration
must be supported for each pediatric subpopulation for which the drug is safe
and effective. The FDA may also require this data for approved drugs that are
used in pediatric patients for the labeled indication, or where there may be
therapeutic benefits over existing products. The FDA may grant deferrals for
submission of data, or full or partial waivers from PREA. PREA pediatric
assessments may qualify for pediatric exclusivity. Unless otherwise required by
regulation, PREA does not apply to any drug for an indication with orphan
designation.
Orphan Drug Designation and
Exclusivity
The FDA
may grant orphan drug designation to drugs intended to treat a rare disease or
condition, which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process. If
a product which has an orphan drug designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product
is entitled to seven years of orphan drug exclusivity, meaning that the FDA may
not approve any other applications to market the same drug for the same
indication for a period of seven years, except in limited circumstances, such as
a showing of clinical superiority to the product with orphan exclusivity
(superior efficacy, safety, or a major contribution to patient care). Orphan
drug designation does not prevent competitors from developing or marketing
different drugs for that indication. We may seek orphan drug designation for
AR-67 for the treatment of GBM and MDS, and potentially for certain uses of
AR-12 and AR-42.
Under
European Union medicines laws, the criteria for designating a product as an
“orphan medicine” are similar but somewhat different from those in the United
States. A drug is designated as an orphan drug if the sponsor can establish that
the drug is intended for a life-threatening or chronically debilitating
condition affecting no more than five in 10,000 persons in the European Union or
that is unlikely to be profitable, and if there is no approved satisfactory
treatment or if the drug would be a significant benefit to those persons with
the condition. Orphan medicines are entitled to ten years of marketing
exclusivity, except under certain limited circumstances comparable to United
States law. During this period of marketing exclusivity, no “similar” product,
whether or not supported by full safety and efficacy data, will be approved
unless a second applicant can establish that its product is safer, more
effective or otherwise clinically superior. This period may be reduced to six
years if the conditions that originally justified orphan designation change or
the sponsor makes excessive profits.
Fast Track
Designation
The FDA’s
fast track program is intended to facilitate the development and to expedite the
review of drugs that are intended for the treatment of a serious or
life-threatening condition and that demonstrate the potential to address unmet
medical needs. Under the fast track program, applicants may seek traditional
approval for a product based on data demonstrating an effect on a clinically
meaningful endpoint, or approval based on a well-established surrogate endpoint.
The sponsor of a new drug candidate may request the FDA to designate the drug
candidate for a specific
indication
as a fast track drug at the time of original submission of its IND, or at any
time thereafter prior to receiving marketing approval of a marketing
application. The FDA will determine if the drug candidate qualifies for fast
track designation within 60 days of receipt of the sponsor’s
request.
If the
FDA grants fast track designation, it may initiate review of sections of an NDA
before the application is complete. This so-called “rolling review” is available
if the applicant provides and the FDA approves a schedule for the submission of
the remaining information and the applicant has paid applicable user fees. The
FDA’s review clock for both a standard and priority NDA for a fast track product
does not begin until the complete application is submitted. Additionally, fast
track designation may be withdrawn by the FDA if it believes that the
designation is no longer supported by emerging data, or if the designated drug
development program is no longer being pursued.
In some
cases, a fast track designated drug candidate may also qualify for one or more
of the following programs:
|
|
|
Priority Review.
As
explained above, a drug candidate may be eligible for a six-month priority
review. The FDA assigns priority review status to an application if the
drug candidate provides a significant improvement compared to marketed
drugs in the treatment, diagnosis or prevention of a disease. A fast track
drug would ordinarily meet the FDA’s criteria for priority review, but may
also be assigned a standard review. We do not know whether any of our drug
candidates will be assigned priority review status or, if priority review
status is assigned, whether that review or approval will be faster than
conventional FDA procedures, or that the FDA will ultimately approve the
drug.
|
|
|
|
Accelerated Approval.
Under the FDA’s accelerated approval regulations, the FDA is
authorized to approve drug candidates that have been studied for their
safety and efficacy in treating serious or life-threatening illnesses and
that provide meaningful therapeutic benefit to patients over existing
treatments based upon either a surrogate endpoint that is reasonably
likely to predict clinical benefit or on the basis of an effect on a
clinical endpoint other than patient survival or irreversible morbidity.
In clinical trials, surrogate endpoints are alternative measurements of
the symptoms of a disease or condition that are substituted for
measurements of observable clinical symptoms. A drug candidate approved on
this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase IV or post-approval clinical trials to
validate the surrogate endpoint or confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies with due
diligence, or to validate a surrogate endpoint or confirm a clinical
benefit during post-marketing studies, may cause the FDA to seek to
withdraw the drug from the market on an expedited basis. All promotional
materials for drug candidates approved under accelerated regulations are
subject to prior review by the FDA.
|
When
appropriate, we and/or our collaboration partners intend to seek fast track
designation, accelerated approval or priority review for our drug candidates. We
cannot predict whether any of our drug candidates will obtain fast track,
accelerated approval, or priority review designation, or the ultimate impact, if
any, of these expedited review mechanisms on the timing or likelihood of the FDA
approval of any of our drug candidates.
Satisfaction
of the FDA regulations and approval requirements or similar requirements of
foreign regulatory agencies typically takes several years, and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. Typically, if a drug candidate is intended to treat a
chronic disease, as is the case with some of the drug candidates we are
developing, safety and efficacy data must be gathered over an extended period of
time. Government regulation may delay or prevent marketing of drug candidates
for a considerable period of time and impose costly procedures upon our
activities. The FDA or any other regulatory agency may not grant approvals for
changes in dosage form or new indications for our drug candidates on a timely
basis, or at all. Even if a drug candidate receives regulatory approval, the
approval may be significantly limited to specific disease states, patient
populations and dosages. Further, even after regulatory approval is obtained,
later discovery of previously unknown problems with a drug may result in
restrictions on the drug or even complete withdrawal of the drug from the
market. Delays in obtaining, or failures to obtain, regulatory approvals for any
of our drug candidates would harm our business. In addition, we cannot predict
what adverse governmental regulations may arise from future United States or
foreign governmental action.
Special Protocol
Assessment
The FDCA
directs the FDA to meet with sponsors, pursuant to a sponsor’s written request,
for the purpose of reaching agreement on the design and size of clinical trials
intended to form the primary basis of an efficacy claim in an NDA. If an
agreement is reached, the FDA will reduce the agreement to writing and make it
part of the administrative record. This agreement is called a special protocol
assessment, or SPA. While the FDA’s guidance on
SPAs
states that documented SPAs should be considered binding on the review division,
the FDA has the latitude to change its assessment if certain exceptions apply.
Exceptions include identification of a substantial scientific issue essential to
safety or efficacy testing that later comes to light, a sponsor’s failure to
follow the protocol agreed upon, or the FDA’s reliance on data, assumptions or
information that are determined to be wrong.
Other Regulatory
Requirements
Any drugs
manufactured or distributed by us or our collaboration partners pursuant to
future FDA approvals are subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences associated with
the drug. Drug manufacturers and their subcontractors are required to register
with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with ongoing
regulatory requirements, including cGMP, which impose certain procedural and
documentation requirements upon us and our third-party manufacturers. Failure to
comply with the statutory and regulatory requirements can subject a manufacturer
to possible legal or regulatory action, such as warning letters, suspension of
manufacturing, sales or use, seizure of product, injunctive action or possible
civil penalties. We cannot be certain that we or our present or future
third-party manufacturers or suppliers will be able to comply with the cGMP
regulations and other ongoing FDA regulatory requirements. If our present or
future third-party manufacturers or suppliers are not able to comply with these
requirements, the FDA may halt our clinical trials, require us to recall a drug
from distribution, or withdraw approval of the NDA for that drug.
The FDA
closely regulates the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising, off-label
promotion, industry-sponsored scientific and educational activities and
promotional activities involving the Internet. A company can make only those
claims relating to safety and efficacy that are approved by the FDA. Failure to
comply with these requirements can result in adverse publicity, warning and/or
untitled letters, corrective advertising and potential civil and criminal
penalties.
Foreign
Regulation
In
addition to regulations in the United States, we will be subject to a variety of
foreign regulations 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 of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for
FDA approval. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to
country.
Under
European Union regulatory systems, marketing authorizations may be submitted
either under a centralized or mutual recognition procedure. The centralized
procedure provides for the grant of a single marketing authorization that is
valid for all European Union member states. The mutual recognition 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 assessment report, each member state must decide whether to
recognize approval. We plan to conduct our Phase I clinical trial for
AR-12 in the United Kingdom, as well as the United States.
In
addition to regulations in Europe and the United States, we will be subject to a
variety of foreign regulations governing clinical trials and commercial
distribution of our future products.
Manufacturing
We do not
currently have our own manufacturing facilities. We intend to continue to use
our financial resources to accelerate development of our product candidates
rather than diverting resources to establish our own manufacturing facilities.
We meet our pre-clinical and clinical trial manufacturing requirements by
establishing relationships with third-party manufacturers and other service
providers to perform these services for us. We rely on individual proposals and
purchase orders to meet our needs and typically rely on terms and conditions
proposed by the third party or us to govern our rights and obligations under
each order (including provisions with respect to intellectual property, if any).
We do not have any long-term agreements or commitments for these
services.
Likewise,
we do not have any long-term agreements or commitments with vendors to supply
the underlying component materials of our product candidates, some of which are
available from only a single supplier.
Should
any of our product candidates obtain marketing approval, we anticipate
establishing relationships with third-party manufacturers and other service
providers in connection with the commercial production of our products. We have
some flexibility in securing other manufacturers to produce our product
candidates; however, our alternatives may be limited due to proprietary
technologies or methods used in the manufacture of some of our product
candidates.
Research
and Development Expenses
We spent
approximately $9.8 million in fiscal year 2008 and $2.9 million in fiscal year
2007 on research and development activities. These expenses include cash and
non-cash expenses relating to the development of our clinical and pre-clinical
programs.
Employees
As of
December 31, 2008, we had six employees, all of whom were full-time. None
of our employees are covered by a collective bargaining agreement. We believe
our relations with our employees are satisfactory.
We
utilize clinical research organizations and third parties to perform our
pre-clinical studies, clinical studies, and manufacturing. We may hire
additional research and development staff, as required, to support our product
development.
ITEM
1A. RISK FACTORS
Investment
in our common stock involves significant risk. You should carefully consider the
information described in the following risk factors, together with the other
information appearing elsewhere in this Annual Report, before making an
investment decision regarding our common stock. If any of these risks actually
occur, our business, financial conditions, results of operation and future
growth prospects would likely be materially and adversely affected. In these
circumstances, the market price of our common stock could decline, and you may
lose all or a part of your investment in our common stock. Moreover, the risks
described below are not the only ones that we face. Additional risks not
presently known to us or that we currently deem immaterial may also affect our
business, operating results, prospects or financial condition.
Risks Relating to Our
Business
We currently have
no product revenues and will need to raise substantial additional capital to
operate our business.
To date,
we have generated no product revenues
.
Until, and unless, we
receive approval from the FDA and other regulatory authorities for our product
candidates, we cannot sell our drugs and will not have product revenues.
Currently, our only product candidates are AR-67, AR-12 and AR-42, and none of
these products are approved for sale by the FDA. Therefore, for the foreseeable
future, we will have to fund all of our operations and capital expenditures from
cash on hand and, potentially, future offerings. Currently, we believe we have
cash on hand to fund our operations into the first quarter of 2010. However,
changes may occur that would consume our available capital before that time,
including changes in and progress of our development activities, acquisitions of
additional product candidates and changes in regulation. Accordingly, we will
need additional capital to fund our continuing operations. Since we do not
generate any recurring revenue, the most likely sources of such additional
capital include private placements of our equity securities, including our
common stock, debt financing or funds from a potential strategic licensing or
collaboration transaction involving the rights to one or more of our product
candidates. To the extent that we raise additional capital by issuing equity
securities, our stockholders will likely experience dilution, which may be
significant depending on the number of shares we may issue and the price per
share. If we raise additional funds through collaborations and licensing
arrangements, it may be necessary to relinquish some rights to our technologies,
product candidates or products, or grant licenses on terms that are not
favorable to us. If we raise additional funds by incurring debt, we could incur
significant interest expense and become subject to covenants in the related
transaction documentation that could affect the manner in which we conduct our
business.
However,
we currently have no committed sources of additional capital and our access to
capital funding is always uncertain. This uncertainty is exacerbated due to the
current global economic turmoil, which has severely restricted access to the
U.S. and international capital markets, particularly for small biopharmaceutical
and biotechnology companies. Accordingly, despite our ability to secure adequate
capital in the past, there is no assurance that additional equity or debt
financing will be available to us when needed, on acceptable terms or even at
all. If we fail to obtain the necessary additional capital when needed, we may
be forced to significantly curtail our planned research and development
activities, which will cause a delay in our drug development programs and may
severely harm our business.
We are a
development stage
company.
We have
not received any operating revenues to date and are in the development stage.
You should be aware of the problems, delays, expenses and difficulties
encountered by an enterprise in our stage of development, and particularly for
companies engaged in the development of new biotechnology or biopharmaceutical
product candidates, many of which may be beyond our control. These include, but
are not limited to, problems relating to product development, testing,
regulatory compliance, manufacturing, marketing, costs and expenses that may
exceed current estimates and competition. No assurance can be given that our
existing product candidates, or any technologies or products that we may acquire
in the future will be successfully developed, commercialized and accepted by the
marketplace or that sufficient funds will be available to support operations or
future research and development programs.
We
are not currently profitable and may never become profitable.
We expect
to incur substantial losses and negative operating cash flows for the
foreseeable future, and we may never achieve or maintain profitability. For the
years ended December 31, 2008 and 2007, we had a net loss of $12,913,566 and
$3,359,697, respectively, and for the period from our inception on August 1,
2005 through December 31, 2008, we had a net loss of
$16,644,156. Even if we succeed in developing and commercializing one
or more of our product candidates, we expect to incur substantial losses for the
foreseeable future, as we:
|
|
·
|
continue
to undertake pre-clinical development and clinical trials for our product
candidates;
|
|
|
·
|
seek
regulatory approvals for our product
candidates;
|
|
|
·
|
in-license
or otherwise acquire additional products or product
candidates;
|
|
|
·
|
implement
additional internal systems and infrastructure;
and
|
|
|
·
|
hire
additional personnel.
|
Further,
for the years ended December 31, 2008 and 2007, we had negative cash flows from
operating activities of $8,884,214 and $1,824,115, respectively, and since
inception through December 31, 2008, we have had negative cash flows from
operating activities of $11,060,003. We expect to continue to
experience negative cash flows for the foreseeable future as we fund our
operating losses and capital expenditures. As a result, we will need to generate
significant revenues in order to achieve and maintain profitability. We may not
be able to generate these revenues or achieve profitability in the future. Our
failure to achieve or maintain profitability could negatively impact the value
of our common stock.
We
have a limited operating history upon which to base an investment
decision.
We are a
development stage company and have not demonstrated our ability to perform the
functions necessary for the successful commercialization of any of our product
candidates. The successful commercialization of our product candidates will
require us to perform a variety of functions, including:
|
|
·
|
continuing
to undertake pre-clinical development and clinical trials for our product
candidates;
|
|
|
·
|
participating
in regulatory approval processes;
|
|
|
·
|
formulating
and manufacturing products; and
|
|
|
·
|
conducting
sales and marketing activities.
|
Our
operations have been limited to organizing our company, acquiring, developing
and securing our proprietary technologies and preparing for pre-clinical and
clinical trials of our product candidates. These operations provide a limited
basis for you to assess our ability to commercialize our product candidates and
the advisability of investing in our securities.
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources. To
manage this growth, we may need to expand our facilities, augment our
operational, financial and management systems and hire and train additional
qualified personnel. If we are unable to manage our growth effectively, our
business would be harmed.
We rely on
key
employees and
scientific and medical advisors, whose knowledge of our business and technical
expertise would be difficult to replace.
We
currently rely on certain key employees, the loss of any one or more of whom
could delay our development program. We are and will be highly dependent on our
principal scientific, regulatory and medical advisors. Although we have “key
person” life insurance policies for our Chief Executive Officer and President
and Chief Medical Officer, the loss of technical knowledge and management and
industry expertise of any of our key personnel could result in delays in product
development, loss of customers and sales and diversion of management resources,
which could adversely affect our operating results.
In
February 2009, our current President and Chief Medical Officer informed us that
he would not be continuing his employment with us when the term of his
employment agreement expires on May 31, 2009. We are actively
recruiting candidates to this position, including persons who may serve on a
part-time consulting basis. However, there is no assurance we will be
able to secure an adequate replacement in a timely fashion. If we are
not able to timely find a replacement, the pace of our development activities
may be delayed.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
Attracting
and retaining qualified personnel will be critical to our success. Our success
is highly dependent on the hiring and retention of key personnel and scientific
staff. While we are actively recruiting additional experienced members for the
management team, there is intense competition and demand for qualified personnel
in our area of business and no assurances can be made that we will be able to
retain the personnel necessary for the development of our business on
commercially reasonable terms, if at all. Certain of our current officers,
directors, scientific advisors and/or consultants or certain of the officers,
directors, scientific advisors and/or consultants hereafter appointed may from
time to time serve as officers, directors, scientific advisors and/or
consultants of other biopharmaceutical or biotechnology companies. We rely, in
substantial part, and for the foreseeable future will rely, on certain
independent organizations, advisors and consultants to provide certain services,
including substantially all aspects of regulatory approval, clinical management,
and manufacturing. There can be no assurance that the services of independent
organizations, advisors and consultants will continue to be available to us on a
timely basis when needed, or that we can find qualified
replacements.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of
the pharmaceutical products we develop, alone or with corporate
collaborators. We currently do not have product liability insurance, but do
maintain clinical trial insurance coverage with respect to AR-67. Even if our
agreements with any future corporate collaborators entitle us to indemnification
against losses, such indemnification may not be available or adequate should any
claim arise.
There
are certain interlocking relationships among us and certain affiliates of Two
River Group Holdings, LLC, which may present potential conflicts of
interest.
Dr. Arie
S. Belldegrun, Peter M. Kash, Joshua A. Kazam and David M. Tanen, each a
director and stockholder of Arno, are the sole members of Two River Group
Management, LLC, which serves as the managing member of Two River Group
Holdings, LLC, or Two River, a venture capital firm specializing in the
formation of biotechnology companies. Messrs. Kash, Kazam and Tanen are officers
and directors of Riverbank Capital Securities, Inc., or Riverbank, a broker
dealer registered with the Financial Industry Regulatory Authority, or FINRA.
Mr. Tanen also serves as our Secretary and Scott L. Navins, the Vice President
of Finance for Two River and Financial and Operations Principal for Riverbank,
serves as our Treasurer. Additionally, certain employees of Two River, who are
also our stockholders, perform substantial operational activity for us,
including without limitation financial, clinical and regulatory activities.
Generally, Delaware corporate law requires that any transactions between us and
any of our affiliates be on terms that, when taken as a whole, are substantially
as favorable to us as those then reasonably obtainable from a person who is not
an affiliate in an arms-length transaction. Nevertheless, none of our affiliates
or Two River is obligated pursuant to any agreement or understanding with us to
make any additional products or technologies available to us, nor can there be
any assurance, and the investors should not expect, that any biomedical or
pharmaceutical product or technology identified by such affiliates or Two River
in the future will be made available to us. In addition, certain of our current
officers and directors or certain of any officers or directors hereafter
appointed may from time to time serve as officers or directors of other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not have interests in conflict with our
own.
We are controlled
by current directors and principal stockholders.
Our
executive officers, directors and principal stockholders, which include the
persons affiliated with Two River discussed above, beneficially own
approximately 44% of our outstanding voting securities. Accordingly, our
executive officers, directors, principal stockholders and certain of their
affiliates will have the ability to exert substantial influence over the
election of our board of directors and the outcome of issues submitted to our
stockholders.
We
will be required to implement additional finance and accounting systems,
procedures and controls in order to satisfy requirements under the securities
laws, including the Sarbanes-Oxley Act of 2002, which will increase our costs
and divert management’s time and attention.
We are in
a continuing process of further establishing and documenting controls and
procedures that will allow our management to report on, and our independent
registered public accounting firm to attest to, our internal controls over
financial reporting when required to do so under Section 404 of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. As a company with limited
capital and human resources, we anticipate that more of management’s time and
attention will be diverted from our business to ensure compliance with these
regulatory requirements than would be the case with a company that has well
established controls and procedures. This diversion of management’s time and
attention may have a material adverse effect on our business, financial
condition and results of operations.
In the
event we identify significant deficiencies or material weaknesses in our
internal controls over financial reporting that we cannot remediate in a timely
manner, or if we are unable to receive a positive attestation from our
independent registered public accounting firm with respect to our internal
controls over financial reporting when we are required to do so, investors and
others may lose confidence in the reliability of our financial statements. If
this occurs, the trading price of our common stock, if any, and our ability to
obtain any necessary financing could suffer. In addition, in the event that our
independent registered public accounting firm is unable to rely on our internal
controls over financial reporting in connection with its audit of our financial
statements, and in the further event that it is unable to devise alternative
procedures in order to satisfy itself as to the material accuracy of our
financial statements and related disclosures, we may be unable to file our
Annual Reports on Form 10-K with the SEC. This would likely have an adverse
affect on the trading price of our common stock, if any, and our ability to
secure any necessary additional financing, and could result in the delisting of
our common stock if we are listed on an exchange in the future. In such event,
the liquidity of our common stock would be severely limited and the market price
of our common stock would likely decline significantly.
We
will experience increased costs as a result of becoming subject to the reporting
requirements of federal securities laws.
Since our
merger with Laurier International, Inc. in June 2008, we are subject to the
reporting requirements of the Exchange Act, including the requirements of the
Sarbanes-Oxley Act of 2002. These requirements may place a strain on our systems
and resources. The Securities Exchange Act of 1934 requires that we file annual,
quarterly and current reports with respect to our business and financial
condition. The Sarbanes-Oxley Act requires that we
maintain
effective disclosure controls and procedures and internal controls over
financial reporting, which is discussed above. In order to maintain and improve
the effectiveness of our disclosure controls and procedures, significant
resources and management oversight will be required. We will continue to be
implementing additional procedures and processes for the purpose of addressing
the standards and requirements applicable to public companies. In addition,
sustaining our growth will also require us to commit additional management,
operational and financial resources to identify new professionals to join our
firm and to maintain appropriate operational and financial systems to adequately
support expansion. These activities may divert management's attention from other
business concerns, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows. We expect to incur
significant additional annual expenses related to these steps and, among other
things, additional directors and officers liability insurance, director fees,
reporting requirements of the SEC, transfer agent fees, hiring additional
accounting, legal and administrative personnel, increased auditing and legal
fees and similar expenses.
Risks Relating to the
Clinical Testing, Regulatory Approval, Manufacturing
and Commercialization of Our
Product Candidates
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize our product candidates.
We will
need FDA approval to commercialize our product candidates in the U.S. and
approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize our product candidates in those jurisdictions. In
order to obtain FDA approval of any of our product candidates, we must submit to
the FDA a new drug application, or NDA, demonstrating that the product candidate
is safe for humans and effective for its intended use. This demonstration
requires significant research and animal tests, which are referred to as
pre-clinical studies, as well as human tests, which are referred to as clinical
trials. Satisfaction of the FDA’s regulatory requirements typically takes many
years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We
cannot predict whether our research and clinical approaches will result in drugs
that the FDA considers safe for humans and effective for indicated uses. The FDA
has substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes in
government regulation, future legislation or administrative action or changes in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:
|
|
·
|
delay
commercialization of, and our ability to derive product revenues from, our
product candidates;
|
|
|
·
|
impose
costly procedures on us; or
|
|
|
·
|
diminish
any competitive advantages that we may otherwise
enjoy.
|
Even if
we comply with all FDA requests, the FDA may ultimately reject one or more of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance for
our product candidates. Failure to obtain FDA approval of any of our product
candidates will severely undermine our business by reducing our number of
salable products and, therefore, corresponding product revenues.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We cannot assure that we will receive the approvals
necessary to commercialize our product candidate for sale outside the
U.S.
All of our
product candidates are in early stages of clinical trials, which are very
expensive and time-consuming. Any failure or delay in completing clinical trials
for our product candidates could harm our business.
All three
of our current product candidates are in early stages of development and will
require extensive clinical and other testing and analysis before we will be in a
position to consider seeking regulatory approval to sell such product
candidates. To date, we have only filed INDs for AR-67 and AR-42, which is
required in order to conduct clinical studies of a drug candidate. We do not
intend to file an IND for AR-12 until the first half of 2009.
Conducting
clinical trials is a lengthy, time consuming and very expensive process and the
results are inherently uncertain. The duration of clinical trials can vary
substantially according to the type, complexity, novelty and intended use of the
product candidate. We estimate that clinical trials of our product candidates
will take at least
several
years to complete. The completion of clinical trials for our product candidates
may be delayed or prevented by many factors, including:
|
|
·
|
delays
in patient enrollment, and variability in the number and types of patients
available for clinical trials;
|
|
|
·
|
difficulty
in maintaining contact with patients after treatment, resulting in
incomplete data;
|
|
|
·
|
poor
effectiveness of product candidates during clinical
trials;
|
|
|
·
|
safety
issues, side effects, or other adverse
events;
|
|
|
·
|
results
that do not demonstrate the safety or effectiveness of the product
candidates;
|
|
|
·
|
governmental
or regulatory delays and changes in regulatory requirements, policy and
guidelines; and
|
|
|
·
|
varying
interpretation of data by the FDA.
|
In
conducting clinical trials, we may fail to establish the effectiveness of a
compound for the targeted indication or discover that it is unsafe due to
unforeseen side effects or other reasons. Even if our clinical trials are
commenced and completed as planned, their results may not support our product
candidate claims. Further, failure of product candidate development can occur at
any stage of the clinical trials, or even thereafter, and we could encounter
problems that cause us to abandon or repeat clinical trials. These problems
could interrupt, delay or halt clinical trials for our product candidates and
could result in FDA, or other regulatory authorities, delaying approval of our
product candidates for any or all indications. The results from pre-clinical
testing and prior clinical trials may not be predictive of results obtained in
later or other larger clinical trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in clinical trials,
even in advanced clinical trials after showing promising results in earlier
clinical trials. Our failure to adequately demonstrate the safety and
effectiveness of any of our product candidates will prevent us from receiving
regulatory approval to market these product candidates and will negatively
impact our business. In addition, we or the FDA may suspend or curtail our
clinical trials at any time if it appears that we are exposing participants to
unacceptable health risks or if the FDA finds deficiencies in the conduct of
these clinical trials or in the composition, manufacture or administration of
the product candidates. Accordingly, we cannot predict with any certainty when
or if we will ever be in a position to submit a new drug application, or NDA,
for any of our product candidates, or whether any such NDA would ever be
approved.
Our
products use novel alternative technologies and therapeutic approaches, which
have not been widely studied.
Our
product development efforts focus on novel therapeutic approaches and
technologies that have not been widely studied. These approaches and
technologies may not be successful. We are applying these approaches and
technologies in our attempt to discover new treatments for conditions that are
also the subject of research and development efforts of many other
companies.
Physicians
and patients may not accept and use our drugs.
Even if
the FDA approves our product candidates, physicians and patients may not accept
and use them. Acceptance and use of our product will depend upon a number of
factors including:
|
|
·
|
perceptions
by members of the health care community, including physicians, about the
safety and effectiveness of our
drugs;
|
|
|
·
|
cost-effectiveness
of our products relative to competing
products;
|
|
|
·
|
availability
of reimbursement for our products from government or other healthcare
payers; and
|
|
|
·
|
effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
|
Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of any of these drugs to find market acceptance would harm our business
and could require us to seek additional financing.
Because we are
dependent on clinical research institutions and other contractors for clinical
testing and for research and development activities, the results of our clinical
trials and such research activities are, to a certain extent, beyond our
control.
We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our pre-clinical and clinical trials under
agreements with us. These parties are not our employees and we cannot control
the amount or timing of resources that they devote to our programs. These
investigators may not assign as great a priority to our programs or pursue them
as diligently as we would if we were undertaking such programs ourselves. If
outside collaborators fail to devote sufficient time and resources to our drug
development programs, or if their performance is substandard, the approval of
our FDA applications, if any, and our introduction of new drugs, if any, will be
delayed. These collaborators may also have relationships with other commercial
entities, some of whom may compete with us. If our collaborators assist our
competitors at our expense, our competitive position would be
harmed.
Our reliance on
third parties to formulate and manufacture our product candidates exposes us to
a number of risks that may delay the development, regulatory approval and
commercialization of our products or result in higher product
costs.
We have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. Instead, we will
contract with one or more manufacturers to manufacture, supply, store and
distribute drug supplies for our clinical trials. If any of our product
candidates receive FDA approval, we will rely on one or more third-party
contractors to manufacture our drugs. Our anticipated future reliance on a
limited number of third-party manufacturers exposes us to the following
risks:
|
|
·
|
We
may be unable to identify manufacturers on acceptable terms or at all
because the number of potential manufacturers is limited and the FDA must
approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer would
have to be educated in, or develop substantially equivalent processes for,
production of our products after receipt of FDA approval, if
any.
|
|
|
·
|
Our
third-party manufacturers might be unable to formulate and manufacture our
drugs in the volume and of the quality required to meet our clinical
and/or commercial needs, if any.
|
|
|
·
|
Our
future contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store and distribute our
products.
|
|
|
·
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA and corresponding state agencies to ensure strict compliance with
good manufacturing practice and other government regulations and
corresponding foreign standards. We do not have control over third-party
manufacturers’ compliance with these regulations and standards, but we
will be ultimately responsible for any of their
failures.
|
|
|
·
|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the innovation. This may prohibit us from
seeking alternative or additional manufacturers for our
products.
|
Each of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA, or the commercialization of our product
candidates or result in higher costs or deprive us of potential product
revenues.
We
have no experience selling, marketing or distributing products and no internal
capability to do so.
We
currently have no sales, marketing or distribution capabilities. We do not
anticipate having resources in the foreseeable future to allocate to the sales
and marketing of our proposed products. Our future success depends, in part, on
our ability to enter into and maintain sales and marketing collaborative
relationships, the collaborator’s strategic interest in the products under
development and such collaborator’s ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding the
sales and marketing of our products, however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements, or if
able to do so, that they will have effective sales forces. To the extent that we
decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of our proposed products, significant capital
expenditures, management resources and time will be required to establish and
develop an in-house marketing and sales force with technical expertise. There
can also be no assurance that we will be able to establish or maintain
relationships with third-party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, and there can be no assurance that such efforts will be
successful.
In
addition, there can also be no assurance that we will be able to market and sell
our product in the U.S. or overseas.
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will
suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies
developed, manufactured and marketed by others. Existing or future competing
products may provide greater therapeutic convenience or clinical or other
benefits for a specific indication than our products, or may offer comparable
performance at a lower cost. If our products fail to capture and maintain market
share, we may not achieve sufficient product revenues and our business will
suffer.
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have technologies already approved or
in development. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs and have substantially greater financial resources than we do, as well
as significantly greater experience in:
|
|
·
|
undertaking
pre-clinical testing and human clinical
trials;
|
|
|
·
|
obtaining
FDA and other regulatory approvals of
drugs;
|
|
|
·
|
formulating
and manufacturing drugs; and
|
|
|
·
|
launching,
marketing and selling drugs.
|
Developments by
competitors may render our products or technologies obsolete or
non-competitive
.
The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. The drugs that we are
attempting to develop will have to compete with existing therapies. In addition,
a large number of companies are pursuing the development of pharmaceuticals that
target the same diseases and conditions that we are targeting. We face
competition from pharmaceutical and biotechnology companies in the U.S. and
abroad. In addition, companies pursuing different but related fields represent
substantial competition. Many of these organizations competing with us have
substantially greater capital resources, larger research and development staffs
and facilities, longer drug development history in obtaining regulatory
approvals and greater manufacturing and marketing capabilities than we do. These
organizations also compete with us to attract qualified personnel and parties
for acquisitions, joint ventures or other collaborations.
Our
ability to generate product revenues will be diminished if our drugs sell for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend in
part on the extent to which reimbursement will be available from:
|
|
·
|
government
and health administration
authorities;
|
|
|
·
|
private
health maintenance organizations and health insurers;
and
|
|
|
·
|
other
healthcare payers.
|
Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available, and
reimbursement levels may be inadequate, to cover our drugs. If government and
other healthcare payers do not provide adequate coverage and reimbursement
levels for any of our products, once approved, market acceptance of our products
could be reduced.
We
may be exposed to liability claims associated with the use of hazardous
materials and chemicals.
Our
research and development activities may involve the controlled use of hazardous
materials and chemicals. Although we believe that our safety procedures for
using, storing, handling and disposing of these materials comply with federal,
state and local laws and regulations, we cannot completely eliminate the risk of
accidental injury or contamination from these materials. In the event of such an
accident, we could be held liable for any resulting damages and any liability
could materially adversely effect our business, financial condition and results
of operations. In addition, the federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous or
radioactive materials and waste products may require us to incur substantial
compliance costs that could materially adversely affect our business, financial
condition and results of operations.
Risks Related to Our
Intellectual Property
If
we fail to protect or enforce our intellectual property rights adequately or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing upon the proprietary rights
of third parties. Additionally, if any third-party manufacturer makes
improvements in the manufacturing process for our products, we may not own, or
may have to share, the intellectual property rights to the
innovation.
To date,
we hold certain exclusive rights under U.S. patents and patent applications as
well as rights under foreign patent applications. We anticipate filing
additional patent applications both in the U.S. and in other countries, as
appropriate. However, we cannot predict:
|
|
·
|
the
degree and range of protection any patents will afford us against
competitors including whether third parties will find ways to invalidate
or otherwise circumvent our
patents;
|
|
|
·
|
if
and when patents will issue;
|
|
|
·
|
whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications;
or
|
|
|
·
|
whether
we will need to initiate litigation or administrative proceedings which
may be costly whether we win or
lose.
|
If
any of our trade secrets, know-how or other proprietary information is
disclosed, the value of our trade secrets, know-how and other proprietary rights
would be significantly impaired and our business and competitive position would
suffer.
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require all of
our employees, consultants, advisors and contractors to enter into agreements
which prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business. These agreements may not provide
adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure or the lawful
development by others of such information. If any of our trade secrets, know-how
or other proprietary information is disclosed, the value of our trade secrets,
know-how and other proprietary rights would be significantly impaired and our
business and competitive position would suffer.
If
we infringe upon the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation.
If our
products, methods, processes and other technologies infringe upon the
proprietary rights of other parties, we could incur substantial costs and we may
have to:
|
|
·
|
obtain
licenses, which may not be available on commercially reasonable terms, if
at all;
|
|
|
·
|
redesign
our products or processes to avoid
infringement;
|
|
|
·
|
stop
using the subject matter claimed in the patents held by
others;
|
|
|
·
|
defend
litigation or administrative proceedings which may be costly whether we
win or lose, and which could result in a substantial diversion of our
valuable management resources.
|
If
requirements under our license agreements are not met, we could suffer
significant harm, including losing rights to our products.
We depend
on licensing agreements with third parties to maintain the intellectual property
rights to our products under development. Presently, we have licensed rights
from the University of Pittsburgh and The Ohio State University Research
Foundation. These agreements require us and our licensors to perform certain
obligations that affect our rights under these licensing agreements. All of
these agreements last either throughout the life of the patents, or with respect
to other licensed technology, for a number of years after the first commercial
sale of the relevant product.
In
addition, we are responsible for the cost of filing and prosecuting certain
patent applications and maintaining certain issued patents licensed to us. If we
do not meet our obligations under our license agreements in a timely manner, we
could lose the rights to our proprietary technology.
Finally,
we may be required to obtain licenses to patents or other proprietary rights of
third parties in connection with the development and use of our products and
technologies. Licenses required under any such patents or proprietary rights
might not be made available on terms acceptable to us, if at all.
Risks Related to Our
Securities
We
cannot assure you that our common stock will ever be listed on NASDAQ or any
other securities exchange.
Our
common stock trades on the OTC Bulletin Board. Stocks traded on the OTC Bulletin
Board and other electronic over-the-counter markets are often less liquid than
stocks traded on national securities exchanges. In fact, the historical trading
of our common stock has been extremely limited and sporadic. We plan to seek
listing on NASDAQ or the American Stock Exchange in the future, but we cannot
assure you that we will be able to meet the initial listing standards of either
of those or any other stock exchange, or that we will be able to maintain a
listing of our common stock on either of those or any other stock exchange. To
the extent that our common stock is not traded on a national securities
exchange, such as the NASDAQ, the decreased liquidity of our common stock may
make it more difficult to sell your shares at desirable times and at
prices.
Our
common stock is considered a “penny stock.”
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. Since trading of our common stock commenced on the OTC
Bulletin Board, the market price has been below $5.00 per share. Therefore, our
common stock is deemed a “penny stock” according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to
sell shares of our common stock.
Because
we became public by means of a reverse merger, we may not be able to attract the
attention of major brokerage firms.
Additional
risks may exist since we became public through a “reverse merger.” Security
analysts of major brokerage firms may not provide coverage of us since there is
no incentive to brokerage firms to recommend the purchase of our common stock.
No assurance can be given that brokerage firms will want to conduct any
secondary offerings on behalf of our company in the future. The lack of such
analyst coverage may decrease the public demand for our common stock, making it
more difficult for you to resell your shares when you deem
appropriate.
Because
we do not expect to pay dividends, you will not realize any income from an
investment in our common stock unless and until you sell your shares at
profit.
We have
never paid dividends on our common stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment in
our common stock if you require dividend income. Further, you will only realize
income on an investment in our shares in the event you sell or otherwise dispose
of your shares at a price higher than the price you paid for your shares. Such a
gain would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
There
may be issuances of shares of blank check preferred stock in the
future.
Our
certificate of incorporation authorizes the issuance of up to 20,000,000 shares
of preferred stock, none of which are issued or currently outstanding. Our board
of directors will have the authority to fix and determine the relative rights
and preferences of preferred shares, as well as the authority to issue such
shares, without further stockholder approval. As a result, our board of
directors could authorize the issuance of a series of preferred stock that is
senior to our common stock and that would grant to holders preferred rights to
our assets upon liquidation, the right to receive dividends, additional
registration rights, anti-dilution protection, the right to the redemption to
such shares, together with other rights, none of which will be afforded holders
of our common stock.
If our results do
not meet analysts’ forecasts and expectations, our stock price could
decline.
In the
future, analysts who cover our business and operations may provide valuations
regarding our stock price and make recommendations whether to buy, hold or sell
our stock. Our stock price may be dependent upon such valuations and
recommendations. Analysts’ valuations and recommendations are based primarily on
our reported results and their forecasts and expectations concerning our future
results regarding, for example, expenses, revenues, clinical trials, regulatory
marketing approvals and competition. Our future results are subject to
substantial uncertainty, and we may fail to meet or exceed analysts’ forecasts
and expectations as a result of a number of factors, including those discussed
above under the sections “Risks Related to Our Business” and “Risks Related to
the Clinical Testing, Regulatory Approval, Manufacturing and Commercialization
of Our Product Candidates.” If our results do not meet analysts’ forecasts and
expectations, our stock price could decline as a result of analysts lowering
their valuations and recommendations or otherwise.
We
are at risk of securities class action litigation.
In the
past, securities class action litigation has often been brought against a
company following a decline in the market price of its securities. This risk is
especially relevant for us because biotechnology companies have experienced
greater than average stock price volatility in recent years. If we faced such
litigation, it could result in substantial costs and a diversion of our
management’s attention and resources, which could harm our
business.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM
2. PROPERTIES
Our
principal offices are located at 4 Campus Drive, 2
nd
Floor,
Parsippany, New Jersey 07054. We entered into our lease agreement on
October 20, 2008, for new office space of 5,390 square feet, in Parsippany, New
Jersey. The lease commencement date is November 14, 2008, with lease
payments beginning on January 1, 2009. The lease expiration date is 5
years from the rent commencement date. We provided a security deposit
of $44,018, or four months base rent, in the form of a letter of
credit. The letter of credit may be reduced by $11,005 on January 1,
2011 and by an additional $11,005 on January 1, 2013, provided we maintain
certain conditions described in the lease agreement. We have an early
termination option, which provides us the option to terminate the lease on the
third anniversary, upon providing the landlord nine months written notice prior
to the third anniversary of the lease. If we exercise our termination
option, we would be obligated to pay a fee of $53,641 which consists of
unamortized costs and expenses incurred by the landlord in connection with the
lease. We also have an option to extend the term of the lease for a
period of five additional years, provided we give notice to the landlord no
later than twelve months prior to the original expiration of the
term. We are also responsible for payment of our share of certain
charges such as operating costs and taxes in excess of the base year and
additional rent. We believe our current facilities in Parsippany, New Jersey
will be adequate to meet our needs for the foreseeable future.
We
relocated our principal offices effective November 14, 2008 from Fairfield, New
Jersey to our current Parsippany, New Jersey location. In November
2008, we abandoned our non-cancelable operating lease we entered into on August
10, 2007 for our Fairfield, New Jersey facility that expires in December
2010. Our remaining
estimated
lease obligation for our Fairfield, New Jersey office space is approximately
$102,000. We are also responsible for payment of our share of
certain charges such as operating costs and taxes in excess of the base year and
additional rent. In connection with this lease, we have made a $12,165 cash
deposit.
ITEM 3. LEGAL
PROCEEDINGS
We are
not involved in any pending legal proceedings and are not aware of any
threatened legal proceedings against us.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter
was submitted during the fourth quarter of the fiscal year ended
December 31, 2008 to a vote of security holders through the solicitation of
proxies or otherwise.
PART
II
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
Market
Information
Our
common stock is eligible for quotation on the OTC Bulletin Board, or
the OTCBB. The first sale of our common stock reported on the
OTCBB occurred in June 2008, and since that time, our common stock has only
traded sporadically with no significant volume. Accordingly, there is
not an established public trading market for our common stock.
Until
July 16, 2008, our common stock traded under the symbol
“LRRI.OB.” Following our merger with Laurier completed on June 3,
2008, our trading symbol changed to “ARNI.OB” on July 17, 2008. Set
forth below are the high and low sales prices for our common stock by quarter
for the fiscal year ended December 31, 2008, as reported by the OTCBB. The
quotations reflect inter-dealer prices, without retail markup, markdown, or
commission, and may not represent actual transactions. Consequently, the
information provided below may not be indicative of our common stock price under
different conditions.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
First
quarter
|
|
$ -
|
|
|
$ -
|
|
|
Second
quarter
|
|
$2.00
|
|
|
$2.00
|
|
|
Third
quarter
|
|
$3.50
|
|
|
$1.80
|
|
|
Fourth
quarter
|
|
$3.25
|
|
|
$1.95
|
|
Stockholders
According
to the records of our transfer agent, American Stock Transfer & Trust
Company, as of March 23, 2009, we had 241 holders of record of common
stock, not including those held in “street name.”
Dividends
We have
never declared or paid a dividend on our common stock and do not anticipate
paying any cash dividends in the foreseeable future.
Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
None.
Issuer
Purchases of Equity Securities
None.
Not
applicable.
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and the notes to those
statements included elsewhere in this Annual Report. This discussion includes
forward-looking statements that involve risks and uncertainties. As a result of
many factors, such as those set forth under “Risk Factors” in Item 1A of
this Annual Report, our actual results may differ materially from those
anticipated in these forward-looking statements.
Overview
We are a
development stage company focused on developing innovative products for the
treatment of cancer. We seek to acquire rights to novel, pre-clinical or early
stage clinical oncology product candidates, primarily from academic and research
institutions, and then develop those drug candidates for commercial use. We
currently have the rights to three oncology product candidates:
|
|
·
|
AR-67
- Our lead clinical product candidate is a novel, third-generation
campothecin analogue. We have completed patient enrollment of our
multi-center, ascending dose, Phase I clinical trial of AR-67 in patients
with advanced solid tumors. During the first half of 2009, we
anticipate the commencement of a Phase II clinical trial of AR-67 in
patients with glioblastoma multiforme, or GBM, a highly aggressive form of
brain cancer. We also anticipate commencing a Phase II clinical
trial in patients with myelodysplastic syndrome or MDS, a group of
diseases marked by abnormal production of blood cells by the bone
marrow. In light of current economic circumstances, we no
longer plan to conduct these studies ourselves, but rather we plan to
pursue collaborations with oncology cooperative groups and/or identify
other researchers to conduct investigator-initiated studies. We
believe this action will preserve our available cash resources, while
continuing to advance the development of this product
candidate.
|
|
|
·
|
AR-12
- We are also developing AR-12, an orally available pre-clinical
compound for the treatment of cancer, is a novel inhibitor of
phosphoinositide dependent protein kinase-1, or PDK-1, that targets the
PI3K/Akt pathway while also possessing activity in the endoplasmic
reticulum stress and other pathways targeting apoptosis. Pre-clinical
studies suggest that AR-12 may provide therapeutic benefit either alone or
in combination with other therapeutic agents. We have completed
pre-clinical toxicology and manufacturing studies that we anticipate will
provide the basis for the filing of an investigational new drug
application, or IND, in early 2009. We anticipate commencing a
Phase I clinical study of AR-12 in the United States and the United
Kingdom during 2009.
|
|
|
·
|
AR-42
– We are also developing AR-42, an orally available pre-clinical compound
for the treatment of cancer. AR-42 is a broad spectrum inhibitor of
deacetylase targets, or Pan-DAC, as well as an inhibitor of Akt. In
pre-clinical models, AR-42 has demonstrated greater potency and a
competitive profile in tumors when compared with vorinostat (also known as
SAHA and marketed as Zolinza
®
by
Merck), the leading marketed histone deacetylase inhibitor. In the first
quarter of 2009, the FDA accepted our IND for AR-42. We plan to pursue
collaborations with oncology cooperative groups, explore strategic
partnerships and/or identify other researchers to conduct a Phase I study
of AR-42 and otherwise further its
development.
|
We have
no product sales to date and we will not generate any product revenue unless and
until we receive approval from the Food and Drug Administration, or FDA, or an
equivalent foreign regulatory body to begin selling our pharmaceutical
candidates. There can be no assurance that we will ever receive such
regulatory approval. Developing pharmaceutical products is a lengthy
and very expensive process. Assuming we do not encounter any unforeseen safety
issues during the course of developing our product candidates, we do not expect
to complete the development of a product candidate for several years, if ever.
The majority of our development expenses have related to AR-67, which completed
patient enrollment in its Phase I clinical trial, and we are in the process of
commencing Phase II clinical trials. As we proceed with the clinical development
of AR-67 and AR-12, our research and development expenses will further
increase. Research and development expenses, which represent the largest
portion of our total operating expenses, consist primarily of outside service
providers for clinical development, salaries and related personnel costs, fees
paid to consultants, legal expenses resulting from intellectual
property
protection, business development and organizational affairs and other expenses
relating to the acquiring, design, development, testing, and enhancement of our
product candidates, including milestone payments for licensed
technology. We expense our research and development costs as they are
incurred. To the extent we are successful in acquiring additional
product candidates for our development pipeline, our need to finance further
research and development will continue increasing. Accordingly, our success
depends not only on the safety and efficacy of our product candidates, but also
on our ability to finance the development of the products. Our major sources of
working capital have been proceeds from private sales of our common stock and
borrowings.
Results
of Operations
Comparison
of the Years Ended December 31, 2008 versus December 31, 2007
Revenue.
We had no
revenues from operations through December 31, 2008.
Research and Development
Expenses.
Research and development, or R&D, expenses for
the years ended December 31, 2008 and 2007 were $9,768,389 and $2,899,264,
respectively. These expenses include cash and non-cash expenses relating to the
development of our clinical and pre-clinical programs. The increase
in R&D expenses for the year ended December 31, 2008 compared to the year
ended December 31, 2007 of $6,869,125 is primarily attributed to an increase of
licensing, manufacturing and non-clinical costs related to our two drug
candidates AR-12 and AR-42, which were licensed from The Ohio State University
in January 2008. The increase was also attributed to clinical related
costs for our lead compound AR-67, which has completed Phase I
enrollment. The remainder of the increase was due to an increase in
legal, regulatory, non-clinical and personnel expenditures associated with the
development of our three drug candidates, in addition to a non-cash charge of
$451,270 of stock compensation expense related to stock options awards granted
to employees and consultants, which is included in Unallocated R&D per the
table below. R&D expenses consist primarily of outside service
providers for clinical development, salaries and related personnel costs, fees
paid to consultants, legal expenses resulting from intellectual property
protection, business development and organizational affairs and other expenses
relating to the acquiring, design, development, testing, and enhancement of our
product candidates, including milestone payments for licensed
technology. We expense our research and development costs as they are
incurred.
The following table summarizes our
R&D expenses incurred for preclinical support, contract manufacturing for
clinical supplies, clinical trial services provided by third parties and
milestone payments for in-licensed technology for each of our product candidates
for the years ended December 31, 2008 and 2007, as well as the cumulative
amounts since we began development of each product candidate. The table also
summarizes unallocated costs, which consist of personnel, facilities and other
costs not directly allocable to development programs:
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cumulative
amounts during development
|
|
|
AR-67
|
|
$
|
2,801,368
|
|
|
$
|
2,395,058
|
|
|
$
|
5,551,557
|
|
|
AR-12
|
|
|
2,820,442
|
|
|
|
32,391
|
|
|
|
2,852,833
|
|
|
AR-42
|
|
|
2,263,440
|
|
|
|
24,819
|
|
|
|
2,288,259
|
|
|
Unallocated
R&D
|
|
|
1,883,139
|
|
|
|
446,996
|
|
|
|
2,340,837
|
|
|
Total
|
|
$
|
9,768,389
|
|
|
$
|
2,899,264
|
|
|
$
|
13,033,486
|
|
AR-67.
AR-67 is a
novel, third-generation camptothecin analogue that has demonstrated high potency
in pre-clinical studies and improved pharmacokinetic properties in humans as
compared with first and second-generation products. We have completed patient
enrollment of our multi-center, ascending dose Phase I clinical trial in
patients with advanced solid tumors. During the first half of 2009,
we anticipate commencing a Phase II clinical trial of AR-67 in patients with
GBM. We also anticipate commencing a Phase II clinical trial in
patients with MDS. In light of current economic circumstances, we no
longer plan to conduct these studies ourselves, but rather we plan to pursue
collaborations with oncology cooperative groups and/or identify other
researchers to conduct investigator-initiated
studies. Accordingly, we expect to spend approximately $2
million in third party development costs during 2009. Should we
continue development of AR-67, we expect that it will take at least 3 to 5
years, if ever, to obtain regulatory approval of AR-67.
AR-12.
We are also
developing AR-12, an orally available pre-clinical compound that is a novel
inhibitor of phosphoinositide dependent protein kinase-1, or PDK-1, that targets
the PI3K/Akt pathway while also possessing activity in the endoplasmic reticulum
(ER) stress and other pathways targeting apoptosis. Pre-clinical studies suggest
that AR-12 may provide therapeutic benefit either alone or in combination with
other therapeutic agents. We are currently conducting toxicology and
manufacturing studies that we anticipate will provide the basis for the filing
of an investigational new drug application, or IND, in early 2009. We
also anticipate commencing a Phase I clinical study in the United States during
2009. We expect to spend approximately $3 million in third party
development costs during 2009. Given its very early development
stage, we are not able to predict the total costs or the length of time that
would be required to complete development of AR-12.
AR-42.
We are also
developing AR-42, an orally available pre-clinical compound for the treatment of
cancer. AR-42 is a broad spectrum inhibitor of deacetylase targets, referred to
as Pan-DAC inhibition, as well as an inhibitor of Akt. In pre-clinical models,
AR-42 has demonstrated greater potency and a competitive profile in tumors when
compared with vorinostat (also known as SAHA and marketed as Zolinza
®
by
Merck), the leading marketed histone deacetylase inhibitor. During the first
quarter of 2009, the FDA accepted our IND. We plan to pursue
collaborations with oncology cooperative groups, strategic partners and/or
identify other researchers to conduct a Phase I study and otherwise further its
development. Accordingly, during 2009 we expect to spend
approximately $300,000 in third party development costs. Given its
very early development stage, we are not able to predict the total costs or the
length of time that would be required to complete development of
AR-42.
While
expenditures on current and future clinical development programs are expected to
be substantial and to increase, they are subject to many uncertainties,
including the results of clinical trials and whether we develop any of our drug
candidates with a partner or independently. As a result of such uncertainties,
we cannot predict with any significant degree of certainty the duration and
completion costs of our research and development projects or whether, when and
to what extent we will generate revenues from the commercialization and sale of
any of our product candidates. The duration and cost of clinical trials may vary
significantly over the life of a project as a result of unanticipated events
arising during clinical development and a variety of factors, including without
limitation:
|
|
•
|
|
the
number of trials and studies in a clinical
program;
|
|
|
•
|
|
the
number of patients who participate in the
trials;
|
|
|
•
|
|
the
number of sites included in the
trials;
|
|
|
•
|
|
the
rates of patient recruitment and
enrollment;
|
|
|
•
|
|
the
duration of patient treatment and
follow-up;
|
|
|
•
|
|
the
costs of manufacturing our drug candidates;
and
|
|
|
•
|
|
the
costs, requirements, timing of, and ability to secure regulatory
approvals.
|
General and Administrative
Expenses.
General and administrative, or G&A, expenses
consist primarily of salaries and related expenses for executive, and other
administrative personnel, recruitment expenses, professional fees and other
corporate expenses, including accounting and general legal activities. G&A
expenses for the years ended December 31, 2008 and 2007 were $2,315,178 and
$360,349, respectively. G&A expenses during 2008 increased by $1,954,829,
which was primarily attributed to the following: (i) a non-cash charge of
$679,948 of stock compensation expense related to stock option awards granted to
employees and consultants, (ii) the June 3, 2008 merger with Laurier and related
professional fees of approximately $500,000, (iii) higher payroll, benefits and
recruiting expenses as a result of the Company hiring a Director of Product
Development in January 2008, a CFO in August 2008 and a CEO in September 2008,
and (iv) increased rent as a result of securing 5,390 square feet in its newly
leased corporate headquarters in Parsippany, New Jersey effective November 14,
2008.
Interest Income
. Interest
income for the years ended December 31, 2008 and 2007 was $206,054 and $123,962,
respectively. The increase of $82,092 was attributed to having a higher cash
balance for the year ended 2008 versus 2007, as a result of the June 2, 2008
private placement of 7,360,689 shares of our common stock, resulting in gross
proceeds of approximately $17,832,000.
Interest Expense
. Interest
expense for the years ended December 31, 2008 versus 2007 was $1,036,053 and
$224,046, respectively. The increase of $812,007, of interest expense is
attributable to the conversion of the notes we issued in February
2007. The notes included a 10% discount valued at approximately
$475,000 and conversion warrants valued at approximately $348,000 based upon the
Black-Scholes option-pricing model that was charged to interest
expense. The notes’ principal and accrued interest automatically
converted upon the closing of our June 2008 private placement into 1,962,338
shares of our common stock at a conversion price of $2.42.
Due to
the factors mentioned above, the net loss for the year ended December 31, 2008
was $12,913,566, or a net loss of $0.81 per share of common stock, basic and
diluted, as compared to a net loss of $3,359,697 for the year ended December 31,
2007, or a net loss of $0.34 per common share, basic and diluted.
Liquidity
and Capital Resources
For the
years ended December 31, 2008 and 2007, we had a net loss of $12,913,566 and
$3,359,697, respectively. From August 1, 2005 (inception) through December 31,
2008, we have incurred an aggregate net loss of $16,644,156, primarily through a
combination of research and development activities related to the licensed
technology under our control and expenses supporting those
activities. As of December 31, 2008, we had working capital of
$7,759,776 and cash and cash equivalents of $10,394,749.
We expect
to incur additional losses in the future as we increase our research and
clinical development activities. We have not generated any revenue
from operations to date, and we do not expect to generate revenue for several
years, if ever. We have financed our operations since inception
primarily through debt and equity financings.
Our net
cash used in operating activities for the year ended December 31, 2008 was
$8,884,214. Our net cash used in operating activities primarily
resulted from a net loss of $12,913,566 offset by non-cash items consisting of
the impact of expensing stock based compensation relating to option and warrant
grants made to employees, directors, consultants and finders for a total of
$1,611,618, in addition to non-cash charges related to warrants issued in
connection with the conversion of the convertible notes we issued in 2007 and
the note discount arising from the beneficial conversion feature and non-cash
interest expenses, of $348,000 and $475,391 and $98,930, respectively, as well
as non-cash charges of $45,467 of depreciation and amortization related to the
purchases of office equipment. Other uses of cash from operating
activities include an increase of accounts payable of $2,382,184 offset by a
decrease of accrued expenses of $669,315 attributed to clinical development
costs and bonus accruals.
Our net
cash used in investing activities for the year ended December 31, 2008 was
$37,317, which resulted from capital expenditures attributable to the purchases
of computer and office equipment for the leased office space in Fairfield and
Parsippany, New Jersey.
Our net
cash provided by financing activities for the year ended December 31, 2008 was
$17,670,037, which was attributed to the June 2, 2008 private placement of
7,360,689 shares of our common stock.
Total
cash resources as of December 31, 2008 were $10,394,749, compared to $1,646,243
at December 31, 2007. Because our business does not generate any
cash flow, we will need to raise additional capital before we exhaust our
current cash resources in order to continue to fund our research and
development, including our long-term plans for clinical trials and new product
development, as well as to fund operations generally. Our continued operations
will depend on whether we are able to raise additional funds through various
potential sources, such as equity and debt financing. Through December 31, 2008,
all of our financing has been through private placements of common stock and
debt financing.
We will
continue to fund operations from cash on hand and through similar sources of
capital previously described, or through other sources such as corporate
collaboration and license agreements. We can give no assurances that we will be
able to secure such additional financing, or if available, that it will be
sufficient to meet our needs. To the extent that we raise additional
funds by issuing equity or convertible or non-convertible debt securities, our
stockholders may experience additional significant dilution and such financing
may involve restrictive covenants. To the extent that we raise additional funds
through collaboration and licensing arrangements, it may be necessary to
relinquish some rights to our technologies or our product candidates, or grant
licenses on terms that may not be favorable to us. These things may have a
material adverse effect on our business.
Our
actual cash requirements may vary materially from those now planned, however,
because of a number of factors including the changes in the focus and direction
of our research and development programs, the acquisition and pursuit of
development of new product candidates; competitive and technical advances; costs
of commercializing any of the product candidates; and costs of filing,
prosecuting, defending and enforcing any patent claims and any other
intellectual property rights.
Based on
our resources at December 31, 2008, and our current plan of expenditure on
continuing development of our drug candidates AR-67 and AR-12, we believe that
we have sufficient capital to fund our operations into the first quarter of
2010. However, we will need substantial additional financing until we can
achieve profitability, if ever. We can give no assurances that any additional
capital raised will be sufficient to meet our needs. Further, in light of
current economic conditions, including the lack of access to the capital markets
being
experienced
by small companies, particularly in our industry, there can be no assurance that
such capital will be available to us on favorable terms or at all. If we are
unable to raise additional funds when needed, we may not be able to market our
products as planned or continue development and regulatory approval of our
products, or we could be required to delay, scale back or eliminate some or all
of our research and development programs. Each of these alternatives would have
a material adverse effect on the prospects of our business.
On June
2, 2008 we completed a private placement of 7,360,689 shares of our common
stock, resulting in gross proceeds of approximately $17,832,000. We
paid a $100,000 non-accountable expense allowance to Riverbank Capital
Securities, Inc., or Riverbank, for services related to our June 2008 private
placement and are not obligated to Riverbank for any future
payments. Riverbank is an entity controlled by several partners
of Two River who are also officers and directors of our Company.
Prior to the completion of the June
2008 private placement, we had outstanding a series of 6% convertible promissory
notes in the aggregate principal amount of approximately
$4,000,000. In accordance with the terms of the notes,
contemporaneously with the completion of the June 2, 2008 private placement, the
outstanding principal and accrued interest converted into an aggregate of
1,962,338 shares of common stock and five year warrants to purchase an
additional 196,189 warrants of common stock at an exercise price of $2.42 per
share.
Off
Balance Sheet Arrangements
There
were no off-balance sheet arrangements as of December 31, 2008.
License
Agreement Commitments
AR-67
License Agreement
Our
rights to AR-67 are governed by an October 2006 license agreement with the
University of Pittsburgh, or Pitt. Under this agreement, Pitt granted
us an exclusive, worldwide, royalty-bearing license for the rights to
commercialize technologies embodied by certain issued patents, patent
applications and know-how relating to AR-67 for all therapeutic uses. We have
expanded, and intend to continue to expand, our patent portfolio by filing
additional patents covering expanded uses for this technology.
Under the
terms of our license agreement with Pitt, we made a one-time cash payment of
$350,000 to Pitt and reimbursed it for past patent expenses of approximately
$60,000. Additionally, Pitt will receive performance-based cash payments upon
successful completion of clinical and regulatory milestones relating to AR-67.
We will make the first milestone payment to Pitt upon the acceptance of the
first New Drug Application, or NDA, by the FDA for AR-67. We are also required
to pay to Pitt an annual maintenance fee on each anniversary of the license
agreement, and to pay Pitt a royalty equal to a percentage of net sales of
AR-67. To the extent we enter into a sublicensing agreement relating to AR-67,
we will pay Pitt a portion of all non-royalty income received from such
sublicensee.
Under the
license agreement with Pitt, we also agreed to indemnify and hold Pitt and its
affiliates harmless from any and all claims, actions, demands, judgments,
losses, costs, expenses, damages and liabilities (including reasonable
attorneys’ fees) arising out of or in connection with (i) the production,
manufacture, sale, use, lease, consumption or advertisement of AR-67, (ii) the
practice by us or any affiliate or sublicensee of the licensed patent; or (iii)
any obligation of us under the license agreement unless any such claim is
determined to have arisen out of the gross negligence, recklessness or willful
misconduct of Pitt. The license agreement will terminate upon the expiration of
the last patent relating to AR-67. Pitt may generally terminate the agreement at
any time upon a material breach by us to the extent we fail to cure any such
breach within 60 days after receiving notice of such breach or in the event we
file for bankruptcy. We may terminate the agreement for any reason upon 90 days
prior written notice.
AR-12
and AR-42 License Agreements
Our
rights to both of AR-12 and AR-42 are governed by separate license agreements
with The Ohio State University Research Foundation, or Ohio State, entered into
in January 2008. Pursuant to each of these agreements, Ohio State
granted us exclusive, worldwide, royalty-bearing licenses to commercialize
certain patent applications, know-how and improvements relating to AR-42 and
AR-12 for all therapeutic uses.
Pursuant
to our license agreements for AR-12 and AR-42, we made one-time cash payments to
Ohio State in the aggregate amount of $450,000 and reimbursed it for past patent
expenses of approximately $134,000. Additionally, we are required to make
performance-based cash payments upon successful completion of clinical and
regulatory milestones relating to AR-12 and AR-42 in the U.S., Europe and Japan.
The first milestone payment for each of the licensed compounds will be due when
the first patient is dosed in the first Company sponsored Phase I clinical trial
of each of AR-42 and AR-12. To the extent we enter into a sublicensing agreement
relating to either or both of AR-12 or AR-42, we will be required to pay Ohio
State a portion of all non-royalty income received from such
sublicensee.
The
license agreements with Ohio State further provide that we will indemnify Ohio
State from any and all claims arising out of the death of or injury to any
person or persons or out of any damage to property, or resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of
either AR-12 or AR-42, except to the extent that any such claim arises out of
the gross negligence or willful misconduct of Ohio State. The license
agreements for AR-12 and AR-42 each expire on the later of (i) the expiration of
the last valid claim contained in any licensed patent and (ii) 20 years after
the effective date of the license. Ohio State will generally be able
to terminate either license upon our breach of the terms of the license to the
extent we fail to cure any such breach within 90 days after receiving notice of
such breach or our bankruptcy. We may terminate either license upon 90 days
prior written notice.
Warrant
Grants
During
the first quarter of 2008, as consideration for the performance of consulting
and due diligence efforts related to the licensing of AR-12 and AR-42, we
granted and expensed fully vested warrants to purchase 299,063 shares of our
common stock at an exercise price of $2.42. Of the total amount of
the warrants granted, 239,250 were granted to employees of Two River, a related
party. The remaining 59,813 warrants were granted to outside
consultants.
During
the second quarter of 2008, we had outstanding a series of 6% convertible
promissory notes in the aggregate principal and accrued interest of
approximately $4,279,000. In accordance with the terms of these
notes, contemporaneously with the completion of our June 2, 2008 private
placement, the outstanding principal and accrued interest under the notes
converted into an aggregate of 1,962,338 shares of our common stock and
five-year warrants to purchase an additional 196,189 shares at an exercise price
of $2.42 per share, all as adjusted to give effect to the Merger.
Critical
Accounting Policies
Our
financial statements are prepared in accordance with generally accepted
accounting principles. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures. We evaluate our
estimates and assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Our actual results could differ from these
estimates.
We
believe that the assumptions and estimates associated with stock-based
compensation have the greatest potential impact on our financial statements.
Therefore, we consider these to be our critical accounting policies and
estimates. For further information on all of our significant accounting
policies, please see Note 4 of the accompanying notes to our financial
statements.
Research
and Development Expenses and Accruals
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for pre-clinical,
clinical, and manufacturing development, legal expenses resulting from
intellectual property prosecution, contractual review, and other expenses
relating to the design, development, testing, and enhancement of our product
candidates. Research and development costs are expensed as incurred. Amounts due
under such arrangements may be either fixed fee or fee for service, and may
include upfront payments, monthly payments, and payments upon the completion of
milestones or receipt of deliverables.
Our cost
accruals for clinical trials and other research and development activities are
based on estimates of the services received and efforts expended pursuant to
contracts with numerous clinical trial centers and CROs, clinical study sites,
laboratories, consultants, or other clinical trial vendors that perform the
activities. Related contracts vary significantly in length, and may be for a
fixed amount, a variable amount based on actual costs incurred, capped at a
certain limit, or for a combination of these elements. Activity levels are
monitored through close communication with the CRO’s and other clinical trial
vendors, including detailed invoice and task completion review, analysis of
expenses against budgeted amounts, analysis of work performed against approved
contract budgets and payment
schedules,
and recognition of any changes in scope of the services to be performed. Certain
CRO and significant clinical trial vendors provide an estimate of costs incurred
but not invoiced at the end of each quarter for each individual trial. The
estimates are reviewed and discussed with the CRO or vendor as necessary, and
are included in research and development expenses for the related period. For
clinical study sites, which are paid periodically on a per-subject basis to the
institutions performing the clinical study, we accrue an estimated amount based
on subject screening and enrollment in each quarter. All estimates may differ
significantly from the actual amount subsequently invoiced, which may occur
several months after the related services were performed.
In the
normal course of business we contract with third parties to perform various
research and development activities in the on-going development of our product
candidates. The financial terms of these agreements are subject to negotiation
and vary from contract to contract and may result in uneven payment flows.
Payments under the contracts depend on factors such as the achievement of
certain events, the successful enrollment of patients, and the completion of
portions of the clinical trial or similar conditions. The objective of our
accrual policy is to match the recording of expenses in our financial statements
to the actual services received and efforts expended. As such, expense accruals
related to clinical trials and other research and development activities are
recognized based on our estimate of the degree of completion of the event or
events specified in the specific contract.
No
adjustments for material changes in estimates have been recognized in any period
presented.
Stock-based
compensation
Our
results include non-cash compensation expense as a result of the issuance of
stock, stock options and warrants. The Company issued stock options to
employees, directors and consultants under the 2005 Stock Option Plan beginning
in 2006.
We
account for employee stock-based compensation in accordance with Statement of
Financial Accounting Standards (“SFAS”) 123(R),
“Share-Based Payment”
(SFAS
123(R)). SFAS 123(R) requires us to expense the fair value of stock options over
the vesting period on a straight-line basis. We determine the fair value of
stock options using the Black-Scholes option-pricing model. This valuation model
requires us to make assumptions and judgments about the variables used in the
calculation. These variables and assumptions include the weighted average period
of time that the options granted are expected to be outstanding, the volatility
of our common stock, the risk-free interest rate and the estimated rate of
forfeitures of unvested stock options. Additional information on the variables
and assumptions used in our stock-based compensation are described in
Note 9 of the accompanying notes to our financial statements.
Stock
options or other equity instruments to non-employees (including consultants and
all members of the Company’s Scientific Advisory Board) issued as consideration
for goods or services received by the Company are accounted for, in accordance
with the provisions of Statement of Financial Accounting Standards 123, and
Emerging Issues Task Force No. 96-18, based on the fair value of the equity
instruments issued (unless the fair value of the consideration received can be
more reliably measured). The fair value of stock options is determined using the
Black-Scholes option-pricing model. The fair value of any options issued to
non-employees is recorded as expense over the applicable service
periods.
The terms
and vesting schedules for share-based awards vary by type of grant and the
employment status of the grantee. Generally, the awards vest based upon
time-based or performance-based conditions. Performance-based conditions
generally include the attainment of goals related to our financial and
development performance. Stock-based compensation expense is included in the
respective categories of expense in the statements of operations. We expect to
record additional non-cash compensation expense in the future, which may be
significant.
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Our
exposure to market risk for changes in interest rates relates primarily to our
cash and cash equivalents. The goal of our investment policy is to place our
investments with highly rated credit issuers and limit the amount of credit
exposure to any one issuer. We seek to improve the safety and likelihood of
preservation of our invested funds by limiting default risk and market risk. Our
policy is to mitigate default risk by investing in high credit quality
securities and currently do not hedge interest rate exposure. Due to our policy
to only make investments with short-term maturities, we do not believe that an
increase in market rates would have any material negative impact on the value of
our investment portfolio.
As of
December 31, 2008, our portfolio consisted primarily of bank savings
accounts and a certificate of deposit associated with our lease obligation, and
we did not have any investments with significant exposure to the
subprime
mortgage market issues. Based on our investment portfolio and interest rates at
December 31, 2008, we believe that a decrease in interest rates would not
have a significant impact on the fair value of our cash and cash equivalents of
approximately $10.4 million.
|
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
The
response to this Item is submitted as a separate section of this report
commencing on Page F-1.
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Evaluation of Disclosure Controls
and Procedures
We
conducted an evaluation as of December 31, 2008, under the supervision and
with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures, which are defined under SEC
rules as controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within required time periods. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of such date, our disclosure controls and procedures were
effective.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act. Internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on criteria
established in the Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Management’s assessment
included evaluation of such elements as the design and operating effectiveness
of key financial reporting controls, process documentation, accounting policies,
and our overall control environment. Based on this evaluation, our management
concluded that our internal control over financial reporting was effective as of
December 31, 2008.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal controls over financial reporting.
Management’s report was not subject to attestation by the Company’s
registered public accounting firm pursuant to the temporary rules of the
Securities and Exchange Commission that permit the Company to only provide
management’s report in this Annual Report.
Limitations
on the Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefit of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Arno have been detected. Also,
projections of any evaluation of
effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Changes
in Internal Controls over Financial Reporting
There was
no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) that occurred during the fourth
quarter of the year ended December 31, 2008 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
None.
Part
III
|
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Information
in response to this Item is incorporated herein by reference to our 2009 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
Information
in response to this Item is incorporated herein by reference to our 2009 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER
MATTERS
|
Securities
Authorized for Issuance under Equity Compensation Plans
Our
Amended and Restated 2005 Stock Option Plan, which is currently our only equity
compensation plan, has been approved by our stockholders. The following
table sets forth certain information as of December 31, 2008 with respect
to our Amended and Restated 2005 Stock Option Plan:
|
|
|
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
(A)
|
|
Weighted-Average
Exercise Price
of Outstanding
Options
(B)
|
|
Number
of Securities
Remaining
Available for
Future
Issuance Under Equity
Compensation
Plans (Excluding Securities Reflected in Column
(A))
(C)
|
|
Equity compensation plans
approved by security holders:
|
|
|
|
|
|
|
|
|
2005
Stock Option Plan
|
|
2,436,511
|
|
$
|
1.71
|
|
554,144
|
|
|
|
|
|
|
Equity
compensation plans not approved by stockholders:
|
|
|
|
|
|
|
|
|
None.
|
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2,436,511
|
|
$
|
1.71
|
|
554,144
|
Information
in response to this Item relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to our 2009 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information
in response to this Item is incorporated herein by reference to our 2009 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
|
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
Information
in response to this Item is incorporated herein by reference to our 2009 Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Form 10-K.
PART
IV
|
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES
|
Financial
Statements.
Reference is made to the Index to
Financial Statements beginning on Page F-1 hereof.
Financial
Statement Schedules.
The Financial Statement Schedules have
been omitted either because they are not required or because the information has
been included in the financial statements or the notes thereto included in this
Annual Report.
Exhibits.
The exhibits listed below are
incorporated herein by reference or filed with this Annual Report as indicated
below.
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger dated March 5, 2008, by and among Laurier
International, Inc., Laurier Acquisition, Inc. and Arno Therapeutics, Inc.
(incorporated by reference to Exhibit 2.1 of Registrant’s Current Report
on Form 8-K filed on March 6, 2008).
|
|
2.2
|
|
Amendment
No. 1 dated May 12, 2008 to Agreement and Plan of Merger by and among
Laurier International, Inc., Laurier Acquisition, Inc. and Arno
Therapeutics, Inc. (incorporated by reference to Exhibit 2.2 of the
Registrant’s Registration Statement on Form S-1 filed on July 31, 2008,
SEC File No. 333-152660).
|
|
2.3
|
|
Amendment
No. 2 dated May 30, 2008 to Agreement and Plan of Merger by and among
Laurier International, Inc., Laurier Acquisition, Inc. and Arno
Therapeutics, Inc. (incorporated by reference to Exhibit 2.3 of the
Registrant’s Registration Statement on Form S-1 filed on July 31, 2008,
SEC File No. 333-152660).
|
|
3.1
|
|
Certificate
of Incorporation of the Registrant (incorporated by reference to Exhibit
3.1 of the Registrant’s Registration Statement on Form SB-2 filed on
October 2, 2002, SEC File No. 333-100259).
|
|
3.2
|
|
Bylaws
of the Registrant (incorporated by reference to Exhibit 3.2 of the
Registrant’s Registration Statement on Form SB-2 filed on October 2, 2002,
SEC File No. 333-100259).
|
|
4.1
|
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the
Registrant’s Form 8-K filed June 9, 2008).
|
|
4.2
|
|
Form
of Common Stock Purchase Warrant issued to former note holders of Arno
Therapeutics, Inc. (incorporated by reference to Exhibit 4.2 of the
Registrant’s Form 8-K filed June 9, 2008).
|
|
10.1
|
|
Employment
Agreement dated June 1, 2007 between Arno Therapeutics, Inc. and Scott Z.
Fields, M.D. (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K filed June 9, 2008).*
|
|
10.2
|
|
Letter
agreement dated September 2, 2007 between Arno Therapeutics, Inc. and J.
Chris Houchins (incorporated by reference to Exhibit 10.2 of the
Registrant’s Form 8-K filed June 9, 2008).*
|
|
10.3
|
|
Arno
Therapeutics, Inc. 2005 Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the Registrant’s Form 8-K filed June 9,
2008).*
|
|
10.4
|
|
Form
of stock option agreement for use under Arno Therapeutics, Inc. 2005 Stock
Option Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s
Form 8-K filed June 9, 2008).*
|
|
10.5
|
|
License
Agreement dated October 25, 2006 between Arno Therapeutics, Inc. and The
University of Pittsburgh (incorporated by reference to Exhibit 10.5 of the
Registrant’s Form 8-K filed June 9, 2008).+
|
|
10.6
|
|
License
Agreement dated January 3, 2008 between Arno Therapeutics, Inc. and The
Ohio State University Research Foundation (incorporated by reference to
Exhibit 10.6 of the Registrant’s Form 8-K filed June 9,
2008).+
|
|
10.7
|
|
License
Agreement dated January 9, 2008 between Arno Therapeutics, Inc. and The
Ohio State University Research Foundation (incorporated by reference to
Exhibit 10.7 of the Registrant’s Form 8-K filed June 9,
2008).+
|
|
10.8
|
|
Form
of Subscription Agreement between Arno Therapeutics, Inc. and the
investors in the June 2, 2008 private placement (incorporated by reference
to Exhibit 10.8 of the Registrant’s Form 8-K filed June 9,
2008).
|
|
10.9
|
|
Employment
Agreement dated June 9, 2008 between Arno Therapeutics, Inc. and Brian
Lenz, as amended on July 9, 2008 (incorporated by reference to Exhibit
10.1 of the Registrant’s Form 10-Q for the quarter ended June 30,
2008).*
|
|
10.10
|
|
Employment
Agreement by and between Arno Therapeutics, Inc. and Dr. Roger Berlin,
dated September 3, 2008 (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K filed *
|
|
10.11
|
|
Lease
Agreement by and between Arno Therapeutics, Inc. and Maple 4 Campus
L.L.C., dated October 17, 2008 (filed herewith).
|
|
23.1
|
|
Consent
of Hays & Company LLP (filed herewith).
|
|
24.1
|
|
Power
of Attorney (included on signature page hereof).
|
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Securities Exchange Act Rule
13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Securities Exchange Act Rule
13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
|
|
+
|
Confidential
treatment has been granted as to certain omitted portions of this exhibit
pursuant to Rule 406 of the Securities Act or Rule 24b-2 of the Exchange
Act.
|
|
*
|
Indicates
a management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form
10-K.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on
March 31, 2009.
|
|
|
|
|
|
|
|
|
ARNO
THERAPEUTICS, INC.
|
|
|
|
|
|
|
B
Y
:
|
|
|
|
|
|
|
Roger
G. Berlin
|
|
|
|
|
Chief
Executive Officer
|
KNOW ALL
MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Arno
Therapeutics, Inc., hereby severally constitute Roger G. Berlin and Brian Lenz,
and each of them singly, our true and lawful attorneys with full power to them,
and each of them singly, to sign for us and in our names in the capacities
indicated below, the Form 10-K filed herewith and any and all amendments to said
Form 10-K, and generally to do all such things in our names and in our
capacities as officers and directors to enable Arno Therapeutics, Inc. to comply
with the provisions of the Securities Exchange Act of 1934, and all requirements
of the U.S. Securities and Exchange Commission, hereby ratifying and confirming
our signatures as they may be signed by our said attorneys, or any of them, to
said Form 10-K and any and all amendments thereto.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Roger
G. Berlin, M.D.
|
|
Chief
Executive Officer and Director
|
|
March
31, 2009
|
|
Roger G.
Berlin
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
March
31, 2009
|
|
Brian
Lenz
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
/s/ Arie
S. Belldegrun, M.D.
|
|
Chairman
of the Board of Directors
|
|
March
31, 2009
|
|
Arie
S. Belldegrun
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
31, 2009
|
|
Robert
I. Falk
|
|
|
|
|
|
|
/s/ William
F. Hamilton, Ph. D.
|
|
Director
|
|
March
31, 2009
|
|
William
F. Hamilton
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
31, 2009
|
|
Peter
M. Kash
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
31, 2009
|
|
Joshua
A. Kazam
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March
31, 2009
|
|
David
M. Tanen
|
|
|
|
|
FINANCIAL
STATEMENTS
Financial
Statements Index
|
|
|
|
|
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Balance
Sheets
|
F-3
|
|
|
Statements
of Operations
|
F-4
|
|
|
Statement
of Changes in Stockholders’ Equity (Deficiency)
|
F-5
|
|
|
Statements
of Cash Flows
|
F-6
|
|
|
Notes
to Financial Statements
|
F-7
|
|
To the
Board of Directors
Arno
Therapeutics, Inc.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying
balance sheets of Arno Therapeutics, Inc. (a development stage company) as of
December 31, 2008 and 2007 and the related statements of operations, changes in
stockholders’ equity and cash flows for the years then ended and for the period
from August 1, 2005 (inception) through December 31, 2008. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the
financial position of Arno Therapeutics, Inc. as of December 31, 2008 and 2007,
and the results of its operations and its cash flows for the years then ended
and for the period from August 1, 2005 (inception) through December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Hays & Company LLP
March 31,
2009
New York,
New York
ARNO
THERAPEUTICS, INC.
(a
development stage company)
BALANCE
SHEETS
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,394,749
|
|
|
$
|
1,646,243
|
|
|
Prepaid
expenses
|
|
|
315,014
|
|
|
|
74,092
|
|
|
Total
current assets
|
|
|
10,709,763
|
|
|
|
1,720,335
|
|
|
Deferred
financing fees, net
|
|
|
—
|
|
|
|
13,541
|
|
|
Property
and equipment, net
|
|
|
63,584
|
|
|
|
38,193
|
|
|
Restricted
cash
|
|
|
44,276
|
|
|
|
—
|
|
|
Security
deposit
|
|
|
12,165
|
|
|
|
12,165
|
|
|
TOTAL
ASSETS
|
|
$
|
10,829,788
|
|
|
$
|
1,784,234
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,493,658
|
|
|
$
|
111,474
|
|
|
Accrued
expenses and other liabilities
|
|
|
450,713
|
|
|
|
1,120,028
|
|
|
Due
to related party
|
|
|
5,616
|
|
|
|
583
|
|
|
Total
current liabilities
|
|
|
2,949,987
|
|
|
|
1,232,085
|
|
|
Deferred
rent
|
|
|
17,393
|
|
|
|
151
|
|
|
Convertible
notes and accrued interest payable
|
|
|
—
|
|
|
|
4,179,588
|
|
|
TOTAL
LIABILITIES
|
|
|
2,967,380
|
|
|
|
5,411,824
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value: 20,000,000 shares authorized, 0
shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common
stock, $0.0001 par value: 80,000,000 shares authorized,
20,392,024 and 9,968,797 shares issued and outstanding,
respectively
|
|
|
2,039
|
|
|
|
997
|
|
|
Additional
paid-in capital
|
|
|
24,504,525
|
|
|
|
102,003
|
|
|
Deficit
accumulated during the development stage
|
|
|
(16,644,156
|
)
|
|
|
(3,730,590
|
)
|
|
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
7,862,408
|
|
|
|
(3,627,590
|
)
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
$
|
10,829,788
|
|
|
$
|
1,784,234
|
|
See
accompanying notes to financial statements.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
STATEMENTS
OF OPERATIONS
|
|
|
Year
Ended December 31, 2008
|
|
|
Year
Ended
December
31, 2007
|
|
|
Cumulative
Period from August 1, 2005 (inception) Through December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
9,768,389
|
|
|
$
|
2,899,264
|
|
|
$
|
13,033,486
|
|
|
General
and administrative
|
|
|
2,315,178
|
|
|
|
360,349
|
|
|
|
2,680,587
|
|
|
Total
Operating Expenses
|
|
|
12,083,567
|
|
|
|
3,259,613
|
|
|
|
15,714,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(12,083,567
|
)
|
|
|
(3,259,613
|
)
|
|
|
(15,714,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
206,054
|
|
|
|
123,962
|
|
|
|
330,016
|
|
|
Interest
expense
|
|
|
(1,036,053
|
)
|
|
|
(224,046
|
)
|
|
|
(1,260,099
|
)
|
|
Total
Other Income (Expense)
|
|
|
(829,999
|
)
|
|
|
(100,084
|
)
|
|
|
(930,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(12,913,566
|
)
|
|
$
|
(3,359,697
|
)
|
|
$
|
(16,644,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE – BASIC AND DILUTED
|
|
$
|
(0.81
|
)
|
|
|
(0.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
|
|
16,022,836
|
|
|
|
9,968,797
|
|
|
|
|
|
See
accompanying notes to financial statements.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
STATEMENT
OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
PERIOD
FROM AUGUST 1, 2005 (INCEPTION) THROUGH DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Deficit
Accumulated During the Development Stage
|
|
|
Total
Stockholders' Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to founders at $0.0001 per share
|
|
|
9,968,797
|
|
|
$
|
997
|
|
|
$
|
4,003
|
|
|
$
|
—
|
|
|
$
|
5,000
|
|
|
Issuance
of stock options for services
|
|
|
—
|
|
|
|
—
|
|
|
|
9,700
|
|
|
|
—
|
|
|
|
9,700
|
|
|
Net
loss, period from August 1, 2005 (inception) through December 31,
2006
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(370,893
|
)
|
|
|
(370,893
|
)
|
|
Balance
at December 31, 2006
|
|
|
9,968,797
|
|
|
|
997
|
|
|
|
13,703
|
|
|
|
(370,893
|
)
|
|
|
(356,193
|
)
|
|
Issuance
of stock options for services
|
|
|
—
|
|
|
|
—
|
|
|
|
88,300
|
|
|
|
—
|
|
|
|
88,300
|
|
|
Net
loss, year ended December 31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,359,697
|
)
|
|
|
(3,359,697
|
)
|
|
Balance
at December 31, 2007
|
|
|
9,968,797
|
|
|
|
997
|
|
|
|
102,003
|
|
|
|
(3,730,590
|
)
|
|
|
(3,627,590
|
)
|
|
Common
stock sold in private placement, net of issuance costs of
$141,646
|
|
|
7,360,689
|
|
|
|
736
|
|
|
|
17,689,301
|
|
|
|
—
|
|
|
|
17,690,037
|
|
|
Conversion
of notes payable upon closing of private placement
|
|
|
1,962,338
|
|
|
|
196
|
|
|
|
4,278,322
|
|
|
|
—
|
|
|
|
4,278,518
|
|
|
Discount
arising from note conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
475,391
|
|
|
|
—
|
|
|
|
475,391
|
|
|
Warrants
issued in connection with note conversion
|
|
|
—
|
|
|
|
—
|
|
|
|
348,000
|
|
|
|
—
|
|
|
|
348,000
|
|
|
Reverse
merger transaction-
Elimination
of accumulated deficit
|
|
|
—
|
|
|
|
—
|
|
|
|
(120,648
|
)
|
|
|
—
|
|
|
|
(120,648
|
)
|
|
Previously
issued Laurier common stock
|
|
|
1,100,200
|
|
|
|
110
|
|
|
|
120,538
|
|
|
|
—
|
|
|
|
120,648
|
|
|
Warrants
issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
480,400
|
|
|
|
—
|
|
|
|
480,400
|
|
|
Employee
stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,044,518
|
|
|
|
—
|
|
|
|
1,044,518
|
|
|
Consultant
stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
86,700
|
|
|
|
—
|
|
|
|
86,700
|
|
|
Net
loss, year ended December 31, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,913,566
|
)
|
|
|
(12,913,566
|
)
|
|
Balance
at December 31, 2008
|
|
|
20,392,024
|
|
|
$
|
2,039
|
|
|
$
|
24,504,525
|
|
|
$
|
(16,644,156
|
)
|
|
$
|
7,862,408
|
|
See
accompanying notes to financial statements.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
STATEMENTS
OF CASH FLOWS
|
|
|
Year Ended
December
31, 2008
|
|
|
Year
Ended
December
31, 2007
|
|
|
Cumulative
Period from August 1, 2005 (inception) Through December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITES:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(12,913,566
|
)
|
|
$
|
(3,359,697
|
)
|
|
$
|
(16,644,156
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
45,467
|
|
|
|
13,109
|
|
|
|
58,576
|
|
|
Stock
based compensation to employees
|
|
|
1,044,518
|
|
|
|
88,300
|
|
|
|
1,132,818
|
|
|
Stock
based compensation to consultants
|
|
|
86,700
|
|
|
|
—
|
|
|
|
96,400
|
|
|
Write-off
of intangible assets
|
|
|
—
|
|
|
|
85,125
|
|
|
|
85,125
|
|
|
Warrants
issued for services
|
|
|
480,400
|
|
|
|
—
|
|
|
|
480,400
|
|
|
Warrants
issued in connection with note conversion
|
|
|
348,000
|
|
|
|
—
|
|
|
|
348,000
|
|
|
Note
discount arising from beneficial conversion feature
|
|
|
475,391
|
|
|
|
—
|
|
|
|
475,391
|
|
|
Non-cash
interest expense
|
|
|
98,930
|
|
|
|
212,588
|
|
|
|
311,518
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(240,922
|
)
|
|
|
(55,817
|
)
|
|
|
(315,014
|
)
|
|
Restricted
cash
|
|
|
(44,276
|
)
|
|
|
—
|
|
|
|
(44,276
|
)
|
|
Security
deposit
|
|
|
—
|
|
|
|
(12,165
|
)
|
|
|
(12,165
|
)
|
|
Accounts
payable
|
|
|
2,382,184
|
|
|
|
83,831
|
|
|
|
2,493,658
|
|
|
Accrued
expenses and other liabilities
|
|
|
(669,315
|
)
|
|
|
1,119,877
|
|
|
|
450,713
|
|
|
Due
to related parties
|
|
|
5,033
|
|
|
|
583
|
|
|
|
5,616
|
|
|
Deferred
rent
|
|
|
17,242
|
|
|
|
151
|
|
|
|
17,393
|
|
|
Net
cash used in operating activities
|
|
|
(8,884,214
|
)
|
|
|
(1,824,115
|
)
|
|
|
(11,060,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(37,317
|
)
|
|
|
(39,843
|
)
|
|
|
(77,160
|
)
|
|
Cash
paid for intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
(85,125
|
)
|
|
Proceeds
from related party advance
|
|
|
—
|
|
|
|
175,000
|
|
|
|
525,000
|
|
|
Repayment
of related party advance
|
|
|
—
|
|
|
|
(525,000
|
)
|
|
|
(525,000
|
)
|
|
Net
cash used in investing activities
|
|
|
(37,317
|
)
|
|
|
(389,843
|
)
|
|
|
(162,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
financing fees paid
|
|
|
(20,000
|
)
|
|
|
(25,000
|
)
|
|
|
(45,000
|
)
|
|
Proceeds
from issuance of common stock in private placement, net
|
|
|
17,690,037
|
|
|
|
—
|
|
|
|
17,690,037
|
|
|
Proceeds
from issuance of common stock to founders
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
Proceeds
from issuance of notes payable
|
|
|
1,000,000
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
Repayment
of notes payable
|
|
|
(1,000,000
|
)
|
|
|
—
|
|
|
|
(1,000,000
|
)
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
—
|
|
|
|
3,867,000
|
|
|
|
3,967,000
|
|
|
Net
cash provided by financing activities
|
|
|
17,670,037
|
|
|
|
3,842,000
|
|
|
|
21,617,037
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
8,748,506
|
|
|
|
1,628,042
|
|
|
|
10,394,749
|
|
|
CASH
AND CASH EQUIVALENTS – BEGINNING OF PERIOD
|
|
|
1,646,243
|
|
|
|
18,201
|
|
|
|
—
|
|
|
CASH
AND CASH EQUIVALENTS – END OF PERIOD
|
|
$
|
10,394,749
|
|
|
$
|
1,646,243
|
|
|
$
|
10,394,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable and interest to common stock
|
|
$
|
4,278,518
|
|
|
$
|
—
|
|
|
$
|
4,278,518
|
|
|
Common
shares of Laurier issued in reverse merger transaction
|
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
110
|
|
See
accompanying notes to financial statements
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
1. DESCRIPTION OF
BUSINESS
Arno
Therapeutics, Inc. (“Arno” or “the Company”) develops innovative products for
the treatment of cancer. Arno’s lead clinical compound AR-67 has completed
patient enrollment of its Phase I studies for the treatment of solid
tumors. The Company expects to commence a Phase II clinical trial of
AR-67 in patients with glioblastoma multiforme, (“GBM”), and a Phase II clinical
trial in patients with myelodysplastic syndrome (“MDS”). In light of
current economic circumstances, we no longer plan to conduct these studies
ourselves, but rather we plan to pursue collaborations with oncology cooperative
groups and/or identify other researchers to conduct investigator-initiated
studies. We believe this action will preserve our available cash
resources, while continuing to advance the development of this product
candidate. AR-67 is a novel, third-generation camptothecin analogue
that has exhibited high potency and improved pharmacokinetic properties compared
with first-and second-generation camptothecin analogues.
The
Company is also developing two novel pre-clinical compounds, AR-12 and AR-42,
for the treatment of cancer. AR-12 is an orally
available inhibitor of phosphoinositide dependent protein kinase-1, or
PDK-1, that targets the PI3K/Akt pathway while also possessing activity in the
endoplasmic reticulum stress and other pathways targeting
apoptosis. The Company expects to file an Investigational New Drug
Application (“IND”) for AR-12 in early 2009. The Company anticipates
commencing a Phase I clinical study of AR-12 in the United States and the United
Kingdom during 2009. AR-42 is an orally available, broad spectrum
inhibitor of deacetylase targets, referred to as pan-DAC inhibition, as well as
an inhibitor of Akt. During the first quarter of 2009, the FDA
accepted the Company’s Investigational New Drug Application or an
IND. The Company’s plans for AR-42 are to pursue collaborations with
oncology cooperative groups and/or identify other researchers to conduct a Phase
I study, in addition to exploring strategic partners to conduct a Phase I study
and otherwise further its development.
The
Company was incorporated in Delaware in March 2000, at which time its name was
Laurier International, Inc. (“Laurier”). Pursuant to an Agreement and
Plan of Merger dated March 6, 2008 (as amended, the “Merger Agreement”), by and
among the Company, Arno Therapeutics, Inc., a Delaware corporation formed on
August 1, 2005 (“Old Arno”), and Laurier Acquisition, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company (“Laurier Acquisition”),
on June 3, 2008, Laurier Acquisition merged with and into Old Arno, with Old
Arno remaining as the surviving corporation and a wholly-owned subsidiary of
Laurier. Immediately following this merger, Old Arno merged with and
into Laurier and Laurier’s name was changed to Arno Therapeutics, Inc. These two
merger transactions are hereinafter collectively referred to as the “Merger.”
Immediately following the Merger, the former stockholders of Old Arno
collectively held 95% of the outstanding common stock of Laurier, assuming the
issuance of all shares issuable upon the exercise of outstanding options and
warrants, and all of the officers and directors of Old Arno in office
immediately prior to the Merger were appointed as the officers and directors of
Laurier immediately following the Merger. Further, Laurier, which was
a non-operating shell company prior to the Merger, adopted the business plan of
Old Arno. The merger of a private operating company into a
non-operating public shell corporation with nominal net assets is considered to
be a capital transaction in substance, rather than a business combination, for
accounting purposes. Accordingly, the Company treated this transaction as a
capital transaction without recording goodwill or adjusting any of its other
assets or liabilities. All costs incurred in connection with the
Merger have been expensed. On June 2, 2008 Old Arno completed a
private placement of its common stock resulting in gross proceeds of
approximately $17,832,000. See Note 8.
2. BASIS OF
PRESENTATION
The
Company is a development stage company since it has not yet generated any
revenue from the sale of its products. Through December 31, 2008, the
Company’s efforts have been principally devoted to developing its licensed
technologies, recruiting personnel, establishing office facilities, and raising
capital. Accordingly, the accompanying financial statements have been prepared
in accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 7,
“Accounting
and Reporting by Development Stage Enterprises
.”
In
accordance with the terms of the Merger, Old Arno’s outstanding common stock
automatically converted into shares of Laurier common stock at an exchange ratio
of 1.99377. Accordingly, following the Merger, the holders of Old
Arno common stock immediately prior to the Merger held 95% of the outstanding
common stock of Laurier,
assuming
the issuance of all shares underlying outstanding options and
warrants. All share and per share information in the financial
statements has been restated to retroactively reflect the exchange ratio of
1.99377.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
3. LIQUIDITY AND CAPITAL
RESOURCES
For the
years ended December 31, 2008 and 2007, the Company reported a net loss of
$12,913,566, and $3,359,697, respectively, and the net loss from August 1,
2005 (inception) through December 31, 2008 was $16,644,156. The
Company’s total cash balance as of December 31, 2008 was $10,394,749 compared to
$1,646,243 at December 31, 2007. Through December 31, 2008, all
of the Company’s financing has been through private placements of common stock
and debt financing. During June 2008, the Company completed a private placement
of its common stock, raising approximately $17,832,000 in gross proceeds. The
Company expects to incur substantial and increasing losses and have negative net
cash flows from operating activities as it expands its technology portfolio and
engages in further research and development activities, particularly the
conducting of pre-clinical and clinical trials.
The
Company plans to continue to fund operations from its existing cash balances and
additional funds raised through various sources, such as equity and debt
financing. Based on its current resources at December 31, 2008, and the current
plan of expenditure on continuing development of current products, the Company
believes that it has sufficient capital to fund its operations into the first
quarter of 2010, and will need additional financing in the future until it can
achieve profitability, if ever. The success of the Company depends on its
ability to discover and develop new products to the point of Food and Drug
Administration (“FDA”) approval and subsequent revenue generation and,
accordingly, to raise enough capital to finance these developmental efforts. The
Company plans to raise additional equity capital to finance the continued
operating and capital requirements of the Company. Amounts raised will be used
to further develop the Company’s products, acquire additional product licenses
and for other working capital purposes. However, there can be no
assurance that the Company will be able to raise additional capital at times or
on terms that it desires, if at all, particularly given the current economic
conditions, which have made access to the capital markets more
difficult. If the Company is unable to raise or otherwise secure
additional capital, it will likely be forced to curtail its operations, which
would delay the development of its product candidates.
4. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a)
Use of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Estimates and assumptions principally relate to services performed by third
parties but not yet invoiced, estimates of the fair value and forfeiture rates
of stock options issued to employees and consultants, and estimates of the
probability and potential magnitude of contingent liabilities. Actual results
could differ from those estimates.
(b)
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a remaining maturity of
three months or less at the time of acquisition to be cash equivalents. The
Company deposits cash and cash equivalents with high credit quality financial
institutions and is insured to the maximum limitations. Balances in these
accounts may exceed federally insured limits at times.
(c)
Restricted Cash
In October 2008, the Company entered
into a non-cancelable five year office lease agreement. In connection
with the lease, the Company delivered an irrevocable stand-by and unconditional
letter of credit in the amount of approximately $44,000 (or the approximate
equivalent of three months rent) as a security deposit with the
landlord
as the beneficiary in case of default or failure to comply with the lease
requirements. In order to fund the letter of credit, the Company
deposited a compensating balance of approximately $44,000 into an interest
bearing certificate of deposit with a financial institution which shall be
reduced by $11,005 on January 1, 2011 and by an additional $11,005 on January 1,
2013, provided the Company maintains certain conditions described in the lease
agreement.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
(d)
Deferred Financing Fees
Deferred financing fees are associated
with obtaining long and short-term debt financing which have been deferred and
were amortized to interest expense over the expected term of the related debt,
and have been fully amortized upon the repayment of the Notes (as defined in
Note 7) concurrent with the Company’s June 2008 private
placement. Deferred financing fees for the years ended December 31,
2008 and 2007 were $0 and $13,541, respectively, net of accumulated amortization
of $11,459 at December 31, 2007.
(e)
Prepaid Expenses
Prepaid
expenses consist of payments made in advance to vendors relating to service
contracts for clinical trial development and insurance policies. These advanced
payments are amortized to expense either as services are performed or over the
relevant service period using the straight line method.
(f)
Property and Equipment
Property
and equipment consist primarily of furnishings, fixtures, leasehold improvements
and computer equipment and are recorded at cost. Repairs and maintenance costs
are expensed in the period incurred. Depreciation of property and
equipment is provided for by the straight-line method over the estimated useful
lives of the related assets. Leasehold improvements are amortized
using the straight-line method over the remaining lease term or the life of the
asset, whichever is shorter. Property and equipment, net for the
years ended December 31, 2008 and 2007 were $63,584 and $38,193, respectively,
net of accumulated depreciation of $13,576 and $1,650,
respectively.
|
Description
|
|
Estimated Useful Life
|
|
Office
equipment and furniture
|
|
5 to 7 years
|
|
Leasehold
improvements
|
|
3 years
|
|
Computer
equipment
|
|
3
years
|
(g)
Fair Value of Financial Instruments
Financial
instruments included in the Company’s balance sheets consist of cash and cash
equivalents, accounts payable, accrued expenses and due to related parties. The
carrying amounts of these instruments reasonably approximate their fair values
due to their short-term maturities.
(h)
Research and Development
Research
and development costs are charged to expense as incurred. Research and
development includes fees associated with operational consultants, contract
clinical research organizations, contract manufacturing organizations, clinical
site fees, contract laboratory research organizations, contract central testing
laboratories, licensing activities, and allocated executive, human resources and
facilities expenses. The Company accrues for costs incurred as the services are
being provided by monitoring the status of the trial and the invoices received
from its external service providers. As actual costs become known, the Company
adjusts its accruals in the period when actual costs become known. Costs related
to the acquisition of technology rights and patents for which development work
is still in process are charged to operations as incurred and considered a
component of research and development expense.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
(i)
Stock-Based Compensation
The
Company accounts for share based payments in accordance with SFAS
No. 123(R), “
Share-Based
Payment
,” (“SFAS 123(R)”), which requires the Company to record as an
expense in its financial statements the fair value of all stock-based
compensation awards. The Company uses the Black-Scholes option-pricing model to
calculate the fair value of options and warrants granted under SFAS
123(R). The key assumptions for this valuation method include the
expected term of the option, stock price volatility, risk-free interest rate,
dividend yield, and exercise price. The terms and vesting schedules
for stock-based awards vary by type of grant. Generally, the awards vest based
on time-based or performance-based conditions. Performance-based vesting
conditions generally include the attainment of goals related to the Company’s
development performance. The Company accounts for stock-based
compensation arrangements for non-employees under Emerging Issues Task Force
No. 96-18, “
Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services
” (“EITF 96-18”) and SFAS
No. 123, “
Accounting for
Stock-Based Compensation
” (“SFAS 123”). As such, the Company measures
transactions on the grant date at either the fair value of the equity
instruments issued or the consideration received, whichever is more reliably
measurable.
(j)
Loss per Common Share
The
Company calculates loss per share in accordance with SFAS No. 128, “
Earnings per Share
.” Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding. Diluted loss per
share is computed similarly to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
For all
periods presented, potentially dilutive securities are excluded from the
computation of fully diluted net loss per share as their effect is
anti-dilutive.
Potentially
dilutive securities include:
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
Warrants
to purchase common stock
|
|
|
495,252
|
|
|
|
—
|
|
|
Options
to purchase common stock
|
|
|
2,436,511
|
|
|
|
687,851
|
|
|
Total
potential dilutive securities
|
|
|
2,931,763
|
|
|
|
687,851
|
|
(k)
Comprehensive Loss
We have
no components of other comprehensive loss other than our net loss, and
accordingly, comprehensive loss is equal to net loss for all periods
presented.
(l)
Income Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109,
“Accounting for Income Taxes,” which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the period in which the differences are
expected to affect taxable income. The Company provides a valuation allowance
when it appears more likely than not that some or all of the net deferred tax
assets will not be realized. The Company adopted FASB Interpretation
No. 48 (FIN 48), “
Accoun
ting for Uncertainty in Income
Taxes
” as of January 1, 2008, as required, and determined that the
adoption of FIN 48 did not have a material impact on the Company’s financial
position and results of operations. The Company had no material unrecognized tax
benefits before or after the adoption of FIN 48. There was no effect on the
Company’s financial position, results of operations or cash flows as a result of
adopting FIN 48. The Company’s policy is to recognize accrued interest and
penalties
for unrecognized tax benefits as a component of tax expense. As of
December 31, 2008, there was no accrued interest and penalties for
unrecognized tax benefits. During 2008, there was no interest or penalties
included as a component of tax expense for unrecognized tax
benefits.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
(m)
Recently Issued Accounting Standards
In June
2008, the Financial Accounting Standards Board, (“FASB”), issued FASB Staff
Position, (“FSP”) Emerging Issuers Task Force (“EITF”) 03-6-1, “
Determining Whether Instruments
Granted in Share-Based
Transactions Are Participating Securities
.” This standard provides
guidance in determining whether unvested instruments granted under share-based
payment transactions are participating securities and, therefore, should be
included in earnings per share calculations under the two-class method provided
under Statement of Financial Accounting Standards
(“SFAS”) No. 128, “
Earnings per Share
.” FSP EITF
03-6-1 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company does not expect that the
adoption of FSP EITF 03-6-1 will have a significant impact on its financial
statements.
In June
2008 the FASB issued EITF Issue No. 07-5, “
Determining Whether an Instrument
(or Embedded Feature) Is Indexed t
o an Entity
’
s Own Stock
” (“EITF 07-05”).
EITF 07-5 provides guidance in assessing whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity’s own stock
for purposes of determining whether the appropriate accounting treatment falls
under the scope of SFAS No. 133, “
Accounting For Derivative
Instruments and Hedging Activities
” and/or EITF Issue No. 00-19, “
Accounting For Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company
’
s Own Stock.”
EITF
07-05 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company does not expect the
adoption of EITF 07-05 to have a material impact on the Company’s financial
statements.
In May
2008, the FASB issued SFAS No. 162, “
The Hierarchy of Generally Accepted
Accounting Principles.
” This Statement identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with accounting principles generally accepted in the
United States. This Statement is effective 60 days following the SEC’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
“
Th
e Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles
”, and is not
anticipated to have any impact on the Company’s financial
statements.
In April
2008, the FASB issued FSP FAS 142-3,”
Determination of the Useful Life of
Intangible
Assets.
” FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “
Goodwill and Other Intangible
Assets
.” FSP FAS 142-3 aims to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS
No. 141(R) “
Business
Combinations”
and other applicable accounting literature. FSP FAS 142-3
is effective for financial statements issued for fiscal years beginning after
December 15, 2008 and must be applied prospectively to intangible assets
acquired after the effective date. The Company does not expect that the adoption
of FSP FAS 142-3 will have a significant impact on its financial
statements.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 141 (R), “
Business
Combinations
” (“SFAS 141(R)”), which replaces SFAS No. 141. SFAS
141(R) establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the
goodwill acquired. SFAS 141(R) also establishes disclosure requirements which
will enable users to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not
anticipate that the adoption of this new standard will have a material impact on
its financial statements.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
In
December 2007, the FASB issued SFAS No. 160, “
Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of Accounting Research Bulletin
No. 51
” (“SFAS 160”), which establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company does not anticipate
that the adoption of this new standard will have a material impact on its
financial statements.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “
Fair Value
Measurements”
(“SFAS 157”). SFAS 157 defines fair value, establishes
a framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements; rather, it applies
under other accounting pronouncements that require or permit fair value
measurements. The provisions of SFAS 157 are to be applied prospectively as of
the beginning of the fiscal year in which it is initially applied, with any
transition adjustment recognized as a cumulative-effect adjustment to the
opening balance of retained earnings. The adoption of this standard had no
significant impact on the Company’s financial statements.
The
Company does not believe that any other recently issued, but not yet effective,
accounting standards will have a material effect on the Company’s financial
position or results of operations when adopted.
5. PROPERTY AND
EQUIPMENT
Property and equipment as of
December 31, 2008 and 2007 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Computer
equipment
|
|
$
|
12,602
|
|
|
$
|
4,164
|
|
|
Office
furniture and equipment
|
|
|
53,802
|
|
|
|
32,130
|
|
|
Leasehold
improvements
|
|
|
10,756
|
|
|
|
3,549
|
|
|
Total
property and equipment
|
|
|
77,160
|
|
|
|
39,843
|
|
|
Accumulated
depreciation
|
|
|
(13,576
|
)
|
|
|
(1,650
|
)
|
|
Total
property and equipment, net
|
|
$
|
63,584
|
|
|
$
|
38,193
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the years ended December 31, 2008, 2007 and the period from August
1, 2005 (inception) through December 31, 2008 were $11,926, $1,650 and $13,576,
respectively.
6. INTANGIBLE ASSETS AND
INTELLECTUAL PROPERTY
License
Agreements
AR-67
License Agreement
The
Company’s rights to AR-67 are governed by an October 2006 license agreement with
the University of Pittsburgh (“Pitt”). Under this agreement, Pitt
granted the Company an exclusive, worldwide, royalty-bearing license for the
rights to commercialize technologies embodied by certain issued patents, patent
applications and know-how relating to AR-67 for all therapeutic
uses. The Company has expanded, and intends to continue to expand,
its patent portfolio by filing additional patents covering expanded uses for
this technology.
Under the
terms of the license agreement with Pitt, the Company made a one-time cash
payment of $350,000 to Pitt and reimbursed it for past patent expenses of
approximately $60,000. Additionally, Pitt will receive
performance-based cash payments upon successful completion of clinical and
regulatory milestones relating to AR-67. The Company will make the
first milestone payment to Pitt upon the acceptance of the first New Drug
Application (“NDA”) by the FDA for AR-67. The Company is also
required to pay to Pitt an annual maintenance fee of $200,000 upon the third and
fourth anniversaries, $250,000 upon the fifth and sixth anniversaries, and
$350,000 upon the seventh anniversary and annually thereafter and to pay Pitt a
royalty equal to a percentage of net sales of AR-67, pursuant to the license
agreement. To the extent the Company enters into a sublicensing agreement
relating to AR-67, the Company will pay Pitt a portion of all non-royalty income
received from such sublicensee.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
Under the
license agreement with Pitt, the Company also agreed to indemnify and hold Pitt
and its affiliates harmless from any and all claims, actions, demands,
judgments, losses, costs, expenses, damages and liabilities (including
reasonable attorneys’ fees) arising out of or in connection with (i) the
production, manufacture, sale, use, lease, consumption or advertisement of
AR-67, (ii) the practice by the Company or any affiliate or sublicensee of the
licensed patent; or (iii) any obligation of the Company under the license
agreement unless any such claim is determined to have arisen out of the gross
negligence, recklessness or willful misconduct of Pitt. The license agreement
will terminate upon the expiration of the last patent relating to AR-67. Pitt
may generally terminate the agreement at any time upon a material breach by the
Company to the extent it fails to cure any such breach within 60 days after
receiving notice of such breach or in the event the Company files for
bankruptcy. The Company may terminate the agreement for any reason
upon 90 days prior written notice.
AR-12
and AR-42 License Agreements
The
Company’s rights to both AR-12 and AR-42 are governed by separate license
agreements with The Ohio State University Research Foundation (“Ohio State”)
entered into in January 2008. Pursuant to each of these agreements,
Ohio State granted the Company exclusive, worldwide, royalty-bearing licenses to
commercialize certain patent applications, know-how and improvements relating to
AR-42 and AR-12 for all therapeutic uses.
Pursuant
to the Company’s license agreements for AR-12 and AR-42, the Company made
one-time cash payments to Ohio State in the aggregate amount of $450,000 and
reimbursed it for past patent expenses in the aggregate amount of approximately
$134,000. Additionally, the Company will be required to make performance-based
cash payments upon successful completion of clinical and regulatory milestones
relating to AR-12 and AR-42 in the United States, Europe and Japan. The first
milestone payment for each of the licensed compounds will be due when the first
patient is dosed in the first Company sponsored Phase I clinical trial of each
of AR-12 and AR-42. To the extent the Company enters into a sublicensing
agreement relating to either or both of AR-12 or AR-42, it will be required to
pay Ohio State a portion of all non-royalty income received from such
sublicensee.
The
license agreements with Ohio State further provide that the Company will
indemnify Ohio State from any and all claims arising out of the death of or
injury to any person or persons or out of any damage to property, or resulting
from the production, manufacture, sale, use, lease, consumption or advertisement
of either AR-12 or AR-42, except to the extent that any such claim arises out of
the gross negligence or willful misconduct of Ohio State. The license
agreements for AR-12 and AR-42 each expire on the later of (i) the expiration of
the last valid claim contained in any licensed patent and (ii) 20 years after
the effective date of the license. Ohio State will generally be able to
terminate either license upon the Company’s breach of the terms of the license
to the extent the Company fails to cure any such breach within 90 days after
receiving notice of such breach or the Company files for
bankruptcy. The Company may terminate either license upon 90 days
prior written notice.
7. CONVERTIBLE NOTES
PAYABLE
During
February 2007, the Company completed a private placement offering of 6%
convertible promissory notes (the “Notes”) for an aggregate principal amount of
$3,967,000, due on February 9, 2009. The aggregate principal amount and
accrued but unpaid interest on the Notes, which totaled $4,278,518,
automatically converted upon the closing of the Financing into 1,962,338 shares
of common stock at a conversion price of $2.42, which was
equal to
90% of the per share price of the shares sold in the Financing. Due to the
beneficial conversion feature resulting from the discounted conversion price, a
discount of $475,391 was recorded as interest expense with a corresponding
credit to additional paid-in capital. In addition, in conjunction with the
conversion of the convertible debt, the Company issued fully vested warrants to
purchase 196,189 shares of common stock to the holders of the Notes. The
warrants were valued at $348,000 using the Black-Scholes option-pricing model
and the following assumptions: exercise price $2.42, a 3.41% risk-free interest
rate, a five year contractual term, a dividend rate of 0%, and 94.30% expected
volatility. The cost of the warrants was included in interest expense in the
accompanying Statements of Operations, and as an increase in additional paid-in
capital.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
8. STOCKHOLDERS’
EQUITY
(a)
Common Stock
As a
condition to the closing of the Merger, on June 2, 2008, the Company completed a
private placement of 7,360,689 shares of its common stock (as adjusted to give
effect to the Merger), resulting in gross proceeds of approximately
$17,832,000. Issuance costs related to the private placement were
approximately $142,000, which were capitalized and charged to stockholders’
equity upon the closing of the private placement. In accordance with
the terms of the Notes, contemporaneously with the completion of the June 2,
2008 private placement, the outstanding principal and accrued interest of
$4,278,518 under the Notes converted into an aggregate of 1,962,338 shares
of common stock. Additionally, 1,100,200 shares of common stock
that were held by the original stockholders of Laurier prior to the Merger are
reflected in the Company’s common stock outstanding in the accompanying
financial statements. In August 2005, the Company issued an aggregate
of 9,968,797 shares of common stock to its founders for $5,000.
(b)
Warrants
In
connection with the in-licensing of the Company’s product candidates AR-12 and
AR-42, the Company issued 299,063 fully vested warrants to employees of Two
River Group Holdings, LLC (see Note 10) and a consultant for their consultation
and due diligence efforts as part of a finder’s fee arrangement. The
warrants have an exercise price of $2.42 and were valued at $480,400 based upon
the Black-Scholes option-pricing model. The assumptions used under
the Black-Scholes option-pricing model included a risk free interest rate of
3.27%, volatility of 80.80% and a five year life.
9. STOCK OPTION
PLAN
The
Company’s 2005 Stock Option Plan (the “Plan”) was originally adopted by the
Board of Directors of Old Arno in August 2005, and was assumed by the Company on
June 3, 2008 in connection with the Merger. After giving effect to
the Merger, there are 2,990,655 shares of the Company’s common stock reserved
for issuance under the Plan. Under the Plan, common stock incentives
may be granted to officers, employees, directors, consultants, and advisors.
Incentives under the Plan may be granted in any one or a combination of the
following forms: incentive stock options and non-statutory stock options; stock
appreciation rights stock awards; restricted stock; and performance
shares.
The Plan
is administered by the Board of Directors, or a committee appointed by the
Board, which determines recipients and types of awards to be granted, including
the number of shares subject to the awards, the exercise price and the vesting
schedule. The term of stock options granted under the Plan cannot exceed 10
years. Options shall not have an exercise price less than the fair market value
of the Company’s common stock on the grant date, and generally vest over a
period of three to four years.
The
Company records compensation expense associated with stock options and other
forms of equity compensation in accordance with SFAS 123(R)
,
as interpreted by Staff
Accounting Bulletin No. 107 (“SAB 107”). Under the fair value recognition
provisions of this statement, stock-based compensation cost is measured at the
grant date based on the value of the award and is recognized as expense over the
required service period, which is
generally
equal to the vesting period. The Company estimated the fair value of each option
award using the Black-Scholes option-pricing model and the following
assumptions:
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
|
|
Year
Ended
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
Term
|
5-10
years
|
|
10
years
|
|
|
|
|
|
Volatility
|
77-123%
|
|
65-68
%
|
|
|
|
|
|
Dividend
yield
|
0.0%
|
|
0.0%
|
|
|
|
|
|
Risk-free
interest rate
|
1.5-3.2%
|
|
4.2-4.9%
|
|
|
|
|
|
Forfeiture
rate
|
0.0%
|
|
0.0%
|
|
|
|
|
As
allowed by SFAS 123(R) for companies with a short period of publicly traded
stock history, management’s estimate of expected volatility is based on the
average expected volatilities of a sampling of five companies with similar
attributes to the Company, including: industry, stage of life cycle, size and
financial leverage. The Company calculates the estimated life of stock options
using the “simplified” method as permitted by SAB 107.
The
Company has no historical basis for determining expected forfeitures and, as
such, compensation expense for stock-based awards does not include an estimate
for forfeitures.
Employee
stock-based compensation costs for the years ended December 31, 2008 and
2007 and for the cumulative period from August 1, 2005 (inception) through
December 31, 2008 is as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Period
from August 1, 2005 (inception) through December 31, 2008
|
|
|
General
and administrative
|
|
$
|
679,948
|
|
|
|
58,600
|
|
|
$
|
719,348
|
|
|
Research
and development
|
|
|
451,270
|
|
|
|
39,400
|
|
|
|
509,870
|
|
|
Total
|
|
$
|
1,131,218
|
|
|
|
98,000
|
|
|
$
|
1,229,218
|
|
At
December 31, 2008, the total outstanding, and the total exercisable, options
under the Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
Total
outstanding options
|
|
|
2,436,511
|
|
|
$
|
1.71
|
|
8.73
years
|
|
$
|
1,806,222
|
|
|
Total
exercisable options
|
|
|
677,288
|
|
|
$
|
1.45
|
|
7.19
years
|
|
$
|
796,467
|
|
During
the nine months ended September 30, 2008, the Company granted to its Chief
Executive Officer stock options to purchase 430,000 shares of common stock at an
exercise price of $3.00. The right to purchase 50% of such shares
vest one year from the date of grant and the right to purchase the remaining 50%
vest two years from the date of grant in accordance with the Chief Executive
Officer’s employment agreement with the Company. A fair value of
$896,500 was assigned to the options based on the Black-Scholes option-pricing
model. The Company also granted to this officer an additional stock
option to purchase 430,000 shares of common stock at an exercise price of
$3.00,
which vest upon the successful achievement of performance goals as determined by
the Company’s Board of Directors. In accordance with the Chief
Executive Officer’s employment agreement, the Company’s Board of Directors
vested 71,667 of the 430,000 shares of common stock, which was assigned a fair
value of $188,100 based on the Black-Scholes option-pricing model.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
During
the nine months ended September 30, 2008, the Company granted to its Chief
Financial Officer a stock option to purchase 440,000 shares of common stock at
an exercise price of $2.75. The right to purchase 25% of such shares
vest one year from the date of grant and the right to purchase the remaining 75%
vest in equal monthly installments over the two years following the executive’s
first anniversary with the Company, as provided in the employment agreement
between the Company and the Chief Financial Officer. A fair value of
$830,500 was assigned to the options based on the Black-Scholes option-pricing
model.
During
the nine months ended September 30, 2008, the Company granted to a scientific
advisor a stock option to purchase 20,000 shares of common stock at an exercise
price of $3.00, which vest equally over two years from the date of
grant. A fair value of $41,800 was assigned to the options based on
the Black-Scholes option-pricing model.
During
the six months ended June 30, 2008, the Company granted to two members of its
Board of Directors stock options to purchase an aggregate of 299,065 shares of
common stock at an exercise price of $2.42. The right to purchase 50%
of such shares vest immediately and the right to purchase the remaining amount
vest over the subsequent two years at a rate of 25% per year. A fair
value of $540,700 was assigned to the options based on the Black-Scholes
option-pricing model.
During
the six months ended June 30, 2008, the Company granted to a scientific advisor
stock options to purchase 49,844 shares of common stock at an exercise price of
$2.42, which vested immediately. A fair value of $78,100 was assigned
to the options based on the Black-Scholes option-pricing model.
During
the six months ended June 30, 2008, the Company granted to an employee stock
options to purchase 79,750 shares of common stock at an exercise price of
$2.42. The right to purchase 25% of such shares vests on the
employee’s first anniversary of employment, with the remaining shares vesting
monthly for the following three years. A fair value of $138,100 was
assigned to the options based on the Black-Scholes option-pricing
model.
During
the six months ended June 30, 2007, the Company granted to its President and
Chief Medical Officer stock options to purchase 199,377 shares of common stock
at an exercise price of $1.00, of which the right to purchase 50% of such shares
vested on June 1, 2008 and the right to purchase the remaining 50% will vest on
June 1, 2009 in accordance with the executive’s employment
agreement. The Company also granted to this officer an additional
stock option to purchase 199,377 shares, which vests upon the achievement of
performance milestones. As of May 31, 2008, the right to purchase 50%
of these shares had vested, and the remaining 50% will vest, subject to the
achievement of the performance milestones, on June 1, 2009, in accordance with
the executive’s employment agreement. A fair value of $252,768 was
assigned to the options based on the Black-Scholes option-pricing
model.
As of
December 31, 2008 and 2007, there was approximately $1,837,582 and $254,900 of
unrecognized compensation costs related to stock options,
respectively. These costs are expected to be recognized over a
weighted average period of approximately two years as of December 31, 2008 and
2007.
As of December 31, 2008, an aggregate
of 554,144 shares remained available for future grants and awards under the
Plan, which covers stock options, warrants and restricted awards. The
Company issues unissued shares to satisfy stock options, warrants exercises and
restricted stock awards.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
Activity
with respect to options granted under the Plan is summarized as
follows:
|
|
|
For
the Year Ended
December 31,
2008
|
|
|
For the Year
Ended
December
31, 2007
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Balance
at January 1, 2008 and 2007, respectively
|
|
|
687,849
|
|
|
$
|
0.81
|
|
|
|
149,530
|
|
|
$
|
0.13
|
|
|
Granted
under the Plan
|
|
|
1,748,662
|
|
|
$
|
2.06
|
|
|
|
538,319
|
|
|
$
|
1.00
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Surrendered/cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008 and 2007, respectively
|
|
|
2,436,511
|
|
|
$
|
1.71
|
|
|
|
687,849
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2008 and 2007, respectively
|
|
|
677,288
|
|
|
$
|
1.45
|
|
|
|
395,846
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. RELATED
PARTIES
On
occasion, some of the Company’s expenses have been paid by Two River Group
Holdings, LLC (“Two River”), a company controlled by certain of the Company’s
directors and founders. No interest is charged by Two River on any outstanding
balance owed by the Company. At December 31, 2008, reimbursable expenses totaled
$5,616, which was primarily related to general and administrative reimbursable
costs and costs attributed to certain employees of Two River. The
Company also granted fully vested warrants to purchase 299,063 shares of its
common stock at an exercise price of $2.42 to the Two River employees who
provided consultation and due diligence efforts related to the in-licensing of
AR-12 and AR-42. The warrants have a five year life and are valued at
$480,400 based upon the Black-Scholes option-pricing model
The
Company utilized the services of Riverbank Capital Securities, Inc.
(“Riverbank”), a FINRA member broker dealer registered with the SEC, for
investment banking and other investment advisory services in connection with the
June 2008 private placement and the Notes. Riverbank is an entity
controlled by several partners of Two River who are also officers and/or
directors of the Company. The Company paid a $100,000 non-accountable
expense allowance to Riverbank for services related to the June 2008 private
placement and is not obligated to Riverbank for any future
payments.
The
financial condition and results of operations of the Company, as reported, are
not necessarily indicative of results that would have been reported had the
Company operated completely independently.
11. PENSION
PLAN
On
October 1, 2007, the Company adopted a 401(k) savings plan (the “401(k) Plan”)
for the benefit of its employees. Under the 401(k) Plan the Company is required
to make contributions equal to 3% of eligible compensation for each eligible
employee whether or not the employee contributes to the 401(k) Plan. For the
year ended December 31, 2008, the Company has recorded $10,923 of matching
contributions to the 401(k) Plan.
12. INCOME
TAXES
The
Company adopted FIN 48 as of January 1, 2007, as required, and determined
that the adoption of FIN 48 did not have a material impact on the Company’s
financial position and results of operations. The Company did not recognize
interest or penalties related to income tax during the periods ended
December 31, 2008 or 2007 and did not accrue for interest or penalties as
of December 31, 2008 or 2007. The Company does not have an accrual for
uncertain
tax positions as of December 31, 2008. Tax returns for all years 2002 and
thereafter are subject to future examination by tax authorities.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
At
December 31, 2008, the Company had no Federal income tax expense or benefit but
did have Federal tax net operating loss carry-forwards of approximately
$14,000,000. The federal net operating loss carry-forwards will begin to expire
in 2026, unless previously utilized.
Deferred
income taxes reflect the net effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s net deferred tax assets at December 31, 2008 and 2007 are shown
below.
A
valuation allowance of $7,335,000 has been established to offset the net
deferred tax assets at December 31, 2008, as realization of such assets is
uncertain.
|
|
|
For Years Ended December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Non-current
deferred tax assets
|
|
|
|
|
|
|
|
Research
tax credit
|
|
$
|
702,000
|
|
|
$
|
157,000
|
|
|
Net
operating loss carry forwards
|
|
|
6,111,000
|
|
|
|
1,496,000
|
|
|
Stock
based compensation
|
|
|
528,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
7,341,000
|
|
|
|
1,695,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax liability
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(6,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net deferred tax assets
|
|
|
7,335,000
|
|
|
|
1,695,000
|
|
|
Valuation
allowance
|
|
|
(7,335,000
|
)
|
|
|
(1,695,000
|
)
|
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company records a valuation allowance for temporary differences for which it is
more likely than not that the Company will not receive future tax benefits. At
December 31, 2008 and 2007 the Company recorded valuation
allowances of $7.3 million and $1.7 million, respectively,
representing a change in the valuation allowance of $5.6 million for the
previous fiscal year-ends, due to the uncertainty regarding the realization of
such deferred tax assets, to offset the benefits of net operating losses
generated during those years.
As of
December 31, 2008, the Company had federal and state net operating loss
carry forwards of approximately $4.8 million and $1.3 million, respectively. The
federal carry forward will begin to expire in 2028. The state carry forward will
begin to expire in 2015.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
A
reconciliation of the statutory tax rates and the effective tax rates for the
years ended December 31, 2008 and 2007 are as follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Statutory
rate
|
|
|
(34
|
%)
|
|
|
(34
|
%)
|
|
State
taxes, net of federal benefit
|
|
|
(6
|
%)
|
|
|
(6
|
%)
|
|
Permanent
adjustments
|
|
|
|
|
|
|
|
|
|
R&D
credit
|
|
|
13
|
%
|
|
|
13
|
%
|
|
Valuation
allowance
|
|
|
27
|
%
|
|
|
27
|
%
|
|
Net
|
|
|
0
|
%
|
|
|
0
|
%
|
There was
no income tax benefit recorded for the years ended December 31, 2008 and
2007.
13. COMMITMENTS AND
CONTINGENCIES
On
October 20, 2008, the Company entered into a lease for new office space of 5,390
square feet, in Parsippany, New Jersey. The lease commencement date
was November 14, 2008, with lease payments beginning on January 1,
2009. The lease expiration date is five years from the rent
commencement date. The total five year lease obligation is
approximately $713,000. The Company is obligated to provide a
security deposit of $44,018, or four months base rent, in the form of a letter
of credit. The letter of credit may be reduced by $11,005 on January
1, 2011 and by an additional $11,005 on January 1, 2013, provided the Company
maintains certain conditions described in the lease agreement. The
Company has an early termination option, which provides the Company may
terminate the lease on the third anniversary, upon providing the landlord nine
months written notice prior to the third anniversary of the lease. If
the Company exercises its termination option, the Company would be obligated to
pay a fee of $53,641 which consists of unamortized costs and expenses incurred
by the landlord in connection with the lease. The Company also has an
option to extend the term of the lease for a period of five additional years,
provided the Company gives notice to the landlord no later than 12 months prior
to the expiration of the original term. In November 2008, the Company
abandoned the office lease for its Fairfield, New Jersey facility that it
entered into on August 10, 2007. As a result, the Company has
recorded a liability of $28,798 on the date of abandonment, in accordance with
SFAS No. 146, “
Accounting for
Costs Associated with Exit or Disposal Activities.”
The
Company’s remaining gross estimated lease obligation for its Fairfield, New
Jersey office space is approximately $102,000 as of December 31,
2008.
The
aggregate remaining minimum future payments under these leases at December 31,
2008 are approximately as follows:
|
Year Ended December 31,
|
|
|
|
|
2009
|
|
$
|
191,000
|
|
|
2010
|
|
|
192,000
|
|
|
2011
|
|
|
143,000
|
|
|
2012
|
|
|
143,000
|
|
|
2013
|
|
|
146,000
|
|
|
Total
|
|
$
|
815,000
|
|
On August
19, 2008, the Company entered into an employment agreement with Roger G. Berlin,
M.D., as its Chief Executive Officer, with an effective commencement date of
employment beginning on September 3, 2008. The agreement provides for
a term of two years expiring on September 2, 2010, and an initial base salary of
$375,000, plus an annual target performance bonus of up to 50% of his base
salary or $187,500. Pursuant to the
employment
agreement, Dr. Berlin received a stock option to purchase 430,000 employment
shares of the Company’s common stock at an exercise price of $3.00 per
share. The right to purchase 215,000 shares of the Company’s common
stock shall vest pro rata on each anniversary of his
employment. Additionally, pursuant to Dr. Berlin’s employment
agreement, Dr. Berlin received a stock option to purchase 430,000 performance
options contingent upon the successful achievement of performance goals
established by the compensation committee of the Board of
Directors. The employment stock option grant had an approximate fair
value of $896,500 at the date of grant based on the Black-Scholes option-pricing
model. The employment agreement also entitles Dr. Berlin to certain
severance benefits. In the event the Company terminates Dr. Berlin’s
employment without cause, then Dr. Berlin would be entitled to receive his then
annualized base salary for a period of one year, in addition to any accrued
obligations, and a pro rata performance bonus based upon achievement for the
year of his termination.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
On June
11, 2008, the Company entered into an employment agreement with Brian Lenz
pursuant to which Mr. Lenz agreed to serve as the Company’s Chief Financial
Officer. The agreement provides for a term of two years expiring on
July 15, 2010, and an initial base salary of $200,000, plus an annual target
performance bonus of up to 30% of his base salary or $60,000. In
addition, Mr. Lenz received a one-time cash bonus in the amount of $25,000 and a
stock option grant to purchase 440,000 shares of the Company’s common stock at
an exercise price equal to $2.75 per share. The right to purchase 25%
of the shares subject to the stock option vests in July 2009 and thereafter the
remaining shares vest in equal monthly installments over a 24 month period,
subject to his continued employment with the Company. The stock
option grant had an approximate fair value of $830,500 at the date of grant
based on the Black-Scholes option-pricing model. The employment
agreement also entitles Mr. Lenz to certain severance benefits. In
the event the Company terminates Mr. Lenz’s employment without cause,
then Mr. Lenz would be entitled to receive his then annualized base salary for a
period of one year, in addition to any accrued obligations, and a pro rata
performance bonus based upon achievement for the year of his
termination.
On June
1, 2007, the Company entered into an employment agreement with Scott Fields,
M.D., as its President and Chief Medical Officer. The agreement
provides for a term of two years expiring on May 31, 2009, and an initial base
salary of $340,000, plus an annual target performance bonus of up to
$150,000. Pursuant to the employment agreement, Dr. Fields received a
stock option to purchase 398,754 shares of the Company’s common stock at an
exercise price of $1.00. The right to purchase 199,377 shares vests
pro rata on the first two anniversaries of his employment, and the right to
purchase the remaining 199,377 shares vest upon the achievement of performance
milestones, of which one-half, or 99,689 shares vested as of May 31,
2008. The stock option grant had an approximate fair value of
$252,800 at the date of grant based on the Black-Scholes option-pricing
model. The employment agreement also entitles Dr. Fields to certain
severance benefits. In the event the Company terminates Dr. Fields’
employment without cause, then Dr. Fields would be entitled to receive his then
annualized base salary for a period of one year, in addition to any accrued
obligations, and a pro rata performance bonus based upon achievement for the
year of his termination. However, in February 2009, Dr. Fields
informed the Company that he would not be continuing his employment with the
Company beyond the expiration of his employment agreement on May 31,
2009.
The
Company has entered into various contracts with third parties in connection with
the development of the licensed technology described in Note 6.
The
aggregate minimum commitment under these contracts as of December 31, 2008 is
approximately $649,000.
In the
normal course of business, the Company enters into contracts that contain a
variety of indemnifications with its employees, licensors, suppliers and service
providers. Further, the Company indemnifies its directors and
officers who are, or were, serving at the Company’s request in such
capacities. The Company’s maximum exposure under these arrangements
is unknown as of December 31, 2008. The Company does not anticipate
recognizing any significant losses relating to these arrangements.
INDEX
TO EXHIBITS FILED WITH THIS REPORT
|
Exhibit No.
|
Description
|
|
10.11
|
Lease
Agreement by and between Arno Therapeutics, Inc. and Maple 4 Campus
L.L.C., dated October 17, 2008 (filed herewith).
|
|
23.1
|
Consent
of Hays & Company LLP
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Securities Exchange Act Rule
13a-15(e)/15d-15(e), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Securities Exchange Act Rule
13a-15(e)/15d-15(e), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
herewith).
|
|
|
|
|
|
|
|
|
|
Arno Therapeutics (CE) (USOTC:ARNI)
Historical Stock Chart
From May 2024 to Jun 2024
Arno Therapeutics (CE) (USOTC:ARNI)
Historical Stock Chart
From Jun 2023 to Jun 2024
