As
filed with the Securities and Exchange Commission on April __,
2009
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Registration
No. 333-152660
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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ARNO THERAPEUTICS,
INC
.
(
Exact name of registrant as specified
in its charter)
Delaware
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2834
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52-2286452
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(State
or other jurisdiction of incorporation
or
organization)
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(Primary
Standard Industrial Classification
Code
Number)
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(I.R.S.
Employer
Identification
No.)
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4
Campus Drive, 2
nd
Floor
Parsippany,
New Jersey 07054
(862)
703-7170
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
BRIAN
LENZ
CHIEF
FINANCIAL OFFICER
ARNO
THERAPEUTICS, INC.
4
CAMPUS DRIVE, 2
ND
FLOOR
PARSIPPANY,
NJ 07054
(862)
703-7170
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
CHRISTOPHER J. MELSHA, ESQ.
SEAN M. NAGLE, ESQ.
FREDRIKSON & BYRON, P.A.
200 SOUTH SIXTH STREET, SUITE 4000
MINNEAPOLIS, MN 55402-1425
TELEPHONE: (612) 492-7000
FACSIMILE: (612) 492-7077
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Approximate date of commencement of
proposed sale to the public:
From time to time after the
effective date of this registration statement, as shall be determined by the
selling stockholders identified herein.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, check the following box.
þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering.
¨
If this
Form is a post effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
If this
Form is a post effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
þ
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THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
Subject
to completion, dated April __, 2009
OFFERING
PROSPECTUS
10,562,921
Shares
Common
Stock
The selling stockholders identified on
pages 17-23 of this prospectus are offering on a resale basis a total of
10,562,921
shares of our
common stock, including 196,189 shares issuable upon the exercise of outstanding
warrants. We will not receive any proceeds from the sale of these
shares by the selling stockholders.
Our common stock is quoted on the OTC
Bulletin Board under the symbol “ARNI.OB.” On _____________, 2009,
the last sale price of our common stock as reported on the OTC Bulletin Board
was $______.
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 5.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined that this prospectus
is truthful or complete. A representation to the contrary is a
criminal offense.
The
date of this prospectus is ______________, 2009.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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4
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RISK
FACTORS
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6
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NOTE
REGARDING FORWARD-LOOKING STATEMENTS
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16
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USE
OF PROCEEDS
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17
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SELLING
STOCKHOLDERS
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17
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PLAN
OF DISTRIBUTION
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24
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DESCRIPTION
OF CAPITAL STOCK
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26
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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27
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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28
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DESCRIPTION
OF BUSINESS
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35
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MANAGEMENT
AND BOARD OF DIRECTORS
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46
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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58
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
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60
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WHERE
YOU CAN FIND MORE INFORMATION
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60
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VALIDITY
OF COMMON STOCK
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60
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EXPERTS
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60
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TRANSFER
AGENT
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60
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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60
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FINANCIAL
STATEMENTS
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F-1
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PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this
prospectus. Because it is a summary, it may not contain all of the
information that is important to you. Accordingly, you are urged to
carefully review this prospectus in its entirety, including the risks of
investing in our securities discussed under the caption “Risk Factors” and the
financial statements and other information that is contained in or incorporated
by reference into this prospectus or the registration statement of
which this prospectus is a part before making an investment
decision. Unless the context otherwise requires, hereafter in this
prospectus the terms the “Company,” the “Registrant,” “we,” “us,” or “our” refer
to Arno Therapeutics, Inc., a Delaware corporation, and its consolidated
subsidiaries, together taken as a whole.
Company
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
exclusive worldwide rights to commercially develop our three oncology product
candidates:
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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.
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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.
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AR-42
– Our third product candidate in development is 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.
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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.
Our executive offices are located at 4
Campus Drive, 2
nd
Floor,
Parsippany, New Jersey 07054. Our telephone number is (862)
703-7170. Our website is
www.arnothera.com
. Information
contained in, or accessible through, our website does not constitute a part of
this prospectus.
Risk
Factors
As with most pharmaceutical product
candidates, the development of our product candidates is subject to
numerous risks, including the risk of delays in or discontinuation of
development from lack of financing, inability to obtain necessary regulatory
approvals to market the products, unforeseen safety issues relating to the
products and dependence on third party collaborators to conduct research and
development of the products. Because we are a development stage
company with a very limited history of operations, we are also subject to many
risks associated with early-stage companies. For a more detailed
discussion of some of the risks you should consider before purchasing shares of
our common stock, you are urged to carefully review and consider the section
entitled “Risk Factors” beginning on page 6 of this
prospectus.
The
Offering
The selling stockholders identified on
pages 17-23 of this prospectus are offering on a resale basis a total of
10,562,921 shares of our common stock, including 196,189 shares issuable upon
the exercise of outstanding warrants.
Common
stock offered
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10,562,921
shares
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Common
stock outstanding before the offering
(1)
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20,392,024
shares
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Common
stock outstanding after the offering
(2)
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20,588,213
shares
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Use
of Proceeds
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We
will receive none of the proceeds from the sale of the shares by the
selling stockholders, except for the warrant exercise price upon exercise
of the warrants, which would be used for working capital and other general
corporate purposes
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OTC
Bulletin Board Symbol
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ARNI.OB
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(1)
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Based
on the number of shares outstanding as of March 31, 2009, not including
2,931,763 shares issuable upon exercise of various warrants and options to
purchase our common stock.
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(2)
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Assumes
the issuance of all shares offered hereby that are issuable upon exercise
of warrants.
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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 prospectus, before making an investment
decision regarding our common stock. If any of these risks actually occur, our
business, financial condition, results of operations 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:
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continue
to undertake pre-clinical development and clinical trials for our product
candidates;
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seek
regulatory approvals for our product
candidates;
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in-license
or otherwise acquire additional products or product
candidates;
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implement
additional internal systems and infrastructure;
and
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hire
additional personnel.
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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:
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continuing
to undertake pre-clinical development and clinical trials for our product
candidates;
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participating
in regulatory approval processes;
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formulating
and manufacturing products; and
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conducting
sales and marketing activities.
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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:
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delay
commercialization of, and our ability to derive product revenues from, our
product candidates;
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impose
costly procedures on us; or
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diminish
any competitive advantages that we may otherwise
enjoy.
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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:
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delays
in patient enrollment, and variability in the number and types of patients
available for clinical trials;
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difficulty
in maintaining contact with patients after treatment, resulting in
incomplete data;
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poor
effectiveness of product candidates during clinical
trials;
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safety
issues, side effects, or other adverse
events;
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results
that do not demonstrate the safety or effectiveness of the product
candidates;
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governmental
or regulatory delays and changes in regulatory requirements, policy and
guidelines; and
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varying
interpretation of data by the FDA.
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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:
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perceptions
by members of the health care community, including physicians, about the
safety and effectiveness of our
drugs;
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cost-effectiveness
of our products relative to competing
products;
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availability
of reimbursement for our products from government or other healthcare
payers; and
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effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
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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:
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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.
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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.
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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.
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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.
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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.
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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 products 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:
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undertaking
pre-clinical testing and human clinical
trials;
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obtaining
FDA and other regulatory approvals of
drugs;
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formulating
and manufacturing drugs; and
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launching,
marketing and selling drugs.
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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:
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government
and health administration
authorities;
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private
health maintenance organizations and health insurers;
and
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other
healthcare payers.
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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 Relating 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:
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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;
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if
and when patents will issue;
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whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications;
or
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whether
we will need to initiate litigation or administrative proceedings which
may be costly whether we win or
lose.
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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:
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obtain
licenses, which may not be available on commercially reasonable terms, if
at all;
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redesign
our products or processes to avoid
infringement;
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stop
using the subject matter claimed in the patents held by
others;
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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.
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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 Relating 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 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 a “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 Relating to Our
Business
” and “
Risks
Relating 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.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus 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:
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the
risk that recurring losses, negative cash flows and the inability to raise
additional capital could threaten our ability to continue as a going
concern;
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the
risk that we may not successfully develop and market our product
candidates, and even if we do, we may not become
profitable;
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risks
relating to the progress of our research and
development;
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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;
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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;
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the
risk that changes in the national or international political and
regulatory environment may make it more difficult to gain FDA or other
regulatory approval of our drug product
candidates;
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risks
that the FDA or other regulatory authorities may not accept any
applications we file;
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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;
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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;
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risks
relating to our drug manufacturing operations, including those of our
third-party suppliers and contract
manufacturers;
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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;
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risks
relating to the transfer of our manufacturing technology to third-party
contract manufacturers; and
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other
risks and uncertainties detailed in “
Risk
Factors
.”
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Pharmaceutical
and biotechnology companies have suffered significant setbacks in advanced
clinical trials, even after obtaining promising earlier trial
results. Data obtained from such clinical trials are susceptible to
varying interpretations, which could delay, limit or prevent regulatory
approval. Except to the extent required by applicable laws or rules,
we do not undertake to update any forward-looking statements or to publicly
announce revisions to any of our forward-looking statements, whether resulting
from new information, future events or otherwise.
USE
OF PROCEEDS
We will
receive none of the proceeds from the sale of the shares by the selling
stockholders, except for the warrant exercise price upon exercise of the
warrants, which would be used for working capital and other general corporate
purposes.
SELLING
STOCKHOLDERS
This
prospectus covers the resale by the selling stockholders identified below of
10,562,921 shares of common stock, including 196,189 shares issuable upon the
exercise of outstanding warrants. Of the total number of shares offered hereby,
7,360,689 shares were issued to the investors in our June 2008 private
placement, and 2,158,527 shares (including the shares issuable upon the
exercise of outstanding warrants) were issued to the former holders of our 6%
convertible promissory notes, which converted into shares of our common stock
and warrants upon the completion of our June 2008 private placement. The
following table sets forth the number of shares of our common stock beneficially
owned by the selling stockholders as of March 31, 2009 and after giving effect
to this offering, except as otherwise referenced below.
Selling
Stockholder
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Shares
beneficially
owned before
offering (1)
|
|
|
|
Number of
outstanding
shares offered
by selling
stockholder
|
|
|
|
Number of
shares offered
by selling
stockholder
upon exercise
of warrants
|
|
|
|
Percentage
beneficial
ownership
after
offering(1)
|
|
Securities issued
in June 2008 private placement
|
2739-1291
Quebec Inc. (2a)
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
3071341
Canada Inc. (2b)
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
4210573
Canada Inc. (2c)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
87111
Canada Limited (2c)
|
|
|
61,916
|
|
|
|
61,916
|
|
|
|
-
|
|
|
|
-
|
|
A.
Lapidot Pharmaceuticals Ltd. (3)
|
|
|
95,690
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Allen
Rubin
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Andre
Telio Investments Inc. (4)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Barry
Goodman
|
|
|
21,855
|
|
|
|
8,254
|
|
|
|
-
|
|
|
|
-
|
|
Bayside
Development Corporation Limited (5)
|
|
|
206,393
|
|
|
|
206,393
|
|
|
|
-
|
|
|
|
-
|
|
Bonnie
Kazam (6)
|
|
|
91,118
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
*
|
|
Brilar
Investments Limited (7)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Burton
Koffman
|
|
|
23,919
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Canyon
Value Realization Fund (Cayman) Ltd. (8)
|
|
|
1,011,330
|
|
|
|
687,651
|
|
|
|
-
|
|
|
|
-
|
|
Canyon
Value Realization Fund, L.P. (8)
|
|
|
1,011,330
|
|
|
|
263,069
|
|
|
|
-
|
|
|
|
-
|
|
Canyon
Value Realization Mac-18 Ltd. (8)
|
|
|
1,011,330
|
|
|
|
60,610
|
|
|
|
-
|
|
|
|
-
|
|
Caroline
Sacchetti
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Clairmark
Investments Ltd. (9)
|
|
|
39,875
|
|
|
|
39,875
|
|
|
|
-
|
|
|
|
-
|
|
Clal
Insurance Company Ltd. - Profit Participating Policies
(10)
|
|
|
1,454,727
|
|
|
|
825,578
|
|
|
|
-
|
|
|
|
-
|
|
Cohen
Family Enterprises LLC (11)
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Danny
Ritter
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
David
Bengal
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
David
M. Tanen (12)
|
|
|
1,458,102
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
6.97
|
|
David
Wilstein and Susan Wilstein, Trustees of The Century Trust
|
|
|
137,210
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
*
|
|
Dikla
Insurance Company Ltd. – Nostro (13)
|
|
|
4,127
|
|
|
|
4,127
|
|
|
|
-
|
|
|
|
-
|
|
Dikla
Insurance Company Ltd. – Siudi (13)
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Diversiplex
Corporation (14)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Egosah
Reichmann
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Erez
and Elyse Halevah
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Eric
Raphael
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Fred
Mermelstein
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Gems
Progressive Fund II Perennial Segregated Portfolio (15)
|
|
|
412,788
|
|
|
|
412,788
|
|
|
|
-
|
|
|
|
-
|
|
Gerald
Lieberman
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Gilad
Pension Fund Mekifa - Gilad Rivchit (16)
|
|
|
398,325
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
GMM
Capital, LLC (17)
|
|
|
235,601
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
*
|
|
Selling Stockholder
|
|
|
Shares
beneficially
owned before
offering (1)
|
|
|
|
Number of
outstanding
shares offered
by selling
stockholder
|
|
|
|
Number of
shares offered
by selling
stockholder
upon exercise
of warrants
|
|
|
|
Percentage
beneficial
ownership
after
offering(1)
|
|
Governing Dynamics Investment,
LLC (18)
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Insurance Company Ltd. – Clali (19)
|
|
|
398,325
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Insurance Company Ltd. – Mishtatefet (19)
|
|
|
398,325
|
|
|
|
115,580
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Insurance Company Ltd. – Nostro (19)
|
|
|
398,325
|
|
|
|
45,406
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Pension Fund Management Company Ltd.-Harel Pensia (19)
|
|
|
398,325
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Provident Funds Ltd. – Taoz (19)
|
|
|
398,325
|
|
|
|
28,893
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Provident Funds, Ltd.- Hishtalmut (19)
|
|
|
398,325
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Provident Funds, Ltd.-Gmisha (19)
|
|
|
398,325
|
|
|
|
8,254
|
|
|
|
-
|
|
|
|
-
|
|
Harel
Provident Funds, Ltd.-Otzma (19)
|
|
|
398,325
|
|
|
|
107,324
|
|
|
|
-
|
|
|
|
-
|
|
High
Glen Properties Limited (20)
|
|
|
61,916
|
|
|
|
61,916
|
|
|
|
-
|
|
|
|
-
|
|
Irvin
R. Kessler
|
|
|
151,037
|
|
|
|
123,833
|
|
|
|
-
|
|
|
|
-
|
|
Joan
K. Cohn
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Joseph
J. Sitt
|
|
|
68,481
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Joshua
Kazam Trust (21)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Leonard
Grunstein
|
|
|
34,238
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Leumi
Overseas Trust Corporation Limited as Trustees of the BTL Trust
(22)
|
|
|
61,916
|
|
|
|
61,916
|
|
|
|
-
|
|
|
|
-
|
|
Meitavit
Atudot Pension Funds Management Company Ltd. (Sapir) (10)
|
|
|
1,454,727
|
|
|
|
412,788
|
|
|
|
-
|
|
|
|
-
|
|
Meitavit
Atudot Pension Funds Management Company Ltd. (Yahalom)
(10)
|
|
|
1,454,727
|
|
|
|
206,393
|
|
|
|
-
|
|
|
|
-
|
|
Michael
Chisek
|
|
|
34,238
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Michael
T. Cohen
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Millennium
Partners, L.P. (23)
|
|
|
412,788
|
|
|
|
412,788
|
|
|
|
-
|
|
|
|
-
|
|
Nancy
Spielberg Venture Trust (24)
|
|
|
10,317
|
|
|
|
10,317
|
|
|
|
-
|
|
|
|
-
|
|
Peter
D. Kiernan
|
|
|
82,556
|
|
|
|
82,556
|
|
|
|
-
|
|
|
|
-
|
|
Peter
M. Kash (25)
|
|
|
1,688,977
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
7.97
|
|
Peter
Strumph
|
|
|
12,383
|
|
|
|
12,383
|
|
|
|
-
|
|
|
|
-
|
|
Platinum-Montaur
Life Sciences, LLC (26)
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Primafides
(Suisse) SA as Trustees of the Sirius Trust (27)
|
|
|
541,806
|
|
|
|
206,393
|
|
|
|
-
|
|
|
|
*
|
|
Raymond
Telio Investments Inc. (28)
|
|
|
41,277
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
-
|
|
Renato
Negrin
|
|
|
99,090
|
|
|
|
61,916
|
|
|
|
-
|
|
|
|
*
|
|
Rennat
Inc. (29)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Robert
I. Falk (30)
|
|
|
195,378
|
|
|
|
41,277
|
|
|
|
-
|
|
|
|
*
|
|
Ronnie
Fortis
|
|
|
39,875
|
|
|
|
39,875
|
|
|
|
-
|
|
|
|
-
|
|
Sabrinco
Inc. (31)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Sarbin
Investments Limited (32)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Shirley
Ann Lewis Enterprises, Inc. (33)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Standu
Investments Limited (34)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Venture
Enterprises, Inc. (35)
|
|
|
15,950
|
|
|
|
15,950
|
|
|
|
-
|
|
|
|
-
|
|
David
Lifschitz
|
|
|
10,367
|
|
|
|
10,367
|
|
|
|
-
|
|
|
|
-
|
|
Wealthplan
Corporation (36)
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
Wexford
Spectrum Investors, LLC (37)
|
|
|
2,005,789
|
|
|
|
1,733,712
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
|
|
|
|
|
7,360,689
|
|
|
|
|
|
|
|
|
|
Shares issued upon
conversion of the 6% convertible promissory notes on June 2,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
Lapidot Pharmaceuticals, Ltd. (3)
|
|
|
95,690
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Mark
Ahn
|
|
|
24,287
|
|
|
|
3,955
|
|
|
|
394
|
|
|
|
*
|
|
Alyad
Foundation (38)
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Atlas
Master Fund, Ltd. (39)
|
|
|
12,594
|
|
|
|
11,450
|
|
|
|
1,144
|
|
|
|
-
|
|
Selling Stockholder
|
|
Shares
beneficially
owned before
offering (1)
|
|
|
Number of
outstanding
shares offered
by selling
stockholder
|
|
|
Number of
shares offered
by selling
stockholder
upon exercise
of warrants
|
|
|
Percentage
beneficial
ownership
after
offering(1)
|
|
Beck Family
Partners, LP (40)
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Bristol
Investment Fund, Ltd. (41)
|
|
|
292,014
|
|
|
|
247,345
|
|
|
|
24,732
|
|
|
|
*
|
|
Michael
Chisek
|
|
|
34,328
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
David
and Susan Wilstein, TTEES of the Century Trust
|
|
|
137,210
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
*
|
|
Diversified
Fund, Ltd. (42)
|
|
|
33,539
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
*
|
|
Falk
Family Partners, LLC (30)
|
|
|
195,378
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
*
|
|
Arnold
and Lynn Feld
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Gitel
Family LP (31)
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
GMM
Capital (17)
|
|
|
235,601
|
|
|
|
31,659
|
|
|
|
3,164
|
|
|
|
*
|
|
Barry
Goodman
|
|
|
21,855
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Leonard
Grunstein
|
|
|
34,238
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Inversiones
Miraconcha, SL (43)
|
|
|
104,257
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
*
|
|
Robert
Israel
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Kappa
Investors, LLC (37)
|
|
|
2,005,789
|
|
|
|
247,345
|
|
|
|
24,732
|
|
|
|
-
|
|
Peter
M. Kash (25)
|
|
|
1,688,977
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
7.97
|
|
Shimon
Katz
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Kauffman
Family Trust (44)
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Joshua
Kazam (45)
|
|
|
1,566,686
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
7.35
|
|
Irvin
Kessler
|
|
|
151,037
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
Robert
Klein
|
|
|
17,190
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
*
|
|
Burton
Koffman
|
|
|
23,919
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Harvey
Krueger
|
|
|
27,204
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
Larich
Associates (46)
|
|
|
27,204
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
Leiden
Overseas (S. Pilpel) (47)
|
|
|
27,204
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
Bruce
Lipnick
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Alan
Mendelson
|
|
|
38,523
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
*
|
|
Naftali
Investments, Ltd. (48)
|
|
|
37,173
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
*
|
|
Renato
Negrin
|
|
|
99,090
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
*
|
|
Rachel
Family Partnership (49)
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Primafides
(Suisse) SA as Trustees of the Sirius Trust (27)
|
|
|
541,806
|
|
|
|
123,671
|
|
|
|
12,365
|
|
|
|
*
|
|
Albert
Reichmann
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Rel
Tech Holdings, Ltd. (50)
|
|
|
54,413
|
|
|
|
49,467
|
|
|
|
4,946
|
|
|
|
-
|
|
Henry
Rothman
|
|
|
27,204
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
Seymour
& Star Sacks, JTWROS
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Joseph
Sitt
|
|
|
68,481
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
Smithfield
Fiduciary, LLC (51)
|
|
|
119,712
|
|
|
|
108,831
|
|
|
|
10,881
|
|
|
|
-
|
|
Speisman
Family 2000 LP (52)
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Gary
Stein
|
|
|
13,601
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
-
|
|
Stephen
and Barbara Vermut Trust dtd March 19, 2002
|
|
|
27,204
|
|
|
|
24,732
|
|
|
|
2,472
|
|
|
|
-
|
|
David
M. Tanen (12)
|
|
|
1,444,759
|
|
|
|
12,365
|
|
|
|
1,236
|
|
|
|
6.97
|
|
Visium
Balanced Master Fund, Ltd. (53)
|
|
|
205,057
|
|
|
|
186,418
|
|
|
|
18,639
|
|
|
|
-
|
|
Subtotal
|
|
|
|
|
|
|
1,962,338
|
|
|
|
196,189
|
|
|
|
|
|
Selling
Stockholder
|
|
Shares
beneficially
owned before
offering (1)
|
|
|
Number of
outstanding
shares offered
by selling
stockholder
|
|
|
Number of
shares offered
by selling
stockholder
upon exercise
of warrants
|
|
|
Percentage
beneficial
ownership
after
offering
(1)
|
|
Other
Miscellaneous Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Fountainhead
Capital Management Limited (54)
|
|
|
276,811
|
|
|
|
276,811
|
|
|
|
-
|
|
|
|
-
|
|
Fountainhead
Capital Partners Limited (54)
|
|
|
318,569
|
|
|
|
318,569
|
|
|
|
-
|
|
|
|
-
|
|
La
Pergola Investments Limited (54)
|
|
|
60,646
|
|
|
|
60,646
|
|
|
|
-
|
|
|
|
-
|
|
Ko
Zen Asset Management, Inc. (55)
|
|
|
387,679
|
|
|
|
387,679
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
|
|
|
|
|
1,043,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
10,366,732
|
|
|
|
196,189
|
|
|
|
|
|
____________
*
denotes less than
1%
(1)
|
Based
on 20,588,213 shares of outstanding common stock, which assumes the
issuance of all shares offered hereby that are issuable upon exercise of
warrants. Beneficial ownership is determined in accordance with Rule 13d-3
under the Securities Act, and includes any shares as to which the security
or stockholder has sole or shared voting power or investment power, and
also any shares which the security or stockholder has the right to acquire
within 60 days of the date hereof, whether through the exercise or
conversion of any stock option, convertible security, warrant or other
right. The indication herein that shares are beneficially owned is not an
admission on the part of the security or stockholder that he, she or it is
a direct or indirect beneficial owner of those shares.
|
(2a)
|
Ira
Roth is the president of the selling stockholder.
|
(2b)
|
Ruth
Hornstein is the president and sole owner of the selling
stockholder.
|
(2c)
|
Hershie
Schacter, president of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(3)
|
Mr.
Ami Lapidot, chief executive officer of the selling stockholder, holds
voting and/or dispositive power over the shares held by the selling
stockholder.
|
(4)
|
Andre
Telio, president of the selling stockholder, holds voting and/or
dispositive power over the shares held by the
stockholder.
|
(5)
|
David
Litton is a director of the selling stockholder.
|
(6)
|
Shares
beneficially owned by Bonnie Kazam include 20,637 shares of our common
stock held as trustee of the Joshua Kazam Trust, with respect to which
Mrs. Kazam holds voting and/or investment power. Joshua Kazam, a director
of our company, is a beneficiary of such trust, but disclaims any
beneficial ownership in such shares except to the extent of any pecuniary
interest therein.
|
(7)
|
Brian
Smith and Lawrence Smith hold voting and/or dispositive power over the
shares held by the selling stockholder.
|
(8)
|
John
Simpson, Joshua S. Friedman, Mitchell R. Julius and John P. Plaga have
voting and/or dispositive power over the shares held by the selling
stockholder. The selling stockholder has informed us that it is affiliated
with a broker-dealer, and has represented to us that it purchased the
shares in the ordinary course of business with no agreement or
understanding, directly or indirectly, with any persons regarding the
distribution of the shares.
|
(9)
|
Leslie
Dan is the president of the selling stockholder.
|
(10)
|
Beneficial
ownership includes: (i) 825,578 shares of our common stock held by Clal
Insurance Company Ltd. - Profits Participating Policies; (ii) 412,788
shares of our common stock held by Meitavit Atudot Pension Funds
Management Company Ltd. (Sapir)("Sapir"); (iii) 206,393 shares of our
common stock held by Meitavit Atudot Pension Funds Management Company Ltd.
(Yahalom)("Yahalom"); and (iv) 9,968 shares of our common stock held by
Clal Finance Underwriting Ltd. Yossi Dori holds voting and/or dispositive
power over the shares held by Sapir and Yahalom. Nir Moroz holds voting
and/or dispositive power over the shares held by Clal Insurance Company
Ltd. - Profits Participating Policies.
|
(11)
|
Michael
Cohen is the manager of the selling stockholder.
|
(12)
|
Mr.
Tanen is a director of our company. Shares listed as beneficially owned by
Mr. Tanen include 149,532 shares of our common stock held by Mr. Tanen’s
wife, as custodian for the benefit of their minor children under the UGMA,
for which Mr. Tanen disclaims any beneficial ownership.
|
(13)
|
Amir
Hessel and Alfred Rozenfeld hold voting and/or dispositive power over the
shares held by the selling stockholder.
|
(14)
|
Stanley
Plotnick, president of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(15)
|
Cedric
Carroll holds voting and/or dispositive power over the shares held by the
selling stockholder.
|
(16)
|
Amir
Hessel and Yaniv Melamud hold voting and/or dispositive power over the
shares held by the selling stockholder.
|
(17)
|
Isaac
Dabah has voting and/or investment control over the shares held by GMM
Capital LLC.
|
(18)
|
Alex
Mashinsky has voting and/or investment control over the shares held by
Governing Dynamics Investment, LLC.
|
(19)
|
Amir
Hessel and Yaniv Melamud hold voting and/or dispositive power over the
shares held by the selling stockholder.
|
(20)
|
David
Ulmer, vice president of High Glen Properties, holds voting and/or
dispositive power over the shares beneficially owned by the selling
stockholder.
|
(21)
|
Bonnie
Kazam serves as the Trustee of the Joshus Kazam Trust. Mr. Kazam is a
director of Arno, but disclaims beneficial ownership over such shares
except to the extent of his pecuniary interest therein.
|
(22)
|
Mr.
John Le M. Germain, director of the Leumi Overseas Trust Corporation,
holds voting and/or dispositive power over the shares beneficially owned
by the selling stockholder.
|
(23)
|
Millennium
Management LLC, a Delaware limited liability company, is the general
partner of Millennium Partners, L.P., a Cayman Islands exempted limited
partnership, and consequently may be deemed to have voting control and
investment discretion over securities owned by Millennium Partners, L.P.
Israel A. Englander is the managing member of Millennium Management LLC.
As a result, Mr. Englander may be deemed to be the beneficial owner of any
shares deemed to by beneficially owned by Millennium Management LLC. The
foregoing should not be construed in and of itself as an admission by
either of Millennium Management LLC or Mr. Englander as to beneficial
ownership of the shares of our common stock owned by Millennium Partners,
L.P. Millennium Partners, L.P. has identified itself as being affiliated
with one or more registered broker-dealers, and has represented to us that
it has purchased the shares in the ordinary course of business and, at the
time of purchase, with no arrangement or understanding, directly or
indirectly, with any persons regarding the distribution of such
shares.
|
(24)
|
Auram
Y. Katz, trustee of the selling stockholder, holds voting and/or
dispositive control over the shares held by the selling
stockholder.
|
(25)
|
Beneficial
ownership includes 358,876 shares of our common stock held by Mr. Kash’s
wife as custodian for the benefit of their minor children under the UGMA,
for which Mr. Kash disclaims any beneficial ownership. Does not include
119,626 shares of our common stock held by the Kash Family Trust, for
which Mr. Kash disclaims any beneficial ownership interest, except to the
extent of his pecuniary interest therein. Mr. Kash is a director of
Arno.
|
(26)
|
Michael
M. Goldberg has voting and/or investment power over the shares
beneficially owned by Platinum-Montaur Life Sciences, LLC
.
|
(27)
|
Ari
Tatos, Nigel Mifsud, Magali Garcia-Baudin, David Moran, Phillippe De Salis
and Ewald Scherrer are directors of Primafides (Suisse) SA , the trustee
of the Sirius Trust, and share voting and/or dispositive power over the
shares held by the Sirius Trust.
|
(28)
|
Raymond
Telio, president of Raymond Telio Investments Inc., holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(29)
|
Marvin
Tanner, president of the selling stockholder, holds voting and/or
dispositive control over the shares held by the selling
stockholder.
|
(30)
|
Beneficial
ownership includes: (i) 49,844 shares of our common stock and warrants to
purchase 4,946 shares of our common stock at an exercise price of $2.42
per share held by Falk Family Partners, LP, of which Mr. Falk is General
Partner; and (ii) vested options held by Mr. Falk to purchase 49,844
shares of our common stock at an exercise price of $2.42 per share; but
does not include options to purchase 49,844 shares of our common stock at
an exercise price of $2.42 per share, the rights to which vest in two
equal installments on March 31, 2009, and March 31, 2010. Mr. Falk is a
director of Arno.
|
(31)
|
Samuel
Gewurz is the president and sole owner of the selling
stockholder.
|
(32)
|
Sarah
Rubin holds voting and/or dispositive power over the shares held by Sarbin
Investments Limited.
|
(33)
|
Shirley
Ann Lewis is the president and sole owner of the selling
stockholder.
|
(34)
|
Stephen
Reitman is the president and sole owner of the selling
stockholder.
|
(35)
|
Bruce
Weiner holds voting and/or dispositive power over the shares held by
Venture Enterprises, Inc.
|
(36)
|
F.
Lawrence Plotnick, president of Wealthplan Corporation, holds voting
and/or dispositive power over the shares held by the selling
stockholder.
|
(37)
|
Beneficial
ownership includes: (i) 247,345 shares of our common stock held by Kappa
Investors, LLC (“Kappa”); (ii) a five year warrant held by Kappa to
purchase 24,372 shares of our common stock that are exercisable at $2.42
per share; and (iii) 1,733,712 shares of our common stock held by Wexford
Spectrum Investors LLC, a Delaware limited liability company ("Wexford
Spectrum"). Wexford Capital LLC, a Connecticut limited liability company
("Wexford Capital") is a registered Investment Advisor and also serves as
an investment advisor or sub-advisor to the members of Kappa and Wexford
Spectrum. Mr. Charles E. Davidson is chairman, a managing member and a
controlling member of Wexford Capital and Mr. Joseph M. Jacobs is
president, a managing member and a controlling member of Wexford Capital.
Messrs. Davidson and Jacobs each disclaim all beneficial ownership of the
shares held by Kappa, Wexford Spectrum and Wexofrd Capital, except to the
extent of any pecuniary interest therein.
|
(38)
|
Dov
Perlysky holds voting and/or dispositive control over the shares held by
the selling stockholder.
|
(39)
|
Scott
Schroeder holds voting and/or dispositive power over the shares held by
Atlas Master Fund, Ltd.
|
(40)
|
Ronald
Beck, general partner of Beck Family Partners, L.P., holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(41)
|
Bristol
Capital Advisors, LLC (“BCA”) is the investment advisor to Bristol
Investment Fund, Ltd. (“Brisol”). Paul Kessler is the manager of BCA and
as such has voting and investment control over the securities held by
Bristol. Mr. Kessler disclaims beneficial ownership of these
securities.
|
(42)
|
Carlo
Pagani, president of Diversified Fund, holds voting and/or dispositive
power over the shares held by the selling stockholder.
|
(43)
|
Jose
Luis Diaz-Rio, director of Inversiones Mirachonda, SL, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(44)
|
Joseph
Martello, trustee, holds voting and/or dispositive power over the shares
held by the selling stockholder.
|
(45)
|
Total
shares beneficially owned by Mr. Kazam include: (i) 332,293 shares of our
common stock held by the Kazam Family Trust; and (ii) 99,688 shares of our
common stock held by Mr. Kazam’s wife as custodian for the benefit of
their minor daughter under the Uniform Gift to Minors Act (UGMA), for
which Mr. Kazam disclaims any beneficial ownership interest. Does not
include 20,637 shares of our common stock held by the Joshua Kazam Trust,
for which Mr. Kazam disclaims any beneficial ownership interest, except to
the extent of his pecuniary interest therein. Mr. Kazam is a director of
our company.
|
(46)
|
Lawrence
R. Gross holds voting and/or dispositive power over the shares held by the
selling stockholder.
|
(47)
|
Shai
Pilpel, chairman of Leiden Overseas, holds voting and/or dispositive power
over the shares held by the selling stockholder.
|
(48)
|
Meir
Hadar, president and CEO of Naftali Investments, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(49)
|
Ruki
Renon holds voting and/or dispositive control over the shares held by the
selling stockholder.
|
(50)
|
Leon
Recanti, chairman and chief executive officer of Rel Tech Holdings, Ltd.,
holds voting and/or dispositive power over the shares held by the selling
stockholder.
|
(51)
|
Highbridge
Capital Management, LLC is the trading manager of Smithfield Fiduciary LLC
and has voting control and investment discretion over the securities held
by Smithfield Fiduciary LLC. Glenn Dubin and Henry Swieca control
Highbridge Capital Management, LLC and have voting control and investment
discretion over the securities held by Smithfield Fiduciary LLC. Each of
Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca disclaims
beneficial ownership of the securities held by Smithfield Fiduciary
LLC.
|
(52)
|
Aaron
Speisman, general partner of Speisman Family 2000, LP, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(53)
|
Jacob
Gottlieb has voting and investment power over the shares held by the
selling stockholder.
|
(54)
|
Gisele
Le Miere and Carole Dodge share voting and/or dispositive power over the
shares held by the selling stockholder.
|
(55)
|
Mr.
Daniel Marty, director of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
PLAN
OF DISTRIBUTION
We are
registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein includes
donees, pledgees, transferees or other successors-in-interest selling shares of
common stock or interests in shares of common stock received after the date of
this prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices. To the
extent any of the selling stockholders gift, pledge or otherwise transfer the
shares offered hereby, such transferees may offer and sell the shares from time
to time under this prospectus, provided that this prospectus has been amended
under Rule 424(b)(3) or other applicable provision of the Securities Act to
include the name of such transferee in the list of selling stockholders under
this prospectus.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
The
selling stockholders have agreed with us that they will not engage in short
sales for a period of 24 months following the date of the closing of our June 2,
2008 private placement. In connection with the sale of our common
stock or interests therein, the selling stockholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the common stock in the course of hedging the
positions they assume. Following the expiration of such 24-month
period, the selling stockholders may also sell shares of our common stock short
and deliver these securities to close out their short positions, or loan or
pledge the common stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this
offering. Upon any exercise of the warrants by payment of cash,
however, we will receive the exercise price of the
warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders might be, and any broker-dealers that act in connection
with the sale of securities will be, deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the securities sold by them
while acting as principals will be deemed to be underwriting discounts or
commissions under the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling stockholders for the purpose
of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
We have
agreed with the selling stockholders to keep the registration statement that
includes this prospectus effective until the earlier of (1) such time as all of
the shares covered by this prospectus have been disposed of pursuant to and in
accordance with the registration statement or (2) the date on which the shares
may be sold without restriction pursuant to Rule 144 of the Securities
Act.
Shares
Eligible For Future Sale
Upon
completion of this offering and assuming the issuance of all of the shares
covered by this prospectus that are issuable upon the exercise of warrants,
there will be 20,588,213 shares of our common stock issued and
outstanding. The shares purchased in this offering will be freely
tradable without registration or other restriction under the Securities Act,
except for any shares purchased by an “affiliate” of our company (as defined in
the Securities Act).
The selling stockholders also may
resell all or a portion of the shares in open market transactions in reliance
upon Rule 144 under the Securities Act, provided they meet the criteria and
conform to the requirements of such Rule. Rule 144 governs resale of
“restricted securities” for the account of any person (other than us), and
restricted and unrestricted securities for the account of an “affiliate” of
ours. Restricted securities generally include any securities acquired
directly or indirectly from us or our affiliates, which were not issued or sold
in connection with a public offering registered under the Securities
Act. An affiliate of ours is any person who directly or indirectly
controls us, is controlled by us, or is under common control with
us. Our affiliates may include our directors, executive officers, and
persons directly or indirectly owing 10% or more of our outstanding common
stock. In general, under Rule 144, a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of ours at the time
of, or at any time during the three months preceding, a sale, and who has
beneficially owned restricted securities for at least six months would be
entitled to sell those shares, subject to the requirements of Rule 144 regarding
publicly available information about us. Affiliates may only sell in
any three month period that number of shares that does not exceed the greater of
1 percent of the then-outstanding shares of our common stock or the average
weekly trading volume of our shares of common stock in the over-the-counter
market during the four calendar weeks preceding the sale. However,
the holders of restricted securities issued by a corporation that was a public
shell corporation must hold their securities for at least 12 months from the
date such issuer ceased being a public shell corporation before those shares may
be resold pursuant to Rule 144. Accordingly, the shares held by the
selling stockholders will become eligible for sale under Rule 144 on June 9,
2009.
Following
the date of this prospectus, we cannot predict the effect, if any, that sales of
our common stock or the availability of our common stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales by
existing stockholders of substantial amounts of our common stock could adversely
affect prevailing market prices for our stock.
DESCRIPTION
OF CAPITAL STOCK
General
Our
certificate of incorporation authorizes us to issue 100 million shares of
capital stock, par value $0.0001 per share, comprised of 80 million shares of
common stock, and 20 million shares of preferred stock.
As of
March 31, 2009, we have issued and outstanding approximately: (i)
20,392,024 shares of our common stock, (ii) options to purchase 2,436,511
shares of our common stock at exercise prices ranging from $0.13 to $3.00 per
share, and (iii) warrants to purchase 495,252 shares of our common stock at an
exercise price of $2.42 per share. There are no shares of preferred
stock issued or outstanding.
The
holders of common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights. Upon our liquidation, dissolution or
winding down, holders of our common stock will be entitled to share ratably in
all of our assets that are legally available for distribution, after payment of
all debts and other liabilities. The holders of our common stock have
no preemptive, subscription, redemption or conversion rights.
Holders
of our common stock are entitled to receive such dividends, as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. We seek growth and expansion of our business
through the reinvestment of profits, if any, and do not anticipate that we will
pay dividends in the foreseeable future.
Authority to Issue Stock
Our board
of directors has the authority to issue the authorized but unissued shares of
our common stock without action by the shareholders. The issuance of
such shares would reduce the percentage ownership held by current
shareholders.
Our board
of directors also has the authority to issue up to 20 million shares of
preferred stock, none of which are issued or currently
outstanding. The board of directors has 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 the 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. See
“Risk
Factors – Risks Relating to Our Securities – There may be issuances of shares of
blank check preferred stock in the future.”
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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.
Securities
Authorized for Issuance under Equity Compensation Plans
Our
Amended and Restated 2005 Stock Option Plan, or 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 2005 Stock Option Plan:
Plan category
|
|
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
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and plan of operations should be read in conjunction with
the financial statements and the notes to those statements included in this
prospectus. This discussion includes forward-looking statements that
involve risk and uncertainties. As a result of many factors, such as
those set forth in this prospectus under “Risk Factors,” 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 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 our 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 our convertible promissory notes (the
“Notes”) 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 Notes we issued in 2007 and the Notes
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 and accrued interest of approximately
$4,279,000. 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 shares of common stock at an exercise price of $2.42 per
share, all as adjusted to give effect to the merger.
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 contract research
organizations, or 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.
DESCRIPTION
OF 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:
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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.
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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.
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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.
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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 “
Risk Factors,
” our ability to
compete in the cancer therapeutics market depends on the following
factors:
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our ability to develop novel
compounds with attractive pharmaceutical properties and to secure and
protect intellectual property rights based on our
innovations;
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the efficacy, safety and
reliability of our drug
candidates;
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the speed at which we develop our
drug candidates;
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our ability to design and
successfully complete appropriate clinical
trials;
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our ability to maintain a good
relationship with regulatory
authorities;
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the timing and scope of
regulatory approvals;
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our ability to manufacture and
sell commercial quantities of future products to the market;
and
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acceptance of future products by
physicians and other healthcare
providers.
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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 “
Risk Factors –
Risks Relating 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):
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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;
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submission to the FDA of an IND
application, which must become effective before clinical trials may
begin;
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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;
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submission of a new drug
application, or NDA, to the
FDA;
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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
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FDA review and approval of the
NDA prior to any commercial marketing, sale or shipment of the
drug.
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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 above
under the caption entitled “
Risk Factors – 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):
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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.
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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.
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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.
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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:
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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.
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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.
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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.
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.
Legal
Proceedings
We are
not involved in any pending legal proceedings and are not aware of any
threatened legal proceedings against us.
Description
of Property
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 was 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.
On April
2, 2009, we executed a termination and release of the lease agreement with the
landlord at the Fairfield, New Jersey office. In consideration of the lease
termination, we paid a termination amount of $52,664.75 in order to satisfy all
current and future obligations which include the rent and utility for the
remaining lease term (April 1, 2009 to December 31, 2010) of $89,739.93. The
termination amount consists of our initial security deposit of $12,164.75 paid
in August 2007, and a payment of $40,500 made in April
2009.
MANAGEMENT
AND BOARD OF DIRECTORS
Directors
and Executive Officers
The following table lists our executive
officers, directors and key employees and their respective ages and positions as
of the date of this prospectus:
Name
|
|
Age
|
|
Positions
|
Roger
G. Berlin, M.D.
|
|
58
|
|
Chief
Executive Officer and Director
|
Scott
Z. Fields, M.D.
|
|
54
|
|
President
and Chief Medical Officer
|
Brian
Lenz
|
|
36
|
|
Chief
Financial Officer
|
Arie
S. Belldegrun, M.D., FACS
|
|
59
|
|
Non-Executive
Chairman of the Board
|
William
F. Hamilton, Ph.D.
|
|
69
|
|
Director
|
Robert
I. Falk
|
|
65
|
|
Director
|
Peter
M. Kash
|
|
47
|
|
Director
|
Joshua
A. Kazam
|
|
32
|
|
Director
|
David
M. Tanen
|
|
37
|
|
Director
and
Secretary
|
Roger G. Berlin,
M.D.
has been Chief Executive Officer and a director of Arno since
September 2008. From 1994 to 2008, Dr. Berlin was employed by Wyeth Consumer
Healthcare, a division of Wyeth, holding various positions of increasing
responsibility, including service as that division’s President, Global Research
& Development, from December 1998 to February 2008. Prior to Wyeth, from
1985 to 1994, Dr. Berlin also held a series of positions of increasing
responsibility in clinical research at Merck Research Laboratories, a division
of Merck & Co., Inc. Prior to Merck, Dr. Berlin was a physician in private
practice in the area of gastroenterology. Dr. Berlin earned his bachelor’s
degree from Queens College of the City of New York and his medical degree from
Cornell University Medical College.
Scott Z. Fields,
M.D.
has over 12 years of industry experience heading clinical programs.
Prior to joining Arno in June 2007, he was Global Vice President for all
therapeutic areas at Eisai (2002 - 2007) where he was responsible for forming
their global clinical oncology group. Prior to that, he was Head of the Oncology
Therapeutic area for Amgen from 2000 to 2002. From 1995 to 2000, he was Head of
Oncology Development and Medical Affairs in North America for Smithkline
Beecham, where his group was responsible for the development of topotecan, the
first approved camptothecin. Dr. Fields and his teams have been involved in the
development of a number of other oncology agents, which include Hycamptin
®
,
Bexxar
®
,
Aranesp
®
,
Neulasta
®
,
Vectibix
®
and
Kepivance
®
. He is a
former Assistant Professor of Medicine, co-director of Bone Marrow Transplant,
and Head of Intramural Research at SUNY Upstate Medical Center (1991-1995). In
addition, Dr. Fields was involved in the development of the RECIST criteria now
routinely used to evaluate response of cancer to treatment. In 2003 and 2004, he
was a faculty member of the AACR/ASCO Methods in Clinical Cancer Research
Workshop. He has been an Assistant Professor of Medicine at Columbia University
Medical Center from 2003 - present. Dr. Fields received his M.D. from SUNY
Downstate and trained in Internal Medicine, Oncology and Hematology at Columbia
University Medical Center.
Brian Lenz
joined Arno in July 2008 and was appointed Chief Financial Officer in August
2008. Prior to joining Arno, Mr. Lenz served as Chief Financial Officer and
Treasurer of VioQuest Pharmaceuticals, Inc. from April 2004, and prior to that
served as VioQuest’s controller from October 2003. At VioQuest, a publicly-held
biotechnology company based in Basking Ridge, NJ, Mr. Lenz was responsible for
the financial and operational reporting, as well as capital raising and merger
and acquisition and other strategic transactions. Prior to VioQuest, Mr. Lenz
was a controller with Smiths Detection Group from 2000 to 2003. Before joining
Smiths, Mr. Lenz was a senior auditor with KPMG, LLP from 1998 to 2000. Mr. Lenz
holds a BS in Accounting from Rider University and received his MBA from Saint
Joseph’s University, and is a certified public accountant licensed in the State
of New Jersey.
Arie S.
Belldegrun, M.D., FACS
has served as the non-executive chairman of Arno’s
board of directors since March 2008. He is currently the Chairman of Two River
Group Management, LLC, the managing member of Two River Group Holdings, LLC, or
Two River, a venture capital firm that specializes in the creation of new
companies that acquire rights to commercially develop biotechnology products.
Dr. Belldegrun is also Professor and Chief of Urologic Oncology at the David
Geffen School of Medicine at the University of California, Los Angeles, where he
holds the Carol and Roy Doumani Chair in Urologic Oncology. He received his
medical degree at the Hebrew University Hadassah Medical School, and conducted
his post-doctoral studies at the Weizmann Institute of Science in Israel.
He completed his Urologic Surgery residency at Harvard Medical School in 1985
and his Surgical Oncology fellowship at the National Cancer Institute/National
Institute of Health (NIH) in 1988. He is certified by the American Board of
Urology and is a Fellow of the American College of Surgeons and the American
Association of Genitourinary Surgeons (AAGUS). Dr. Belldegrun is also the
founder and founding chairman of Agensys Inc., a privately held biotechnology
company developing fully human antibody cancer therapeutics based on novel and
clinically relevant targets. In December 2007, Agensys was acquired by Astellas
Pharma, Inc. in a deal valued at $537 million. Dr. Belldegrun serves as
Vice-Chairman of the Board of Directors and Chairman of the Scientific Advisory
Board of Cougar Biotechnology, a publicly-held biopharmaceutical company
(Nasdaq:CGRB) with a specific focus on the field of oncology, and as a director
of Hana Biosciences, Inc., a publicly-held biopharmaceutical company
(Nasdaq:HNAB). Dr. Belldegrun is on the scientific boards of several
biotechnology and pharmaceutical companies and is a reviewer for many medical
journals and granting organizations. He served as Chairman of the Molecular and
Biological Technology Committee of the American Urological Association and
member of its Technology Assessment Council, as a member of the Governor’s
council on Bioscience for the State of California, and as a biotechnology group
leader and member of The Los Angeles Economy and Jobs Committee established in
October 2006 by Mayor Antonio Villaraigosa. He is the author of several books on
prostate and kidney cancers, holds several biopharmaceutical patents, and has
written over 400 scientific publications with an emphasis on Urologic Oncology.
He will devote only a portion of his time to the business of the
Company.
William F.
Hamilton, Ph.D.
was appointed to Arno’s board of directors in October
2008. Dr. Hamilton has served on the University of Pennsylvania
faculty since 1967, and is the Landau Professor of Management and Technology,
and Director of the Jerome Fisher Program in Management and Technology at The
Wharton School and the School of Engineering and Applied Science. He serves as a
director of Neose Technologies, Inc. and NovaDel Pharma Inc., both
publicly-traded biotechnology companies. Dr. Hamilton also serves on the boards
of directors of Yaupon Therapeutics, Inc., a privately-held specialty
pharmaceutical company that develops small molecule pharmaceuticals licensed
from academic laboratories, Avid Radiopharmaceuticals, Inc., a privately-held
clinical-stage product-focused molecular imaging company and Neuro Diagnostic
Devices Inc., a privately-held development-stage medical device company. Dr.
Hamilton received his B.S. and M.S. in chemical engineering and his MBA from the
University of Pennsylvania, and his Ph.D. in applied economics from the London
School of Economics.
Robert I.
Falk
has served on Arno’s board of directors since March 2008. Mr. Falk
is the owner and founder of Healthcare Corporation, an organization involved in
the startup of new business ventures with a specialty in healthcare that
included renal dialysis, acute care hospitals, outpatient services and extended
care facilities. Previously, Mr. Falk merged his 18 affiliated companies through
a “pooling of interest” stock merger with Renal Treatment Centers (RTC) a New
York Stock Exchange company and transitioned the merger of both companies which
later merged with Total Renal Care (TRC) through a stock exchange. Mr. Falk’s
experience includes: Vice President of Hospital Affiliates International, Inc.
involved in the development and acquisition of hospitals in the USA and abroad;
Manager of the Chicago office of McKee Berger Mansueto, Inc., and engineering
consulting firm; Project Manager for Uniroyal Inc.; President/CEO of Executive
Business Aviation, International Marine Corporation, Affiliated HealthCare,
Pyramid Capital Corporation and various business partnerships; Guest lecturer on
“Value Engineering” for various professional groups; Guest lecturer for
Vanderbilt University Owen School of Management on “Negotiations”; Co-author on
various publications regarding construction cost, project management, and value
engineering. Mr. Falk has served on many profit and non-profit boards;
Centerstone Mental Health, Mental Health Management, National Dialysis
Association, National Kidney Foundation, Vanderbilt Wilkerson Center, Commodore
Yacht Club, Cedar Creek Yacht Club, Ocean Reef Yacht Club and various community
boards. Mr. Falk received his MBA from Vanderbilt University - Owen School of
Management, and has an undergraduate degree in mechanical Engineering (BSME). He
will devote only a portion of his time to the business of the
Company.
Peter M.
Kash
has served as a member of our board of directors since our
inception. In September 2004, Mr. Kash co-founded Two River, where he currently
serves as the President of Two River Group Management, LLC. Mr. Kash is also the
President and Chairman of Riverbank Capital Securities, Inc., a broker dealer
registered with FINRA (“Riverbank”). From 1992 until 2004, Mr. Kash was a Senior
Managing Director of Paramount BioCapital, Inc., a FINRA member broker dealer,
and Paramount BioCapital Investments, LLC, a biotechnology focused venture
capital company. Mr. Kash also served as Director of Paramount Capital Asset
Management, Inc., the general partner of several biotechnology-related hedge
funds (the Paramount companies are collectively referred to as Paramount), and
as member of the General Partner of the Orion Biomedical Fund, LP, a private
equity fund. Mr. Kash currently serves as a member of board of directors of Nile
Therapeutics, Inc. (NASDAQ:NLTX), as well as several privately held
biotechnology companies. Mr. Kash received his B.S. in Management Science from
SUNY Binghamton and his M.B.A. in Banking and International Finance from Pace
University. Mr. Kash is currently pursuing his doctorate in Jewish education at
Yeshiva University. Mr. Kash will devote only a portion of his time to the
business of the Company.
Joshua A.
Kazam
is a co-founder of Two River and currently serves as Vice President
and Director of Two River’s managing member. Mr. Kazam also serves as an Officer
and Director of Riverbank. From 1999 to 2004, Mr. Kazam was a Managing Director
of Paramount, where he was responsible for ongoing operations of venture
investments, and as the Director of Investment for the Orion Biomedical
Fund, LP. Mr. Kazam currently serves as a director of Velcera, Inc.
(VLCR.OB) and Nile Therapeutics, Inc. (NASDAQ:NLTX), each a public reporting
company, and an officer or director of several privately held companies. Mr.
Kazam is a graduate of the Wharton School of the University of Pennsylvania. He
will devote only a portion of his time to the business of the
Company.
David M. Tanen
is also a co-founder of Two River and serves as Vice President and
Director of Two River’s managing member. Mr. Tanen also serves as an Officer and
Director of Riverbank. Prior to founding Two River, from October 1996 to
September 2004, Mr. Tanen was a Director of Paramount. Mr. Tanen also served as
a member of the General Partner of the Orion Biomedical Fund, LP. Mr. Tanen
currently serves as an officer and director of Nile Therapeutics, Inc.
(NASDAQ:NLTX) as well as several privately held biotechnology companies. Mr.
Tanen received his B.A. from The George Washington University and his J.D. from
Fordham University School of Law. He will devote only a portion of his time to
the business of the Company.
Independence
of the Board of Directors
In determining whether the members of
our board of directors and its committees are independent, we have elected to
use the definition of “independence” set forth in the listing standards of the
NASDAQ Stock Market. After considering all relevant relationships and
transactions, our board of directors, in consultation with legal counsel, has
determined that Messrs. Falk and Kash, Dr. Belldegrun and Dr. Hamilton are
“independent” within the meaning of the applicable listing standard of the
NASDAQ Stock Market. Dr. Berlin, our Chief Executive Officer, and Messrs. Kazam
and Tanen are not independent, as defined by applicable NASDAQ listing
standards.
Board
Committees
In August 2008, the Board of Directors
established three standing committees: an Audit Committee, a Compensation
Committee and a Nominating & Corporate Governance Committee. The following
table provides membership for each of the Board committees:
Committee
|
|
Membership
|
|
|
|
Audit
|
|
Dr.
Hamilton (Chair), Mr. Falk and Mr. Kash
|
Compensation
|
|
Dr.
Belldegrun (Chair), Mr. Kash and Mr. Tanen
|
Nominating
& Governance
|
|
Mr.
Falk (Chair), Dr. Belldegrun and Mr.
Kash
|
Executive
Compensation
The
following table sets forth all of the compensation awarded to, earned by or paid
to (i) each individual serving as our principal executive officer during the
fiscal year ended December 31, 2008; and (ii) each other individual that served
as an executive officer at the conclusion of the fiscal year ended December 31,
2008 and who received in excess of $100,000 in the form of salary and bonus
during such fiscal year. We refer to these individuals as our named
executives.
Summary
Compensation Table
Name
and
Principal
Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards
(1)
|
|
|
All
Other
Compensation(2)
|
|
|
Total
|
|
Roger
G. Berlin, M.D. (3)
|
|
2008
|
|
$
|
136,779
|
|
|
$
|
62,500
|
|
|
$
|
334,300
|
|
|
$
|
4,330
|
|
|
$
|
537,909
|
|
Chief
Executive Officer
|
|
2007
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Scott
Z. Fields, M.D. (4)
|
|
2008
|
|
$
|
340,000
|
|
|
$
|
125,000
|
|
|
$
|
63,400
|
|
|
$
|
2,580
|
|
|
$
|
530,980
|
|
President
and Chief Medical Officer
|
|
2007
|
|
|
198,333
|
|
|
|
72,900
|
|
|
|
73,600
|
|
|
|
–
|
|
|
|
344,833
|
|
Brian
Lenz (5)
|
|
2008
|
|
$
|
91,667
|
|
|
$
|
53,000
|
|
|
$
|
127,400
|
|
|
$
|
329
|
|
|
$
|
272,396
|
|
Chief
Financial Officer
|
|
2007
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Thomas
W. Colligan (6)
|
|
2008
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Former
CEO of Laurier
|
|
2007
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
__________________
(1)
|
Amount
reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2008 in accordance with
SFAS 123R of stock option awards, and may include amounts from awards
granted in and prior to fiscal year 2007.
|
|
|
(2)
|
Amount
reflects life insurance premiums paid for Executive. See “
—Employment Agreements,
Termination of Employment and Change-in-Control
Arrangements.
”
|
|
|
(3)
|
Mr.
Berlin is entitled to an annual performance-based bonus of up to 50% of
his base salary upon the successful completion of annual corporate and
individual performance-based milestones. See “
—Employment Agreements,
Termination of Employment and Change-in-Control
Arrangements.
”
|
|
|
(4)
|
Dr.
Fields is entitled to an annual performance-based bonus of up to $150,000
upon the successful completion of annual corporate and individual
performance-based milestones. See “
—Employment Agreements,
Termination of Employment and Change-in-Control
Arrangements.
”
|
|
|
(5)
|
Mr.
Lenz is entitled to an annual performance-based bonus of up to 30% of his
base salary upon the successful completion of annual corporate and
individual performance-based milestones. In addition, upon the
commencement of his employment, Mr. Lenz received a one-time cash bonus in
the amount of $25,000. See “
—Employment Agreements,
Termination of Employment and Change-in-Control
Arrangements.
”
|
|
|
(6)
|
Mr.
Colligan served as President of Laurier until June 3, 2008, when he
resigned and was replaced by Dr. Fields, in connection with the
merger. During this time, Mr. Colligan did not receive any
compensation.
|
Employment
Agreements, Termination of Employment and Change-in-Control
Arrangements
Roger
G. Berlin, M.D.
Chief
Executive Officer
On August 19, 2008, we entered into an
employment agreement with Dr. Roger G. Berlin to serve as our Chief Executive
Officer, effective September 3, 2008. The agreement provides for a term of two
years, subject to renewal for successive one-year periods. Dr. Berlin was also
appointed to our board of directors.
The agreement provides that Dr. Berlin
is entitled to an annualized base salary of $375,000, which amount may be
increased by the Board from time to time. Dr. Berlin is also eligible to receive
an annual discretionary bonus of up to 50% of his base salary, as determined by
the Board. Upon a “Merger” or “Acquisition,” Dr. Berlin shall receive a bonus
ranging from $100,000 to $500,000, depending on Arno’s aggregate valuation at
the time of the transaction. Dr. Berlin is also entitled to participate in
Arno’s employee benefits plans, and to receive other customary
benefits.
Upon the commencement of his
employment, we granted Dr. Berlin 10-year options to purchase a total of 860,000
shares of our common stock, consisting of 430,000 “Employment Options” and
430,000 “Performance Options.” The right to purchase the shares subject to the
Employment Options vests in two equal annual installments of 215,000 shares each
on the first two anniversaries of the commencement of his employment. The right
to purchase the shares subject to the Performance Options vests and become
exercisable, if at all, upon the achievement of corporate and individual
milestones in three installments between December 31, 2008 and the second
anniversary of his commencement date. To date, the right to purchase 71,667
shares subject to the Performance Options have vested. The Employment Options
and Performance Options are exercisable at a price per share equal to $3.00, the
closing price of our common stock on his commencement date. In addition, if Arno
acquires a “technology” that is first identified by Dr. Berlin, then we shall
grant to Dr. Berlin additional “Technology Options” to purchase between 100,000
and 400,000 shares of our common stock, depending on the technology’s stage of
development. All Technology Options shall have terms of 5 years and an exercise
price equal to the fair market value of Arno’s common stock on the date of
grant. All options awarded to Dr. Berlin pursuant to the agreement will be
evidenced by separate stock option agreements in Arno’s standard form for use
under our 2005 Stock Option Plan.
Notwithstanding the term of the
agreement, either party has the right to terminate the agreement and Dr.
Berlin’s employment at any time. In the event Arno (or its successor) terminates
Dr. Berlin’s employment upon a “change in control” (as defined in the 2005 Stock
Option Plan), he will be entitled to receive (i) his then-current
annualized base salary and employee benefits for a period of 360 calendar days
(or, if the termination occurs prior to the first anniversary of his
commencement date, for a period of 180 calendar days) following the date of
termination; (ii) the performance bonus, if any, that he would have earned for
the year in which the termination occurs; and (iii) an acceleration in the
vesting of all Employment Options and Performance Options held by
him.
If Arno terminates Dr. Berlin’s
employment without “cause,” or if he resigns for “good reason,” he will be
entitled to receive (i) his then-current annualized base salary and employee
benefits for a period of 360 calendar days (or, if the termination or
resignation occurs prior to the first anniversary of the Effective Date, for a
period of 180 calendar days) following the date of termination or resignation;
(ii) the performance bonus (or, if the termination or resignation occurs prior
to the first anniversary of his commencement date, one-half of the performance
bonus), if any, that he would have earned for the year in which the termination
or resignation occurs; and (iii) an acceleration in the vesting of the
Employment Options scheduled to vest on the next vesting date following such
termination or resignation.
The agreement contains customary
non-disparagement, confidentiality, and assignment of inventions provisions that
survive the termination of the agreement for an indefinite period. The agreement
also contains non-competition and non-solicitation provisions extending from 6
to 12 months after termination of the agreement.
Brian
Lenz
Chief
Financial Officer
On June
11, 2008, we entered into an employment agreement with Mr. Brian Lenz. Under the
agreement, as amended on July 9, 2008, Mr. Lenz was appointed as our Chief
Financial Officer effective August 15, 2008, and will continue thereafter until
July 15, 2010, unless terminated earlier in accordance with the terms of the
agreement. The agreement provides that Mr. Lenz is entitled to an annualized
base salary of $200,000, and is eligible for an annual performance bonus in an
amount up to 30% of his base salary. In addition, upon the commencement of his
employment, Mr. Lenz received a one-time cash bonus in the amount of $25,000 and
a stock option grant pursuant to the Plan to purchase 440,000 shares of our
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 Arno.
If,
during the term of the employment agreement, we terminate Mr. Lenz’s employment
without “cause,” then Mr. Lenz is entitled to receive his then current base
salary for a period of 9 months following such termination, plus one-half of the
performance bonus that Mr. Lenz would have earned in the year of such
termination. In addition, upon such termination, the unvested portion of the
stock option described above will immediately vest and remain exercisable for a
period of 12 months following the termination.
The
employment agreement also provides that if Mr. Lenz’s employment is terminated
during the term as a result of a “change of control,” then Mr. Lenz is entitled
to receive his then current base salary for a period of 12 months following such
termination, plus an amount equal to the performance bonus that Mr. Lenz would
have earned in the year of such termination. In addition, upon such termination,
the unvested portion of the stock option described above will immediately vest
and remain exercisable for a period of 12 months following the
termination.
The term
“cause” is defined under the employment agreement to mean any of the following
acts or omissions committed by Mr. Lenz:
|
·
|
willful
failure to adequately perform material duties or obligations under the
agreement, including without limitation, willful failure, disregard or
refusal to abide by specific objective and lawful directions received by
him in writing constituting an action of our board of
directors;
|
|
·
|
any
willful, intentional or grossly negligent act having the reasonably
foreseeable effect of actually and substantially injuring, whether
financial or otherwise, our business
reputation;
|
|
·
|
indictment
of any felony or conviction of a misdemeanor involving moral turpitude
that causes or could reasonably be expected to cause, substantial harm to
us or our reputation;
|
|
·
|
engagement
in some form of harassment prohibited by law (including, without
limitation, age, sex or race
discrimination);
|
|
·
|
misappropriation
or embezzlement of Arno property;
and
|
|
·
|
material
breach of the agreement.
|
Under the agreement, the term “change
of control” has the meaning set forth in our 2005 Stock Option Plan, except
that, notwithstanding the terms of such plan, a change of control does not
include (i) any private placement of our equity securities the purpose of which
is to finance our on-going operations, or (ii) a transaction that ascribes a
valuation of Arno of less than $100 million.
Scott
Z. Fields, M.D.
President
and Chief Medical Officer
On June
1, 2007, we entered into a two year employment agreement with Dr. Fields to
serve as our President and Chief Medical Officer. Under the agreement, Dr.
Fields is entitled to an annualized base salary of $340,000 and is eligible to
receive an annual performance-based bonus of up to $150,000 upon the successful
completion of annual corporate and individual milestones at an exemplary metric
(e.g., ahead of schedule, under budget, etc.). Dr. Fields is also entitled to a
cash bonus upon the successful completion of a merger or acquisition transaction
that results in a “change of control” of Arno. The merger with Laurier did not
constitute a “change of control” and, therefore, no such bonus to Dr. Fields was
triggered.
Upon the
commencement of his employment, we made two stock option grants to Dr. Fields
pursuant to our 2005 Stock Option Plan. The first stock option grant, referred
to as the Employment Options, relates to 199,377 shares of our common stock at
an exercise price equal to $1.00 per share (as adjusted for the merger).
The Employment Options vest, if at all, and become exercisable in two equal
installments on each anniversary of his employment agreement. In addition, we
also granted to Dr. Fields performance-based stock options, referred to as the
Performance Options, to purchase up to an additional 199,377 shares of our
common stock at an exercise price equal to $1.00 per share (as adjusted for the
merger). The Performance Options vest, if at all, and become exercisable upon
the successful completion of annual corporate and individual milestones in an
exemplary manner (i.e., ahead of schedule, under budget, etc.). To date, the
right to purchase 99,688 shares subject to the Employment Options and 99,688
shares subject to the Performance Options have vested. The remaining shares
subject to the Employment Options and Performance Options will vest, if at all,
on June 1, 2009.
In the
event that we acquire by license, acquisition or otherwise, an additional
biotechnology product or series of biotechnology products for development that
is first identified by Dr. Fields, then we will grant to Dr. Fields additional
stock options, referred to as Technology Options, to purchase a number of shares
of our common stock as follows:
|
·
|
1% of the then fully diluted
outstanding shares of our common stock for the rights to a product
candidate that is in pre-clinical development;
and
|
|
·
|
2% of the then fully diluted
outstanding shares of our common stock for the rights to a product
candidate that is in human clinical
trials.
|
Upon a change of control of Arno
pursuant to which Arno is ascribed a valuation of at least $75,000,000, then we
will pay Dr. Fields a cash bonus ranging from $50,000 to $200,000.
We have also agreed to pay for up to
$1,000,000 of life insurance for Dr. Fields. He is entitled to up to four (4)
weeks of vacation per year and may participate in company sponsored benefit
plans (i.e., health, dental, etc.).
In the event that Dr. Fields’
employment is terminated as a result of his death or disability, we will pay him
or his estate (a) any accrued but unpaid base salary, performance bonus,
vacation and expense reimbursement through the date of termination; (b) his base
salary for a period of six months thereafter; (c) a pro rata performance bonus
for the year in which his employment is terminated; (d) all Employment Options
shall vest immediately; and (e) all vested Employment and Performance Options
shall remain exercisable for a period of five (5) years from the date of
termination, but in no event beyond their scheduled expiration
date.
If Dr. Fields’ employment is terminated
by Arno for “cause” or by Dr. Fields other than for “good reason,” then we shall
pay to him any accrued but unpaid base salary, performance bonus, vacation and
expense reimbursement through the date of his termination and he shall have no
further entitlement to any other compensation or benefits from us except as
provided in our compensation and benefit plans. All of Dr. Fields’ stock
options, other than any Technology Options, that have not previously vested
shall expire immediately and all vested Employment Options and Performance
Options shall remain exercisable for a period of 90 days from the date of
termination.
If Dr. Fields’ employment is terminated
upon a change of control, by Dr. Fields for “good reason” or by Arno for any
other reason, then we will (a) pay Dr. Fields any accrued but unpaid base
salary, performance bonus, vacation and expense reimbursement through the date
of termination, (b) continue to pay to his base salary and benefits for a period
of one (1) year following such termination; (c) pay Dr. Field’s a pro rata
Performance Bonus for the year in which his employment is terminated; (d) all
unvested Employment Options shall vest and become exercisable immediately and
shall remain exercisable for a period of not less than five (5) years; and (e)
all vested Performance Options shall remain exercisable for a period of five (5)
years from the date of termination, but in no event beyond their scheduled
expiration date.
In the event of non-renewal of his
employment agreement, we shall pay Dr. Fields any accrued but unpaid base
salary, performance bonus, vacation and expense reimbursement through the date
of termination, and all vested Employment and Performance Options shall remain
exercisable for a period of 12 months.
In February 2009, Dr. Fields informed
us that he would not be continuing his employment with us when the term of his
employment agreement expires on May 31, 2009.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information concerning stock options held by the
named executives of Arno at December 31, 2008. The shares and the
corresponding option exercise price have been adjusted to give effect to the
merger. Prior to the merger, Laurier had never granted stock options
or other equity-based compensation to its executive officers.
Name
|
|
Number of
Securities
Underlying
Unexercised Options
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised Options
Unexercisable
|
|
|
Option Exercise
Price ($)
|
|
|
Option
Expiration Date
|
|
Dr.
Berlin
|
|
|
71,667
|
|
|
|
788,333
|
|
|
|
3.00
|
|
|
9/3/2018
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Fields
|
|
|
199,377
|
|
|
|
199,377
|
|
|
|
1.00
|
|
|
6/1/2017
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Lenz
|
|
|
-
|
|
|
|
440,000
|
|
|
|
2.75
|
|
|
7/16/2018
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Colligan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
____________
(1)
|
The
right to purchase 430,000 shares vests, if at all, in two equal
installments in September 2009 and September 2010. The
remaining 358,333 shares vest, if at all, upon the completion of corporate
and individual milestones.
|
(2)
|
The
right to purchase 99,688 shares vests, if at all, in June
2009. The remaining 99,688 shares vest, if at all, upon the
completion of corporate and individual
milestones.
|
(3)
|
The
right to purchase 110,000 shares vests, if at all, in July
2009. The remaining 330,000 shares vest, if at all, in monthly
installments of 13,750 shares beginning August
2009.
|
Director
Compensation
On March
31, 2008, in connection with their appointments as directors, Dr.
Belldegrun and Mr. Falk received 10-year options to purchase, at an exercise
price of $2.42 per share, 199,377 and 99,688 shares of our common stock,
respectively (as adjusted for the merger with Laurier). One half of
the shares subject to the options vested immediately, one quarter vested on
March 31, 2009, and the remainder vest on March 31, 2010. Other than
as described above, we currently do not compensate any non-employee member of
our board of directors for serving as a board member, although we may, in our
sole discretion, decide to compensate certain of our non-employee members of our
board of directors in the future. Dr. Berlin, our Chief Executive
Officer, receives no additional compensation for serving as a board
member.
Prior to
the merger, no director of Laurier had ever received any compensation for his or
her services.
Director
Compensation Table for Fiscal Year 2008
Name (1)
|
|
Fees earned or
paid in cash
|
|
|
Option
Awards (2)
|
|
All Other
Compensation
|
|
Total
|
|
Arie
S. Belldegrun, M.D., FACS
|
|
$
|
-
|
|
|
$
|
266,362
|
|
$
|
-
|
|
$
|
266,362
|
|
William
F. Hamilton, Ph.D.
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Robert
I. Falk
|
|
$
|
-
|
|
|
$
|
133,256
|
|
$
|
-
|
|
$
|
133,256
|
|
Peter
M. Kash
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Joshua
A. Kazam
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
David
M. Tanen
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
__________________
|
(1)
|
Roger
G. Berlin, our Chief Executive Officer, has been omitted from this table
since he receives no additional compensation for serving on our Board; his
compensation is described above under “
Executive
Compensation.
”
|
|
(2)
|
Amount
reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2008 in accordance with
SFAS 123R of stock option
awards.
|
2005
Stock Option Plan
As of March 31, 2009, we have issued
and outstanding approximately: (i) 20,392,024 shares of our
common stock, (ii) options to purchase 2,436,511 shares of our common stock at
exercise prices ranging from $0.13 to $3.00 per share, and (iii) warrants to
purchase 495,252 shares of our common stock at an exercise price of $2.42 per
share. There are no shares of preferred stock issued or
outstanding.
General
Our 2005
Stock Option Plan, or the 2005 Plan, authorizes a total of 2,990,655 shares of
our common stock for issuance. As of March 31, 2009, stock options
relating to an aggregate of 2,436,511 shares of common stock had been granted
under the 2005 Plan at exercise prices ranging from $0.13 to $3.00 per share,
leaving a total of 554,144 shares available for issuance.
The
purpose of the 2005 Plan is to increase shareholder value and to advance the
interests of our company by furnishing a variety of economic incentives designed
to attract, retain and motivate our employees and consultants.
The 2005
Plan provides that a committee composed of at least two non-employee members of
our board of directors may grant incentives in the following forms:
|
·
|
stock
appreciation rights, or SARs;
|
|
·
|
performance
shares; and
|
Incentives
may be granted to participants who are employees of or consultants to our
company (including our officers and directors who may also be employees or
consultants) selected from time to time by the committee. In the
event there is no committee, then our entire board of directors shall have
responsibility for administering the 2005 Plan.
Types
of Incentives
Stock
Options
Under the
2005 Plan, the committee may grant non-qualified and incentive stock options to
eligible participants to purchase shares of our common stock from
us. The 2005 Plan provides the committee with discretion to determine
the number and purchase price of the shares subject to any such option, the term
of each option and the time or times during its term when the option becomes
exercisable. The purchase price for incentive stock options may not
be less than the fair market value of the shares subject to the option on the
date of grant. The number of shares subject to an option will be
reduced proportionately to the extent that the optionee exercises a related
SAR. The term of a non-qualified option may not exceed 10 years from
the date of grant and the term of an incentive stock option may not exceed 10
years from the date of grant. The committee may accelerate the
exercisability of any option.
In the
event of a change of control, the 2005 Plan provides that if the acquiring
company does not agree to assume an outstanding stock option, then, unless the
committee determines otherwise, all outstanding options will become immediately
exercisable and will remain exercisable for the remainder of their
term. Further, upon a change of control, the committee may approve
the purchase by us of an unexercised stock option for the difference between the
exercise price and the fair market value of the shares covered by such
option.
The
option price may be paid in cash, check, bank draft or by delivery of shares of
common stock valued at their fair market value at the time of purchase or by
withholding from the shares issuable upon exercise of the option shares of
common stock valued at their fair market value or as otherwise authorized by the
committee.
In the
event that an optionee ceases to be an employee of or consultant to our company
for any reason, including death, any stock option or unexercised portion thereof
which was otherwise exercisable on the date of termination from us shall expire
at the time or times established by the committee.
Stock
Appreciation Rights
A SAR is
a right to receive, without payment to us, a number of shares, cash or any
combination thereof, the amount of which is determined pursuant to the formula
described below. A SAR may be granted with respect to any stock
option granted under the 2005 Plan, or alone, without reference to any stock
option. A SAR granted with respect to any stock option may be granted
concurrently with the grant of such option or at such later time as determined
by the committee and as to all or any portion of the shares subject to the
option.
The 2005
Plan confers on the committee discretion to determine the number of shares as to
which a SAR will relate as well as the duration and exercisability of a
SAR. In the case of a SAR granted with respect to a stock option, the
number of shares of common stock to which the SAR pertains will be reduced in
the same proportion that the holder exercises the related option. The
term of a SAR may not exceed 10 years and one day from the date of
grant. Unless otherwise provided by the committee, a SAR will be
exercisable for the same time period as the stock option to which it relates is
exercisable. Any SAR shall become immediately exercisable in the
event of specified changes in corporate ownership or control. The
committee may accelerate the exercisability of any SAR.
Upon
exercise of a SAR, the holder is entitled to receive an amount which is equal to
the aggregate amount of the appreciation in the shares of common stock as to
which the SAR is exercised. For this purpose, the “appreciation” in
the shares consists of the amount by which the fair market value of the shares
of common stock on the exercise date exceeds (a) in the case of a SAR
related to a stock option, the purchase price of the shares under the option or
(b) in the case of a SAR granted alone, without reference to a related
stock option, an amount determined by the committee at the time of
grant. We may pay the amount of this appreciation to the holder of
the SAR by the delivery of common stock, cash, or any combination of common
stock and cash.
Restricted
Stock
Restricted
stock consists of the sale or transfer by us to an eligible participant of one
or more shares of our common stock which are subject to restrictions on their
sale or other transfer by the employee. The price at which restricted
stock will be sold will be determined by the committee, and it may vary from
time to time and among employees and may be less than the fair market value of
the shares at the date of sale. All shares of restricted stock will
be subject to such restrictions as the committee may
determine. Subject to these restrictions and the other requirements
of the 2005 Plan, a participant receiving restricted stock shall have all of the
rights of a shareholder as to those shares, including, for example, the right to
vote such shares.
Stock
Awards
Stock
awards consist of the transfer by us to an eligible participant of shares of our
common stock, without payment, as additional compensation for services to our
company. The number of shares transferred pursuant to any stock award
will be determined by the committee.
Performance
Shares
Performance
shares consist of the grant by us to an eligible participant of a contingent
right to receive cash or payment of shares of common stock. The
performance shares shall be paid in shares of our common stock to the extent
performance objectives set forth in the grant are achieved. The
number of shares granted and the performance criteria will be determined by the
committee.
Non-Transferability
of Most Incentives
No stock
option, SAR, performance share or restricted stock granted under the 2005 Plan
is transferable by its holder, except in the event of the holder’s death, by
will or the laws of descent and distribution. During an employee’s
lifetime, an incentive awarded under the 2005 Plan may be exercised only by him
or her or by his or her guardian or legal representative.
Amendment
to the Plan
Our board
of directors may amend or discontinue the 2005 Plan at any
time. However, no such amendment or discontinuance may, subject to
adjustment in the event of a merger, recapitalization, or other corporate
restructuring, (a) change or impair, without the consent of the recipient
thereof, an incentive previously granted, (b) materially increase the
maximum number of shares of common stock which may be issued to all participants
under the 2005 Plan, (c) materially change or expand the types of
incentives that may be granted under the 2005 Plan, (d) materially modify
the requirements as to eligibility for participation in the 2005 Plan, or
(e) materially increase the benefits accruing to
participants. Certain amendments require stockholder approval,
including amendments which would materially increase benefits accruing to
participants, increase the number of securities issuable under the 2005 Plan, or
change the requirements for eligibility under the plan.
Federal
Income Tax Consequences
The
following discussion sets forth certain United States income tax considerations
in connection with the ownership of common stock. These tax
considerations are stated in general terms and are based on the Internal Revenue
Code of 1986 in its current form and current judicial and administrative
interpretations thereof. This discussion does not address state or
local tax considerations with respect to the ownership of common
stock. Moreover, the tax considerations relevant to ownership of the
common stock may vary depending on a holder’s particular status.
An
employee who receives restricted stock or performance shares subject to
restrictions which create a “substantial risk of forfeiture” (within the meaning
of section 83 of the Code) will normally realize taxable income on the date the
shares become transferable or are no longer subject to substantial risk of
forfeiture or on the date of their earlier disposition. The amount of
such taxable income will be equal to the amount by which the fair market value
of the shares of common stock on the date such restrictions lapse (or any
earlier date on which the shares are disposed of) exceeds their purchase price,
if any. An employee may elect, however, to include in income in the
year of purchase or grant the excess of the fair market value of the shares of
common stock (without regard to any restrictions) on the date of purchase or
grant over its purchase price. We will be entitled to a deduction for
compensation paid in the same year and in the same amount as income is realized
by the employee.
An
employee who receives a stock award under the 2005 Plan consisting of shares of
common stock will realize ordinary income in the year of the award in an amount
equal to the fair market value of the shares of common stock covered by the
award on the date it is made, and we will be entitled to a deduction equal to
the amount the employee is required to treat as ordinary income. An
employee who receives a cash award will realize ordinary income in the year the
award is paid equal to the amount thereof, and the amount of the cash will be
deductible by us.
When a
non-qualified stock option granted pursuant to the 2005 Plan is exercised, the
employee will realize ordinary income measured by the difference between the
aggregate purchase price of the shares of common stock as to which the option is
exercised and the aggregate fair market value of shares of the common stock on
the exercise date, and we will be entitled to a deduction in the year the option
is exercised equal to the amount the employee is required to treat as ordinary
income.
Options
that qualify as incentive stock options are entitled to special tax
treatment. Under existing federal income tax law, if shares purchased
pursuant to the exercise of such an option are not disposed of by the optionee
within two years from the date of granting of the option or within one year
after the transfer of the shares to the optionee, whichever is longer, then
(i) no income will be recognized to the optionee upon the exercise of the
option; (ii) any gain or loss will be recognized to the optionee only upon
ultimate disposition of the shares and, assuming the shares constitute capital
assets in the optionee’s hands, will be treated as long-term capital gain or
loss; (iii) the optionee’s basis in the shares purchased will be equal to
the amount of cash paid for such shares; and (iv) we will not be entitled
to a federal income tax deduction in connection with the exercise of the
option. We understand that the difference between the option price
and the fair market value of the shares acquired upon exercise of an incentive
stock option will be treated as an “item of tax preference” for purposes of the
alternative minimum tax. In addition, incentive stock options
exercised more than three months after termination of employment are treated as
non-qualified options.
We
further understand that if the optionee disposes of the shares acquired by
exercise of an incentive stock option before the expiration of the holding
period described above, the optionee must treat as ordinary income in the year
of that disposition an amount equal to the difference between the optionee’s
basis in the shares and the lesser of the fair market value of the shares on the
date of exercise or the selling price. In addition, we will be
entitled to a deduction equal to the amount the employee is required to treat as
ordinary income.
If the
exercise price of an option is paid by surrender of previously owned shares, the
basis of the shares surrendered is carried over to the shares received in
replacement of the previously owned shares. If the option is a
nonstatutory option, the gain recognized on exercise is added to the
basis. If the option is an incentive stock option, the optionee will
recognize a gain if the shares surrendered were acquired through the exercise of
an incentive stock option and have not been held for the applicable holding
period. This gain will be added to the basis of the shares received
in replacement of the previously owned shares.
When a
stock appreciation right granted pursuant to the 2005 Plan is exercised, the
employee will realize ordinary income in the year the right is exercised equal
to the value of the appreciation the employee is entitled to receive pursuant to
the formula previously described, and we will be entitled to a deduction in the
same year and in the same amount.
The 2005
Plan is intended to enable us to provide certain forms of performance-based
compensation to executive officers that will meet the requirements for tax
deductibility under Section 162(m) of the Internal Revenue
Code. Section 162(m) provides that, subject to certain
exceptions, we may not deduct compensation paid to any one of certain executive
officers in excess of $1 million in any one year. Section 162(m)
excludes certain performance-based compensation from the $1 million
limitation.
The
discussion set forth above does not purport to be a complete analysis of the
potential tax consequences relevant to recipients of options or to us or to
describe tax consequences based on particular circumstances. It is
based on federal income tax and interpretational authorities as of the date of
this proxy statement, which are subject to change at any time.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table summarizes certain information regarding the beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of our
outstanding common stock as of March 31, 2009 (after giving effect to the
merger) by (i) each person known by us to be the beneficial owner of more than
5% of our outstanding common stock, (ii) each of our directors, (iii) each
of our named executive officers (as defined in Item 402(a)(3) of Regulation S-K
under the Securities Act), and (iv) all executive officers and directors as a
group. Except as indicated in the footnotes below, the security and
stockholders listed below possess sole voting and investment power with respect
to their shares.
Name
of Beneficial Owner
|
|
Shares of
Common Stock
Beneficially Owned (#)(1)
|
|
|
Percentage of
Common Stock
Beneficially Owned
(%)(1)
|
|
Roger
G. Berlin, M.D. (2)
4
Campus Drive, 2
nd
Floor
Parsippany,
NJ 07054
|
|
|
71,667
|
|
|
|
|
*
|
Scott
Z. Fields, M.D. (3)
4
Campus Drive, 2
nd
Floor
Parsippany,
NJ 07054
|
|
|
398,754
|
|
|
|
1.92
|
|
Brian
Lenz
4
Campus Drive, 2
nd
Floor
Parsippany,
NJ 07054
|
|
|
4,000
|
|
|
|
|
*
|
William
F. Hamilton, Ph.D.
4
Campus Drive, 2
nd
Floor
Parsippany,
NJ 07054
|
|
|
-
|
|
|
|
-
|
|
David
M. Tanen (4)
Two
River Group Holdings, LLC
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
1,458,102
|
|
|
|
7.15
|
|
Peter
M. Kash (5)
Two
River Group Holdings, LLC
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
1,808,603
|
|
|
|
8.87
|
|
Joshua
A. Kazam (6)
Two
River Group Holdings, LLC
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
1,587,323
|
|
|
|
7.78
|
|
Arie
S. Belldegrun, M.D., FACS (7)
Two
River Group Holdings, LLC
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
249,660
|
|
|
|
1.21
|
|
Robert
I. Falk (8)
507
Belle Meade Blvd.
Nashville,
TN 37205
|
|
|
226,945
|
|
|
|
1.11
|
|
Wexford
Capital LLC (9)
411
West Putnam Avenue
Greenwich,
CT 06830
|
|
|
2,005,791
|
|
|
|
9.82
|
|
Clal
Insurance Enterprises Holdings Ltd. (10)
48
Menachem Begin St.
Tel-Aviv
66180, Israel
|
|
|
1,444,759
|
|
|
|
7.08
|
|
All
Executive Officers and Directors as a group (9 persons)
|
|
|
5,805,054
|
|
|
|
27.49
|
|
________________
*
represents less than 1%.
(1)
|
Assumes
20,392,024 shares of our common stock are outstanding, which does not
include 196,189 shares offered hereby that are issuable upon exercise of
warrants. Beneficial ownership is determined in accordance with
Rule 13d-3 under the Securities Act, and includes any shares as to which
the security or stockholder has sole or shared voting power or investment
power, and also any shares which the security or stockholder has the right
to acquire within 60 days of the date hereof, whether through the exercise
or conversion of any stock option, convertible security, warrant or other
right. The indication herein that shares are beneficially owned
is not an admission on the part of the security or stockholder that he,
she or it is a direct or indirect beneficial owner of those
shares.
|
(2)
|
Represents
shares issuable upon the exercise of 10 year options to purchase 71,667
shares of our common stock at an exercise price of $3.00 per
share.
|
(3)
|
Includes: (i)
10 year options to purchase 199,377 shares of our common stock at an
exercise price of $1.00 per share; and (ii) 10 year options to purchase an
additional 199,377 shares of our common stock at an exercise price of
$1.00 per share that are exercisable within 60 days of the date
hereof. See
“Executive Compensation -
Employment Agreements, Termination of Employment and Change-in-Control
Arrangements.”
|
(4)
|
Includes: (i)
1,236 shares of our common stock issuable upon exercise of a five year
warrant held by Mr. Tanen exercisable at a price per share of $2.42; and
(ii) 149,532 shares of our common stock held by Mr. Tanen’s wife as
custodian for the benefit of two of their minor children under the Uniform
Gift to Minors Act (UGMA).
|
(5)
|
Includes: (i)
2,472 shares of our common stock issuable upon exercise of a five year
warrant held by Mr. Kash exercisable at a price per share of $2.42; and
(ii) 358,876 shares held by Mr. Kash’s wife as custodian for the benefit
of each of their minor children under UGMA; and (iii) 119,626 shares of
out common stock held by the Kash Family Irrevocable
Trust.
|
(6)
|
Includes: (i)
4,946 shares of our common stock issuable upon exercise of a five
year warrant held by Mr. Kazam exercisable at a price per share of $2.42;
(ii) 332,293 shares of our common stock held by the Kazam Family
Trust; (iii) 99,688 shares of our common stock held by Mr. Kazam’s
wife as custodian for the benefit of their minor daughter under the UGMA;
and (iv) 20,637 shares of our common stock held by the Joshua Kazam Trust,
in which Mr. Kazam has a pecuniary
interest.
|
(7)
|
Includes: (i)
61,916 shares of our common stock held by a trust of which Dr. Belldegrun
is a beneficiary; and (ii) 10 year options to purchase 162,822 shares of
our common stock at an exercise price equal to $2.42 per
share.
|
(8)
|
Includes: (i)
49,844 shares of our common stock held by the Falk Family Partners,
L.P. a Tennessee limited partnership for which Mr. Falk serves as general
partner; and (ii) 4,946 shares of our common stock issuable upon exercise
of a five year warrant held by Falk Family Partners. Also
includes 10 year options to purchase 81,411 shares of our common stock at
an exercise price equal to $2.42 per
share.
|
(9)
|
Includes: (i)
247,345 shares of our common stock held by Kappa Investors, LLC (“Kappa”);
(ii) a five year warrant held by Kappa to purchase 24,734 shares of our
common stock that are exercisable at $2.42 per share; and (ii) 1,733,712
shares of our common stock held by Wexford Spectrum Investors LLC, a
Delaware limited liability company ("Wexford
Spectrum"). Wexford Capital LLC, a Connecticut limited
liability company ("Wexford Capital") is a registered Investment Advisor
and also serves as an investment advisor or sub-advisor to the members of
Kappa and Wexford Spectrum. Mr. Charles E. Davidson is
chairman, a managing member and a controlling member of Wexford Capital
and Mr. Joseph M. Jacobs is chairman, a managing member and a controlling
member of Wexford Capital.
|
(10)
|
The
number of shares beneficially owned by Clal Insurance Enterprises Holdings
Ltd. (“Clal”) is based on a Schedule 13G/A filed on February 13,
2009. All of the 1,444,759 shares reported as beneficially
owned by Clal are held for members of the public through, among others,
provident funds, mutual funds, pension funds and insurance policies, which
are managed by subsidiaries of Clal, each of which operates under
independent management and makes independent voting and investment
decisions. Clal disclaims beneficial ownership of such 1,444,759
shares.
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Arno was
incorporated in August 2005 by Two River. Dr. Belldegrun, Mr. Kash,
Mr. Kazam and Mr. Tanen, each a director and substantial stockholder of Arno,
control the managing member of Two River. Mr. Tanen also serves as
our Secretary, and Mr. Scott Navins, the Vice President of Finance for Two
River, serves as our Treasurer. Additionally, certain employees of
Two River, who are also stockholders of Arno, perform substantial operational
activity for us, including without limitation, financial, clinical and
regulatory activities.
Mr. Kash,
Mr. Kazam and Mr. Tanen are also the principals of Riverbank Capital Securities,
Inc. (“Riverbank”), a FINRA member broker dealer that acted as placement agent
in connection with the June 2008 private placement. Riverbank did not
receive any selling commission for its services in connection with the
Financing, but received a non-accountable expense allowance of
$100,000. Mr. Navins is also the Financial and Operations Principal
of Riverbank.
Pursuant
to a Consulting Agreement entered into between Arno and Fountainhead Capital
Management Limited (“Fountainhead Capital”), we paid a $500,000 consulting fee
to Fountainhead Capital upon completion of the merger with
Laurier. Fountainhead Capital was a significant stockholder of
Laurier at the time of the merger.
WHERE
YOU CAN FIND MORE INFORMATION
Federal securities laws require us to
file information with the SEC concerning our business and
operations. Accordingly, we file annual, quarterly, and special
reports, proxy statements and other information with the SEC. You can
inspect and copy this information at the Public Reference Facility maintained by
the SEC at Judiciary Plaza, 100 F Street, N.E., Washington,
D.C. 20549. You can receive additional information about
the operation of the SEC’s Public Reference Facilities by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that, like us, file information
electronically with the SEC.
VALIDITY
OF COMMON STOCK
Legal matters in connection with the
validity of the shares offered by this prospectus will be passed upon by
Fredrikson & Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The
financial statements of Arno Therapeutics, Inc. as of December 31, 2008 and
2007, and for the years then ended, and for the period from August 1, 2005
(inception) through December 31, 2008, included in this prospectus, have been
included herein in reliance on the report, dated March 31, 2009, of Hays &
Company LLP, independent registered public accounting firm, given on the
authority of that firm as experts in accounting and auditing.
TRANSFER
AGENT
The transfer agent for our common stock
is American Stock Transfer & Trust Company, and its address is 40 Wall
Street, New York, New York, 10005.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for
liabilities arising under the Securities Act of may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore
unenforceable.
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
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Stockholders'
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
(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 ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
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 ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
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 ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
(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.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
(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 r
a
tes 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), “
Accounting 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
oper
ations
.
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 inc
luded as a
component of tax expense for unrecognized tax benefits
.
(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 af
ter
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
.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
In June 2008 the FASB issued EITF Issue
No.
07-5, “
Determ
ining Whether an
Instrument (or Embedded Feature) Is Indexed to 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 pur
poses 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 Comp
any
’
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
i
n 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
Compa
ny Accounting
Oversight Board amendments to AU Section 411, “
The 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 asse
t 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 intangi
ble 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.
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.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
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.
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.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
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.
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.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
(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:
|
|
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:
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
|
|
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.
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.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
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.
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.
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
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.
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.
10,562,921
Shares
Common
Stock
PROSPECTUS
April __,
2009
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all
costs and expenses, other than underwriting discounts and commissions, payable
by us in connection with the sale of the common stock being
registered. All amounts shown are estimates except for the SEC
registration fee.
|
|
Amount
to be Paid
|
|
SEC
registration fee
|
|
$
|
1,206
|
|
Legal
fees and expenses
|
|
|
50,000
|
|
Accounting
fees and expenses
|
|
|
20,000
|
|
Printing
and engraving and miscellaneous expenses
|
|
|
5,000
|
|
Total
|
|
$
|
76,206
|
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General
Corporation Law of the State of Delaware provides as follows:
A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person’s conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that the person’s
conduct was unlawful.
A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification will be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Our
certificate of incorporation provides that we will indemnify any person,
including persons who are not our directors and officers, to the fullest extent
permitted by Section 145 of the Delaware General Corporation
Law.
In
addition, pursuant to our bylaws, we will indemnify our directors and officers
against expenses (including judgments or amounts paid in settlement) incurred in
any action, civil or criminal, to which any such person is a party by reason of
any alleged act or failure to act in his capacity as such, except as to a matter
as to which such director or officer shall have been finally adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation or not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation.
Reference
is made to Item 17 for our undertakings with respect to indemnification for
liabilities arising under the Securities Act of 1933.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
The following summarizes all sales of
unregistered securities by the Registrant within the last three
years. Each issued and outstanding share of Old Arno common stock
converted to 1.99377 shares of the Registrant’s common stock as of the closing
of the merger transaction between Laurier International, Inc. and Arno
Therapeutics, Inc., as described above in the accompanying
prospectus:
In
November 2006, Old Arno issued options to purchase an aggregate of 75,000 shares
of Old Arno common stock at an exercise price of $0.25 per share to three
members of Old Arno’s scientific advisory board. The options expire
in February 2011. The options were automatically converted at the
merger for options to purchase approximately 149,532 shares of our common stock
at an exercise price equal to $0.13 per share. In April 2008,
following his appointment to the Scientific Advisory Board, Old Arno issued
options to purchase 25,000 shares of common stock to Dr. Francis Giles at
an exercise price equal to $4.83 per share. The options expire in
April 2013. The options were automatically converted at the merger
for options to purchase approximately 49,844 shares of our common stock at an
exercise price equal to $2.42 per share.
On
February 9, 2007, Old Arno issued to certain accredited investors 6% Convertible
Promissory Notes in the aggregate principal amount of approximately $4,000,000
(the “Notes”). The Notes provided that upon the next closing of any
equity financing in excess of $5,000,000 (a “Qualified Financing”),
the Notes would automatically convert into the same securities issued by
Old Arno in the Qualified Financing (“Conversion Shares”), in an amount
determined by dividing the principal amount of the Notes, and all accrued
interest thereon, by 90% of the price per share sold in the Qualified Financing
(the “Offering Price”). In addition, upon conversion, Old Arno agreed
to issue to the holders of the Notes five-year warrants (“Conversion Warrants”),
to purchase a number of shares of Old Arno common stock equal to 10% of the
Conversion Shares at an exercise price equal to the Offering Price.
On March
31, 2008, Old Arno issued 10 year options to purchase 100,000 shares of Old Arno
common stock to Dr. Arie Belldegrun at an exercise price equal to
$4.83. The options were automatically converted at the merger for
options to purchase approximately 199,337 shares of our common stock at an
exercise price equal to $2.42 per share. One half of the options were
vested immediately. On the same date Old Arno issued 10 year options
to purchase 50,000 shares of Old Arno common stock to Robert I. Falk at an
exercise price equal to $4.83. The options were automatically
converted at the merger for options to purchase approximately 99,688 shares of
our common stock at an exercise price equal to $2.42 per share. One
half of the options were vested immediately.
As a
condition and immediately prior to the closing of the merger, on June 2, 2008,
Old Arno completed a private placement of its equity securities whereby it
received gross proceeds of approximately $17,732,000 through the sale of
approximately 3,691,900 shares of Old Arno common stock to selected accredited
investors, which shares were exchanged for 7,360,689 shares of Company common
stock after giving effect to the merger. Contemporaneously with the
June 2008 private placement, the Notes converted into 984,246 Conversion
Shares and the holders of the Notes received Conversion Warrants to purchase an
aggregate of 98,409 shares of Old Arno common stock at an exercise price equal
to $4.83 per share. The Conversion Shares were exchanged for an
aggregate of approximately 1,962,338 shares of our common stock and the
Conversion Warrants were exchanged for an aggregate of approximately 196,189
five year warrants to purchase our common stock at an exercise price equal
to $2.42 per share.
Except as
noted above, the sales of the securities identified above were made pursuant to
privately negotiated transactions that did not involve a public offering of
securities and, accordingly, we believe that these transactions were exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof and rules promulgated thereunder. Each of the
above-referenced investors in our stock represented to us in connection with
their investment that they were “accredited investors” (as defined by Rule 501
under the Securities Act) and were acquiring the shares for investment and not
distribution, that they could bear the risks of the investment and could hold
the securities for an indefinite period of time. The investors
received written disclosures that the securities had not been registered under
the Securities Act and that any resale must be made pursuant to a registration
or an available exemption from such registration. All of the
foregoing securities are deemed restricted securities for purposes of the
Securities Act.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit Number
|
|
Description of Document
|
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. (previously filed).
|
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. (previously filed).
|
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).
|
5.1
|
|
Opinion
of Fredrikson & Byron, P.A. (previously filed).
|
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 September 3, 2008).
|
10.11
|
|
Lease
Agreement by and between Arno Therapeutics, Inc. and Maple 4 Campus
L.L.C., dated October 17, 2008 (incorporated by reference to Exhibit 10.11
of the Registrant’s Form 10-K for the fiscal year ended December 31,
2008).
|
23.1
|
|
Consent
of Hays & Company LLP
|
23.2
|
|
Consent
of Fredrikson & Byron, P.A. (included in Exhibit
5.1).
|
24.1
|
|
Power
of Attorney (included on signature page
hereof).
|
|
+
|
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.
|
(b) 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 Registration Statement.
ITEM
17. UNDERTAKINGS.
The undersigned registrant hereby
undertakes:
|
(1)
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
(i)
|
To
include any prospectus required by section 10(a)(3) of the
Securities Act;
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in
the effective registration statement;
and
|
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial bona fide
offering thereof.
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered that remain unsold at the termination of this
offering.
|
|
(4)
|
That,
for the purpose of determining liability under the Securities Act to any
purchaser, if the registrant is subject to Rule 430C, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness.
Provided, however
, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document
immediately prior to such date of first
use.
|
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC this form of indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on April 13,
2009.
ARNO
THERAPEUTICS, INC.
|
|
|
By:
|
/s/ Roger G. Berlin
|
|
Roger
G. Berlin, M.D.
|
|
Chief
Executive Officer and Director
|
|
|
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Roger G. Berlin and Brian Lenz, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and
additional registration statements relating to the same offering, and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Roger G. Berlin
|
|
Chief
Executive Officer and Director
|
|
April
13, 2009
|
Roger
G. Berlin, M.D.
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Brian Lenz
|
|
Chief
Financial Officer
|
|
|
Brian
Lenz
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Arie S. Belldegrun
|
|
Non-Executive
Chairman and Director
|
|
April
13, 2009
|
Arie
S. Belldegrun, M.D., FACS
|
|
|
|
|
|
|
|
|
|
/s/
William F. Hamilton
|
|
Director
|
|
April
13, 2009
|
William
F. Hamilton, Ph.D.
|
|
|
|
|
|
|
|
|
|
/s/
Robert I. Falk
|
|
Director
|
|
April
13, 2009
|
Robert
I. Falk
|
|
|
|
|
|
|
|
|
|
/s/
Peter M. Kash
|
|
Director
|
|
April
13, 2009
|
Peter
M. Kash
|
|
|
|
|
|
|
|
|
|
/s/
Joshua A. Kazam
|
|
Director
|
|
April
13, 2009
|
Joshua
A. Kazam
|
|
|
|
|
|
|
|
|
|
/s/
David M. Tanen
|
|
Director
|
|
April
13, 2009
|
David
M. Tanen
|
|
|
|
|
INDEX
TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
Exhibit Number
|
|
Description of Document
|
23.1
|
|
Consent
of Hays & Company LLP
|
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