Filed Pursuant to Rule 424(b)(3)
File No. 333-170474
Prospectus Supplement No. 1
(to Prospectus dated May 14, 2012)
This Prospectus Supplement No. 1 supplements and amends
our prospectus dated May 14, 2012 (the “Prospectus”). The selling stockholders identified beginning on page 16 of the
Prospectus are offering on a resale basis a total of 26,753,061 shares of our common stock, of which 15,593,074 shares were issued
upon the conversion of our Series A Convertible Preferred Stock (including 319,074 shares of common stock issued as payment
of accrued dividends upon conversion of our Series A Convertible Preferred Stock) and 8,693,930 shares are issuable upon the exercise
of outstanding warrants.
Attached hereto and incorporated by reference herein is our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, which we filed with the Securities and Exchange Commission
on May 15, 2012. The information set forth in the attached Quarterly Report supplements and amends the information contained in
the Prospectus.
This Prospectus Supplement No. 1 should be read in conjunction
with, and delivered with, the Prospectus and is qualified by reference to the Prospectus except to the extent that the information
in this Prospectus Supplement No. 1 supersedes the information contained in the Prospectus.
Our common stock is eligible for quotation on the OTC Bulletin
Board under the symbol “ARNI.OB.” However, there is not currently an active trading market for our common
stock on the OTC Bulletin Board or otherwise. The selling stockholders identified in the Prospectus will be required
to sell the common stock registered hereunder at a fixed price of $1.00 per share until such time as a market for our common stock
develops. At and after such time, the selling stockholders may sell our common stock at the prevailing market price or at a privately
negotiated price. See “Plan of Distribution” beginning on page 21 of the Prospectus.
Investing in our common stock involves
a high degree of risk.
See “Risk Factors” beginning
on page 5 of the Prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or determined that the Prospectus or this Prospectus Supplement
No. 1 is truthful or complete. A representation to the contrary is a criminal offense.
The date of this Prospectus Supplement
No. 1 is May 15, 2012.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED MARCH 31,
2012
OR
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number: 000-52153
ARNO THERAPEUTICS, INC.
(Exact Name Of Registrant As Specified
In Its Charter)
Delaware
|
52-2286452
|
(State of Incorporation)
|
(I.R.S. Employer Identification No.)
|
200 Route 31 North, Suite 104, Flemington,
New Jersey 08822
(Address of principal executive offices)(Zip
Code)
(862) 703-7170
(Registrant’s telephone number,
including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
x
Yes
¨
No
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
¨
|
Accelerated filer
¨
|
|
|
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
x
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
As of May 14, 2012, there were 36,304,942
shares of common stock, par value $0.0001 per share, of Arno Therapeutics, Inc. issued and outstanding.
Index
|
|
Page
|
|
|
|
PART I
|
FINANCIAL INFORMATION
|
|
|
|
|
Item 1.
|
Financial Statements (unaudited)
|
|
|
|
|
|
Condensed Balance Sheets
|
4
|
|
|
|
|
Condensed Statements of Operations
|
5
|
|
|
|
|
Condensed Statement of Stockholders’ Equity (Deficiency)
|
6
|
|
|
|
|
Condensed Statements of Cash Flows
|
7
|
|
|
|
|
Notes to Condensed Financial Statements
|
8
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
19
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
27
|
|
|
|
Item 4.
|
Controls and Procedures
|
27
|
|
|
|
PART II
|
OTHER INFORMATION
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
28
|
|
|
|
Item 1A.
|
Risk Factors
|
28
|
|
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
28
|
|
|
|
Item 3.
|
Defaults Upon Senior Securities
|
28
|
|
|
|
Item 4.
|
Mine Safety Disclosures
|
28
|
|
|
|
Item 5.
|
Other Information
|
28
|
|
|
|
Item 6.
|
Exhibits
|
28
|
|
|
|
|
Signatures
|
29
|
|
|
|
|
Exhibit Index
|
|
References to “the Company,”
“we”, “us” or “our” in this Quarterly Report on Form 10-Q refer to Arno Therapeutics, Inc.,
a Delaware corporation, unless the context indicates otherwise.
Forward-Looking Statements
This Quarterly Report contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements are only
predictions and provide our current expectations or forecasts of future events and financial performance and may be identified
by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,”
“expects,” “plans,” “intends,” “may,” “will” or “should”
or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily
mean that a statement is not forward-looking. Forward-looking statements include all matters that are not historical facts and
include, without limitation, statements concerning our business strategy, outlook, objectives, future milestones, plans, intentions,
goals, future financial conditions, our research and development programs and planning for and timing of any clinical trials, the
possibility, timing and outcome of submitting regulatory filings for our product candidates under development, research and development
of particular drug products, the development of financial, clinical, manufacturing and marketing plans related to the potential
approval and commercialization of our drug products, and the period of time for which our existing resources will enable us to
fund our operations.
Forward-looking statements are subject
to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied
by the forward-looking statements. Examples of the risks and uncertainties include, but are not limited to:
|
·
|
the risk that recurring losses, negative cash flows and the inability to raise additional capital could threaten our ability
to continue as a going concern;
|
|
·
|
the risk that we may not successfully develop and market our product candidates, and even if we do, we may not become profitable;
|
|
·
|
risks relating to the progress of our research and development;
|
|
·
|
risks relating to significant, time-consuming and costly research and development efforts, including pre-clinical studies,
clinical trials and testing, and the risk that clinical trials of our product candidates may be delayed, halted or fail;
|
|
·
|
risks relating to the rigorous regulatory approval process required for any products that we may develop independently, with
our development partners or in connection with any collaboration arrangements;
|
|
·
|
the risk that changes in the national or international political and regulatory environment may make it more difficult to gain
FDA or other regulatory approval of our drug product candidates;
|
|
·
|
risks that the FDA or other regulatory authorities may not accept any applications we file;
|
|
·
|
risks that the FDA or other regulatory authorities may withhold or delay consideration of any applications that we file or
limit such applications to particular indications or apply other label limitations;
|
|
·
|
risks that, after acceptance and review of applications that we file, the FDA or other regulatory authorities will not approve
the marketing and sale of our drug product candidates;
|
|
·
|
risks relating to our drug manufacturing operations, including those of our third-party suppliers and contract manufacturers;
|
|
·
|
risks relating to the ability of our development partners and third-party suppliers of materials, drug substance and related
components to provide us with adequate supplies and expertise to support manufacture of drug product for initiation and completion
of our clinical studies; and
|
|
·
|
risks relating to the transfer of our manufacturing technology to third-party contract manufacturers.
|
Other risks that may affect forward-looking
statements contained in this report are described under Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2011. These risks, including those described above, could cause our actual results to differ materially from those described in
the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document. The risks discussed in this report should be considered in
evaluating our prospects and future performance.
PART I — FINANCIAL INFORMATION
Item 1. Financial
Statements.
ARNO THERAPUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,517,011
|
|
|
$
|
6,678,344
|
|
Prepaid expenses and other current assets
|
|
|
100,637
|
|
|
|
296,948
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,617,648
|
|
|
|
6,975,292
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
35,215
|
|
|
|
38,673
|
|
Security deposit
|
|
|
10,455
|
|
|
|
10,455
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,663,318
|
|
|
$
|
7,024,420
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,302,597
|
|
|
$
|
683,161
|
|
Accrued expenses and other current liabilities
|
|
|
562,394
|
|
|
|
1,188,041
|
|
Due to related party
|
|
|
50,094
|
|
|
|
84,756
|
|
Deferred rent
|
|
|
14,892
|
|
|
|
7,351
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,929,977
|
|
|
|
1,963,309
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
3,778,788
|
|
|
|
3,705,472
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,708,765
|
|
|
|
5,668,781
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 35,000,000 shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 80,000,000 shares authorized, 36,304,942 shares issued and outstanding
|
|
|
3,605
|
|
|
|
3,605
|
|
Additional paid-in capital
|
|
|
37,032,579
|
|
|
|
36,865,034
|
|
Deficit accumulated during the development stage
|
|
|
(38,081,631
|
)
|
|
|
(35,513,000
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' (deficiency) equity
|
|
|
(1,045,447
|
)
|
|
|
1,355,639
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficiency)
|
|
$
|
4,663,318
|
|
|
$
|
7,024,420
|
|
See accompanying notes to the unaudited
condensed financial statements.
ARNO THERAPUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 1, 2005 (inception)
|
|
|
|
2012
|
|
|
2011
|
|
|
through March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,877,593
|
|
|
$
|
1,267,030
|
|
|
$
|
30,185,671
|
|
General and administrative
|
|
|
617,468
|
|
|
|
343,097
|
|
|
|
7,661,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,495,061
|
|
|
|
1,610,127
|
|
|
|
37,847,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,495,061
|
)
|
|
|
(1,610,127
|
)
|
|
|
(37,847,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3,388
|
|
|
|
9,252
|
|
|
|
409,659
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,260,099
|
)
|
Other (expense) income
|
|
|
(76,958
|
)
|
|
|
(669,936
|
)
|
|
|
615,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(73,570
|
)
|
|
|
(660,684
|
)
|
|
|
(234,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,568,631
|
)
|
|
$
|
(2,270,811
|
)
|
|
$
|
(38,081,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
$
|
-
|
|
|
$
|
81,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(2,568,631
|
)
|
|
$
|
(2,352,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding -basic and diluted
|
|
|
36,304,942
|
|
|
|
29,248,099
|
|
|
|
|
|
See accompanying notes to the unaudited
condensed financial statements.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF STOCKHOLDERS’
EQUITY (DEFICIENCY)
PERIOD FROM AUGUST 1, 2005 (INCEPTION) TO
MARCH 31, 2012
(unaudited)
|
|
PREFERRED STOCK
|
|
|
COMMON STOCK
|
|
|
|
|
|
DEFICIT
|
|
|
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
|
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE
|
|
|
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares to founders at $0.0001 per share
|
|
|
-
|
|
|
$
|
-
|
|
|
|
9,968,797
|
|
|
$
|
997
|
|
|
$
|
4,003
|
|
|
$
|
-
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,131,218
|
|
|
|
-
|
|
|
|
1,131,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
647,448
|
|
|
|
-
|
|
|
|
647,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
2
|
|
|
|
2,598
|
|
|
|
-
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,936,705
|
)
|
|
|
(6,936,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
20,412,024
|
|
|
|
2,041
|
|
|
|
25,154,571
|
|
|
|
(23,580,861
|
)
|
|
|
1,575,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
249,286
|
|
|
|
-
|
|
|
|
249,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred units issued in private placement, net of issuance costs of $1,299,770
|
|
|
15,274,000
|
|
|
|
1,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,507,983
|
|
|
|
-
|
|
|
|
13,509,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with convertible preferred units issued in private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,340,421
|
)
|
|
|
-
|
|
|
|
(3,340,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issues to placement agents in connection with private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
464,720
|
|
|
|
-
|
|
|
|
464,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year ended December 31, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,023,026
|
)
|
|
|
(4,023,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
15,274,000
|
|
|
|
1,527
|
|
|
|
20,412,024
|
|
|
|
2,041
|
|
|
|
36,036,139
|
|
|
|
(27,603,887
|
)
|
|
|
8,435,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
707,284
|
|
|
|
-
|
|
|
|
707,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock conversion
|
|
|
(15,274,000
|
)
|
|
|
(1,527
|
)
|
|
|
15,274,000
|
|
|
|
1,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock dividend in connection with conversion of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
319,074
|
|
|
|
32
|
|
|
|
(32
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of restricted shares
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
115,168
|
|
|
|
-
|
|
|
|
115,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
49,844
|
|
|
|
5
|
|
|
|
6,475
|
|
|
|
-
|
|
|
|
6,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year ended December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,909,113
|
)
|
|
|
(7,909,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
36,304,942
|
|
|
|
3,605
|
|
|
|
36,865,034
|
|
|
|
(35,513,000
|
)
|
|
|
1,355,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
167,545
|
|
|
|
-
|
|
|
|
167,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, quarter ended March 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,568,631
|
)
|
|
|
(2,568,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2012
|
|
|
-
|
|
|
$
|
-
|
|
|
|
36,304,942
|
|
|
$
|
3,605
|
|
|
$
|
37,032,579
|
|
|
$
|
(38,081,631
|
)
|
|
$
|
(1,045,447
|
)
|
See accompanying notes to the unaudited
condensed financial statements.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 1, 2005 (inception)
|
|
|
|
2012
|
|
|
2011
|
|
|
through March 31, 2012
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,568,631
|
)
|
|
$
|
(2,270,811
|
)
|
|
$
|
(38,081,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,458
|
|
|
|
2,697
|
|
|
|
104,602
|
|
Stock-based compensation
|
|
|
167,545
|
|
|
|
29,975
|
|
|
|
3,115,949
|
|
Warrant liability
|
|
|
73,316
|
|
|
|
669,903
|
|
|
|
438,367
|
|
Write-off of intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
85,125
|
|
Warrants issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
480,400
|
|
Warrants issued in connection with note conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
348,000
|
|
Note discount arising from beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
475,391
|
|
Deferred rent
|
|
|
7,541
|
|
|
|
(1,005
|
)
|
|
|
14,892
|
|
Loss on disposal of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
5,357
|
|
Noncash interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
311,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
196,311
|
|
|
|
98,889
|
|
|
|
(100,637
|
)
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Security deposit
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,455
|
)
|
Accounts payable
|
|
|
619,436
|
|
|
|
(294,206
|
)
|
|
|
1,302,597
|
|
Accrued expenses
|
|
|
(625,647
|
)
|
|
|
(195,379
|
)
|
|
|
562,394
|
|
Due to related party
|
|
|
(34,662
|
)
|
|
|
91,919
|
|
|
|
50,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,161,333
|
)
|
|
|
(1,868,018
|
)
|
|
|
(30,898,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
-
|
|
|
|
(2,121
|
)
|
|
|
(100,174
|
)
|
Cash paid for intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(85,125
|
)
|
Proceeds from related party advance
|
|
|
-
|
|
|
|
-
|
|
|
|
525,000
|
|
Repayment of related party advance
|
|
|
-
|
|
|
|
-
|
|
|
|
(525,000
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(2,121
|
)
|
|
|
(185,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock to founders
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
Proceeds from issuance of preferred stock in private placement, net
|
|
|
-
|
|
|
|
-
|
|
|
|
13,974,230
|
|
Proceeds from issuance of common stock in private placement, net
|
|
|
-
|
|
|
|
-
|
|
|
|
17,690,037
|
|
Deferred financing fees paid
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,000
|
)
|
Proceeds from issuance of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Repayment of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Proceeds from issuance of convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
3,967,000
|
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
9,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
35,600,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,161,333
|
)
|
|
|
(1,870,139
|
)
|
|
|
4,517,011
|
|
Cash and cash equivalents at beginning of period
|
|
|
6,678,344
|
|
|
|
13,528,444
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,517,011
|
|
|
$
|
11,658,305
|
|
|
$
|
4,517,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flows information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable and interest to common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,278,518
|
|
Common shares of Laurier issued in reverse merger transaction
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
110
|
|
Issuance of warrants in connection with private placement of convertible preferred units
|
|
$
|
-
|
|
|
|
|
|
|
$
|
3,340,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends paid in connection with conversion
|
|
|
|
|
|
$
|
319,074
|
|
|
$
|
319,074
|
|
See accompanying notes to the unaudited
condensed financial statements.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
1. DESCRIPTION OF BUSINESS
Arno Therapeutics, Inc. (“Arno”
or the “Company”) develops innovative drug candidates for the treatment of patients with cancer. The following is a
summary of the Company’s product development pipeline:
|
·
|
Onapristone
–
Onapristone is an anti-progestin hormone blocker that has been shown to have considerable
anti-tumor activity in patients with breast cancer. In prior clinical studies, onapristone has demonstrated a 56% objective response
rate as a first line “hormone” treatment of breast cancer. In connection with the development of onapristone, the Company
intends to develop a companion diagnostic product to selectively identify patients who express the activated progesterone receptor
and would potentially be more likely to benefit from treatment with onapristone. The Company plans to conduct pre-clinical toxicology
studies and manufacturing activities in 2012 and to file an investigational new drug application (“IND”) in 2013.
|
|
·
|
AR-42
– AR-42 is an orally available, broad spectrum inhibitor of both histone and non-histone deacetylation
proteins, or Pan-DAC, which play an important role in the regulation of gene expression, cell growth and survival. AR-42
is currently being studied in an investigator-initiated Phase I/II clinical study in adult subjects with relapsed or refractory
multiple myeloma, chronic lymphocytic leukemia, or CLL, or lymphoma. The protocol has been amended to include a solid tumor dose
escalation cohort which is currently open for patient accrual.
|
|
·
|
AR-12
– AR-12 is an orally available, targeted anti-cancer agent that has been shown in pre-clinical studies
to inhibit phosphoinositide dependent protein kinase-1, or PDK-1, a protein in the PI3K/Akt pathway that is involved in the growth
and proliferation of cells, including cancer cells. AR-12 has also been reported to cause cell death through the induction of endoplasmic
reticulum stress and work is ongoing to further understand the mechanism of action. The Company is currently conducting
a multi-centered Phase I clinical study of AR-12 in adult subjects with advanced or recurrent solid tumors or lymphoma.
|
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
was a non-operating shell company prior to the Merger. 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. Upon
completion of the Merger, the Company adopted Old Arno’s business plan.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company is a development stage enterprise
since it has not yet generated any revenue from the sale of products and, through March 31, 2012, its efforts have been principally
devoted to developing its licensed technologies, recruiting personnel, establishing office facilities, and raising capital. Accordingly,
the accompanying condensed financial statements have been prepared in accordance with the provisions of Accounting Standards Codification
(“ASC”) 915, “Development Stage Entities.” The Company has experienced net losses since its inception and
has an accumulated deficit of approximately $38.1 million at March 31, 2012. The Company expects to incur substantial and increasing
losses and to have negative net cash flows from operating activities as it expands its technology portfolio and engages in further
research and development activities, particularly from conducting pre-clinical studies and clinical trials.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
The accompanying unaudited Condensed Financial
Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q adopted under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. In the opinion of Arno’s management, the accompanying Condensed Financial Statements contain all adjustments
(consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations
and cash flows of the Company at the dates and for the periods indicated. The interim results for the period ended March 31, 2012
are not necessarily indicative of results for the full 2012 fiscal year or any other future interim periods. Because the Merger
was accounted for as a reverse acquisition under generally accepted accounting principles, the financial statements for periods
prior to June 3, 2008, reflect only the operations of Old Arno.
These unaudited Condensed Financial Statements
have been prepared by management and should be read in conjunction with the Financial Statements and notes thereto included in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange
Commission.
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.
Research and Development
Research and development costs are charged
to expense as incurred. Research and development includes employee costs, 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 office, insurance, depreciation, 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 for which development work is still in process
are charged to operations as incurred and considered a component of research and development expense.
Warrant Liability
The Company accounts for the warrants issued
in connection with the September 2010 Purchase Agreement (Note 7) in accordance with the guidance on Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which provides that the Company classifies the warrant instrument
as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to
re-measurement at each balance sheet date until exercised, and any change in fair value is recognized as a component of other income
or expense. The fair value of warrants issued by the Company, in connection with private placements of securities, has been estimated
using a Monte Carlo simulation model and, in doing so, the Company’s management utilized a third-party valuation report.
The Monte Carlo simulation is a generally accepted statistical method used to generate a defined number of stock price paths in
order to develop a reasonable estimate of the range of the Company’s future expected stock prices and minimizes standard
error.
3. LIQUIDITY AND CAPITAL RESOURCES
Cash resources as of March 31, 2012 were
approximately $4.5 million, compared to $6.7 million as of December 31, 2011. Based on its resources at March 31, 2012 and the
current plan of expenditure on continuing development of the Company’s current product candidates, the Company believes that
it has sufficient capital to fund its operations through approximately the third quarter of 2012. However, the Company will need
substantial additional financing in order to fund its operations beyond such period and thereafter until it can achieve profitability,
if ever. The Company’s continued operations will depend on its ability to raise additional funds through various potential
sources, such as equity and debt financing, or to license its product candidates to another pharmaceutical company. The Company
will continue to fund operations from cash on hand and through sources of capital similar to those previously described. The Company
cannot assure that it will be able to secure such additional financing, or if available, that it will be sufficient to meet its
needs.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
The success of the Company depends on
its ability to develop new products to the point of regulatory approval and subsequent revenue generation and, accordingly,
to raise enough capital to finance these developmental efforts. Management plans to raise additional equity capital or
license one or more of its products to finance the continued operating and capital requirements of the Company. Amounts
raised will be used to further develop the Company’s product candidates, acquire rights to additional product
candidates and for other working capital purposes. While the Company will extend its best efforts to raise additional capital
to fund all operations beyond the next 6 months, management can provide no assurances that the Company will be able to raise
sufficient funds.
In addition, to the extent that the Company
raises additional funds by issuing shares of its common stock or other securities convertible or exchangeable for shares of common
stock, stockholders may experience additional significant dilution. In the event the Company raises additional capital through
debt financings, the Company may incur significant interest expense and become subject to covenants in the related transaction
documentation that may affect the manner in which the Company conducts its business. To the extent that the Company raises additional
funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to its technologies or product
candidates, or grant licenses on terms that may not be favorable to the Company. These things may have a material adverse effect
on the Company’s business.
These factors raise substantial doubt about
the Company's ability to continue as a going concern. The Company’s financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
The financial statements do not include any adjustments that might result from the inability of the Company to continue as a going
concern.
4. BASIC AND DILUTED LOSS 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 the Three Months Ended March 31,
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
Net loss
|
|
$
|
(2,568,631
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(2,270,811
|
)
|
|
|
|
|
|
|
|
|
Less: Preferred stock dividends
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(81,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to common stockholders
|
|
$
|
(2,568,631
|
)
|
|
|
36,304,942
|
|
|
$
|
(0.07
|
)
|
|
$
|
(2,352,462
|
)
|
|
|
29,248,099
|
|
|
$
|
(0.08
|
)
|
For all periods presented, potentially dilutive
securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.
Potentially dilutive securities include:
|
|
March 31, 2012
|
|
|
March 31, 2011
|
|
Options to purchase common stock
|
|
|
-
|
|
|
|
129,532
|
|
For the three months ended March 31, 2012
and 2011, 15,278,570 and 10,833,264 warrants and options have been excluded from the computation of potentially dilutive securities,
respectively, as their exercise prices are greater than the fair market price per common share as of March 31, 2012 and 2011, respectively.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
5. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
License Agreements
Onapristone License Agreement
The Company’s rights to onapristone
are governed by a license agreement with Invivis Pharmaceuticals, Inc. (“Invivis”), dated February 13, 2012. Under
this agreement, the Company holds an exclusive, royalty-bearing license for the rights to commercialize onapristone for all therapeutic
uses. The license agreement provides the Company with worldwide rights to onapristone with the exception of France; provided, however,
that the Company has an option to acquire French commercial rights from Invivis upon notice to Invivis together with additional
consideration.
The onapristone license agreement provides
the Company with exclusive, worldwide rights to a United States provisional patent application that relates to assays for predictive
biomarkers for anti-progestin efficacy. The Company intends to expand its patent portfolio by filing additional patent applications
covering the use of onapristone and/or a companion diagnostic product. If the pending patent application issues, the issued patent
would be scheduled to expire in 2031.
The Company made a one-time cash payment
of $500,000 to Invivis upon execution of the license agreement on February 13, 2012. Additionally, Invivis will receive performance-based
cash payments of up to an aggregate of $15.1 million upon successful completion of clinical and regulatory milestones relating
to onapristone, which milestones include the marketing approval of onapristone in multiple indications in the United States or
the European Union as well as Japan. The Company will make the first milestone payment to Invivis upon the dosing of the first
subject in the first Company-sponsored Phase I clinical trial of onapristone, which is anticipated in 2013. In addition, the Company
will pay Invivis low single digit sales royalties based on net sales of onapristone by the Company or any of its sublicensees.
Pursuant to a separate services agreement, Invivis will provide the Company with certain clinical development support services,
which includes the assignment of up to two full-time employees to perform such services, in exchange for a monthly cash payment.
Under the license agreement with Invivis,
the Company also agreed to indemnify and hold Invivis and its affiliates harmless from any and all claims arising out of or in
connection with the production, manufacture, sale, use, lease, consumption or advertisement of onapristone, provided, however,
that the Company shall have no obligation to indemnify Invivis for claims that (a) any patent rights infringe third party intellectual
property, (b) arise out of the gross negligence or willful misconduct of Invivis, or (c) result from a breach of any representation,
warranty confidentiality obligation of Invivis under the license agreement. The license agreement will terminate upon the later
of (i) the last to expire valid claim contained in the patent rights, and (ii) February 13, 2032. In general, Invivis may terminate
the license agreement at any time upon a material breach by the Company to the extent the Company fails to cure any such breach
within 90 days after receiving notice of such breach or in the event the Company files for bankruptcy. The Company may terminate
the agreement for any reason upon 90 days’ prior written notice.
AR-12 and AR-42 License Agreements
The Company’s rights to both AR-12
and AR-42 are governed by separate license agreements with The Ohio State University Research Foundation (“Ohio State”)
entered into in January 2008. Pursuant to each of these agreements, Ohio State granted the Company exclusive, worldwide, royalty-bearing
licenses to commercialize certain patent applications, know-how and improvements relating to AR-12 and AR-42 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. Additionally, the Company is 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 license agreements
for AR-12 and AR-42 provide for aggregate potential milestone payments of up to $6.1 million for AR-12, of which $5.0 million is
due only after marketing approval in the United States, Europe and Japan, and $5.1 million for AR-42, of which $4.0 million is
due only after marketing approval in the United States, Europe and Japan. In September 2009, the Company paid Ohio State
a milestone payment upon the commencement of the first Company-sponsored Phase I clinical study of AR-12. The first
milestone payment for AR-42 will be due when the first patient is dosed in the first Company-sponsored clinical trial, which is
not anticipated until early 2013. Pursuant to the license agreements for AR-12 and AR-42, the Company must pay Ohio State royalties
on net sales of licensed products at rates in the low-single digits. To the extent the Company enters into a sublicensing
agreement relating to either or both of AR-12 or AR-42, the Company will be required to pay Ohio State a portion of all non-royalty
income received from such sublicensee. The Company may be required to make milestone payments of up to approximately $0.2 million
under these license agreements during 2012, depending on the outcome of certain ongoing development activities.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
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.
AR-67 License Agreement
The Company’s rights to AR-67 were
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.
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. Additionally,
Pitt was entitled to receive performance-based cash payments upon successful completion of clinical and regulatory milestones relating
to AR-67. The Company would have made the first milestone payment to Pitt upon the acceptance of the first new drug application
by the FDA for AR-67. The Company was also required to pay to Pitt an annual maintenance fee of $200,000 upon the third and fourth
anniversaries of the license agreement, $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.
The Company does not anticipate making any milestone payments during 2012 under this license agreement.
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.
On January 12, 2012, the Company received
a notice from Pitt, in which Pitt claimed that the Company was in default under the parties’ license agreement for failure
to pay a $250,000 annual license fee under the terms of that agreement and provided the Company with 60 days’ notice to remedy
the default. On March 29, 2012, following the Company’s determination not to proceed with further development of AR-67, the
parties agreed to terminate the license agreement. As of March 31, 2012, the Company has accrued for the outstanding annual license
fee of $250,000, while the Company is working with Pitt to wind down its AR-67 program.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines fair value as the amount
at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties,
that is, other than in a forced or liquidation sale. The fair value estimates presented in the table below are based on information
available to the Company as of March 31, 2012.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
The accounting standard regarding fair value
measurements discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present
value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).
The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These
include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
The Company has determined the fair value
of certain liabilities using the market approach: the following table presents the Company’s fair value hierarchy for these
assets measured at fair value on a recurring basis as of March 31, 2012:
|
|
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
|
Significant Other
|
|
|
|
Significant
|
|
|
|
|
Fair Value March
|
|
|
|
Markets
|
|
|
|
Observable Inputs
|
|
|
|
Unobservable Inputs
|
|
|
|
|
31, 2012
|
|
|
|
(Level 1)
|
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
3,778,788
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,778,788
|
|
The following table provides a summary of
changes in fair value of the Company’s liabilities, as well as the portion of losses included in income attributable to unrealized
appreciation that relate to those liabilities held at March 31, 2012:
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
|
|
Warrant Liability
|
|
|
|
|
|
Balance at January 1, 2012
|
|
$
|
(3,705,472
|
)
|
|
|
|
|
|
Purchases, sales and settlements
|
|
|
|
|
Warrants issued
|
|
|
-
|
|
|
|
|
|
|
Total gains or losses
|
|
|
|
|
Unrealized appreciation
|
|
|
(73,316
|
)
|
|
|
|
|
|
Balance at March 31, 2012
|
|
$
|
(3,778,788
|
)
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
7. STOCKHOLDERS’ EQUITY
Common Stock
On November 15, 2010, the Company’s
stockholders authorized the amendment of the Company’s amended and restated certificate of incorporation in order to effect
a combination (reverse split) of its common stock at a ratio not to exceed one-for-eight, provided that the Company’s board
of directors shall have absolute discretion to determine and fix the exact ratio of such combination and the time at which such
combination shall become effective, if ever. The Company’s board of directors has taken no further action to implement
a combination of its common stock and reserves the right to abandon the proposed reverse stock split in its sole discretion.
On February 9, 2011, all 15,274,000 shares
of the Company’s outstanding Series A Convertible Preferred Stock automatically converted into 15,274,000 shares of common
stock upon the effectiveness of a registration statement that the Company filed with the SEC covering the resale of such conversion
shares. In addition, the Company elected to pay the $319,074 in accrued dividends on such preferred stock through the issuance
of shares of common stock resulting in the issuance of an additional 319,074 shares.
On April 25, 2011, the Company issued 250,000
shares of restricted common stock to its new Chief Executive Officer pursuant to his employment agreement. These shares vest in
12 equal monthly installments and have a total fair value of $172,750, or $0.69 per share, as estimated by management using
a Monte Carlo simulation model using the significant assumptions described below in addition to a discount for the restrictions
and, in doing so, utilized a third-party valuation report (see Note 7 – Warrants). The shares are recognized as
compensation expense upon vesting. The Company has recognized $43,188 and $158,356 of compensation expense for the three months
ended March 31, 2012 and for the period from August 1, 2005 (inception) through March 31, 2012, respectively, in connection with
the restricted shares. As of April 25, 2012, all 250,000 shares have vested.
As of March 31, 2012, the Company has 36,304,942
shares of common stock issued and outstanding.
Preferred Stock
On August 11, 2010, the Company amended
and restated its certificate of incorporation, increasing the number of shares of preferred stock authorized for issuance thereunder
from 10,000,000 to 35,000,000.
On September 3, 2010, the Company entered
into a Securities Purchase and Registration Rights Agreement, or the Purchase Agreement, with a number of institutional and accredited
investors pursuant to which the Company sold in a private placement an aggregate of 15,274,000 shares of newly-designated Series
A Convertible Preferred Stock, par value $0.0001 per share, or Series A Preferred Stock, at a per share purchase price of $1.00. In
accordance with the Purchase Agreement, the Company also issued two-and-one-half-year Class A warrants to purchase an aggregate
of 1,221,920 shares of Series A Preferred Stock at an initial exercise price of $1.00 per share and five-year Class B warrants
to purchase an aggregate of 6,415,080 shares of Series A Preferred Stock at an initial exercise price of $1.15 per share. The terms
of the Class A and Class B warrants contain an anti-dilutive price adjustment provision, such that, in the event the Company issues
common shares at a price below the current exercise price of the warrants, the exercise price of the Class A and Class B warrants
will be adjusted based on the lower issuance price. The sale of the shares and warrants resulted in aggregate gross proceeds of
approximately $15.2 million, before expenses.
The terms, conditions, privileges, rights
and preferences of the Series A Preferred Stock are described in a Certificate of Designation filed with the Secretary of
State of Delaware on September 3, 2010.
The Certificate of Designation provided
that each share of Series A Preferred Stock was initially convertible at the holder’s election into one share of common
stock. The Certificate of Designation further provided that all shares of Series A Preferred Stock would automatically
convert into common stock upon the effective date of a registration statement covering the resale under the Securities Act of the
conversion shares of common stock. In addition, the Class A and B warrants provided that, upon the automatic conversion of the
Series A Preferred Stock, such warrants would automatically convert into the right to purchase shares of common stock. On
February 9, 2011, a registration statement filed under the Securities Act covering the resale of the shares of common stock issuable
upon conversion of the Series A Preferred Stock was declared effective, resulting in the automatic conversion of all 15,274,000
shares of Series A Preferred Stock into an equal number of shares of common stock.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
The holders of Series A Preferred Stock
were entitled to an annual per share cumulative dividend equal to 5% of the original issuance price of $1.00 per share, which dividends
were paid upon the conversion of the Series A Preferred Stock into common stock, and which the Company elected to pay
in the form of additional shares of common stock in lieu of cash. The accrued dividend through February 9, 2011, the effective
date of the registration statement and date of conversion of the Series A Preferred Stock into common stock, was $319,074. The
dividend was paid in 319,074 shares of common stock at a $1.00 per share conversion price.
Issuance costs related to the financing
were approximately $1.8 million, of which approximately $0.5 million was non-cash for issuance of warrants (“Placement Warrants”)
to purchase 1,056,930 shares of the Company’s common stock at 110% of the Series A Preferred Stock purchase price per share
to designees of Riverbank Capital Securities, Inc. (“Riverbank”), a related party controlled by several officers and/or
directors of the Company (see Note 9), and I-Bankers Securities, Inc. (“IBS”), which acted as placement agents
for the Company in connection with the private placement. The Placement Warrants have a five-year life and were valued at $465,820
based on the Monte Carlo simulation. As of March 31, 2012, none of these warrants have been exercised.
Warrants
In accordance with the September 2010 Purchase
Agreement, the Company issued two-and-one-half-year Class A warrants to purchase an aggregate of 1,221,920 shares of Series A Preferred
Stock at an initial exercise price of $1.00 per share and five-year Class B warrants to purchase an aggregate of 6,415,080 shares
of Series A Preferred Stock at an initial exercise price of $1.15 per share. The terms of the warrants contain an anti-dilutive
price adjustment provision, such that, in the event the Company issues common shares at a price below the current exercise price
of the warrants, the exercise price will be adjusted based on the lower issuance price. Because of this anti-dilution provision
and the inherent uncertainty as to the probability of future common share issuances, the Black-Scholes option pricing model the
Company uses for valuing stock options could not be used. Management used a Monte Carlo simulation model and, in doing
so, utilized a third-party valuation report to determine the warrant liability to be approximately $3.8 million and approximately
$3.7 million at March 31, 2012 and December 31, 2011, respectively. The Monte Carlo simulation is a generally accepted statistical
method used to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of the Company’s
future expected stock prices and minimizes standard error. This valuation is revised on a quarterly basis until the warrants are
exercised or they expire with the changes in fair value recorded in other expense on the statement of operations.
In connection with the September 2010 private
placement, the Company issued warrants (“Placement Warrants”) to purchase 1,056,930 shares of the Company’s common
stock at 110% of the Series A Preferred Stock purchase price per share to designees of Riverbank and IBS, that acted as placement
agents for the Company in connection with the private placement. The Placement Warrants have a five-year life and were
valued at $465,820 based on the Monte Carlo simulation. As of March 31, 2012, none of these warrants have been exercised.
Below is a table that
summarizes all outstanding warrants to purchase shares of the Company’s common stock as of March 31, 2012.
Grant
Date
|
|
Warrants
Issued
|
|
|
Exercise
Price
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Expiration
Date
|
|
|
Exercised
|
|
|
Warrants
Outstanding
|
|
01/02/2008
|
|
|
299,063
|
|
|
$
|
2.42
|
|
|
$
|
2.42
|
|
|
|
01/02/2013
|
|
|
|
-
|
|
|
|
299,063
|
|
06/02/2008
|
|
|
196,189
|
|
|
$
|
2.42
|
|
|
$
|
2.42
|
|
|
|
06/02/2013
|
|
|
|
-
|
|
|
|
196,189
|
|
09/03/2010
|
|
|
1,221,920
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
|
03/03/2013
|
|
|
|
-
|
|
|
|
1,221,920
|
|
09/03/2010
|
|
|
6,415,080
|
|
|
$
|
1.15
|
|
|
$
|
1.15
|
|
|
|
09/03/2015
|
|
|
|
-
|
|
|
|
6,415,080
|
|
09/03/2010
|
|
|
1,056,930
|
|
|
$
|
1.10
|
|
|
$
|
1.10
|
|
|
|
09/03/2015
|
|
|
|
-
|
|
|
|
1,056,930
|
|
|
|
|
9,189,182
|
|
|
|
|
|
|
$
|
1.19
|
|
|
|
|
|
|
|
-
|
|
|
|
9,189,182
|
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
8. 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 were initially 2,990,655 shares of the
Company’s common stock reserved for issuance under the Plan. On April 25, 2011, the Company’s Board of Directors approved
an amendment to the Plan to increase the number of shares of common stock issuable under the Plan to 7,000,000 shares. Under the
Plan, 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: (a) incentive stock options and non-statutory stock options, (b) stock
appreciation rights, (c) stock awards, (d) restricted stock and (e) 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.
As of March 31, 2012, an aggregate of 590,768
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.
For the three months ended March 31, 2012
and 2011, there were no options issued by the Company.
A summary of the status of the options issued
under the Plan at March 31, 2012, and information with respect to the changes in options outstanding is as follows:
|
|
Shares
|
|
|
Outstanding
|
|
|
Weighted-
|
|
|
Aggregate
|
|
|
|
Available for
|
|
|
Stock
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Grant
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Value
|
|
Balance at January 1, 2012
|
|
|
51,601
|
|
|
|
6,628,555
|
|
|
$
|
1.09
|
|
|
|
|
|
Options granted under the Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
539,167
|
|
|
|
(539,167
|
)
|
|
$
|
1.00
|
|
|
|
|
|
Balance at March 31, 2012
|
|
|
590,768
|
|
|
|
6,089,388
|
|
|
$
|
1.10
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2012
|
|
|
|
|
|
|
1,996,804
|
|
|
$
|
1.30
|
|
|
$
|
-
|
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
The following table summarizes information
about stock options outstanding at March 31, 2012:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
$
|
1.00
|
|
|
|
5,698,655
|
|
|
|
8.5
|
|
|
$
|
1.00
|
|
|
|
1,606,071
|
|
|
$
|
1.00
|
|
$
|
2.42
|
|
|
|
299,066
|
|
|
|
4.1
|
|
|
$
|
2.42
|
|
|
|
299,066
|
|
|
$
|
2.42
|
|
$
|
3.00
|
|
|
|
91,667
|
|
|
|
2.0
|
|
|
$
|
3.00
|
|
|
|
91,667
|
|
|
$
|
3.00
|
|
Total
|
|
|
|
6,089,388
|
|
|
|
8.3
|
|
|
$
|
1.10
|
|
|
|
1,996,804
|
|
|
$
|
1.30
|
|
Stock-based compensation costs for the three months ended March
31, 2012 and 2011 and for the cumulative period from August 1, 2005 (inception) through March 31, 2012 are as follows:
|
|
Three months ended March 31,
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
August 1, 2005 (inception)
|
|
|
|
2012
|
|
|
2011
|
|
|
through March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
138,788
|
|
|
$
|
675
|
|
|
$
|
1,683,415
|
|
Research and development
|
|
|
28,757
|
|
|
|
29,300
|
|
|
|
1,432,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
167,545
|
|
|
$
|
29,975
|
|
|
$
|
3,115,949
|
|
The fair value of options vested under the
Plan was approximately $6,981 and $12,663 for the three months ended March 31, 2012 and 2011, respectively, and approximately $2,361,846 for the period from August 1, 2005 (inception) through March 31, 2012.
At March 31, 2012, total unrecognized estimated
compensation cost related to stock options granted prior to that date was approximately $1,910,778, which is expected to be recognized
over a weighted-average vesting period of 2.2 years. This unrecognized estimated employee compensation cost does not include any
estimate for forfeitures of performance-based stock options.
Common stock, stock options or other equity
instruments issued to non-employees (including consultants and all members of the Company’s Scientific Advisory Board) as
consideration for goods or services received by the Company are accounted for 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 and is expensed as the underlying options vest. The fair value of any options
issued to non-employees is recorded as expense over the applicable service periods.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
9. RELATED PARTIES
On June 1, 2009, the Company entered into
a services agreement with Two River Consulting, LLC (“TRC”) to provide various clinical development, operational, managerial,
accounting and financial, and administrative services to the Company for a period of one year. David M. Tanen, the Company’s
then President, Secretary and director, Arie S. Belldegrun, the Chairman of the Board of Directors, and Joshua A. Kazam, a director
until September 2010, are each partners of TRC. The terms of the Services Agreement were reviewed and approved by a special committee
of the Company’s Board of Directors consisting of independent directors. None of the members of the special committee has
any interest in TRC or the services agreement. As compensation for the services contemplated by the services agreement, the Company
paid TRC a monthly cash fee of $55,000. The services agreement with TRC expired on April 1, 2011 and until a new agreement
is in place, TRC is billing the Company for actual hours worked on a monthly basis. For the first quarter of 2012, TRC
billed Arno $69,615 for services rendered, an average of approximately $23,205 per month.
On occasion, some of the Company’s
expenses are paid by TRC. No interest is charged by TRC on any outstanding balance owed by the Company. For the three months ended
March 31, 2012 and 2011 and for the period from August 1, 2005 (inception) through March 31, 2012 services and reimbursed expenses
totaled $100,607, $216,217 and $1,904,372 respectively. As of March 31, 2012, the Company had a payable to TRC of $50,094, which
was paid in full by May 7, 2012.
In connection with the September
2010 private placement, the Company engaged Riverbank to serve as placement agent. In consideration for its services,
the Company paid Riverbank a placement fee of $789,880. In addition, the Company issued to designees of
Riverbank five-year warrants to purchase an aggregate of 664,880 shares of Series A Preferred Stock at an initial exercise
price of $1.10 per share. The warrants issued to Riverbank are in substantially the same form as the Class A and Class B
Warrants issued to the investors in the private placement, except that they do not include certain anti-dilution provisions
contained in the Class A and Class B Warrants. Each of Mr. Kazam, Mr. Tanen and Peter M. Kash, a director of Arno until April
2011, are principals of Riverbank.
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.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Overview
We are a development stage company focused
on developing innovative products for the treatment of cancer. The following is a summary of our product development pipeline:
|
·
|
Onapristone
– On February 13, 2012, we entered into a license agreement granting us rights to
commercially
develop onapristone, an anti-progestin hormone blocker that has been shown to have considerable anti-tumor activity in
breast cancer.
Onapristone appears to have a unique ability to block the activated progesterone receptor and inhibit tumor growth.
Onapristone was originally developed by Schering AG for potential use as a contraceptive and an anti-endocrine treatment of
breast cancer. In clinical studies, onapristone has demonstrated a 56% objective response rate as a first line
“hormone” treatment of patients with breast cancer. In connection with the development of onapristone, we intend
to develop a companion diagnostic product to identify patients who express activated progesterone and therefore may benefit
from treatment with onapristone. We intend to conduct pre-clinical toxicology studies and manufacturing activities and to
file an IND by the second quarter of 2013.
|
|
·
|
AR-42 –
AR-42 is being developed as an orally available, broad spectrum inhibitor of both histone and non-histone
deacetylation proteins, or Pan-DAC, which play an important role in the regulation of gene expression, cell growth and survival.
In preclinical studies, AR-42 has demonstrated greater potency and activity in solid tumors and hematological malignancies when
compared to vorinostat (also known as SAHA and marketed as Zolinza® by Merck). These data demonstrate the potent and potential
differentiating activity of AR-42. Additionally, pre-clinical findings presented at the 2009 American Society of Hematology Annual
Meeting showed that AR-42 potently and selectively inhibits leukemic stem cells in acute myeloid leukemia, or AML. AR-42
is currently being studied in an investigator-initiated Phase I/II clinical study in adult subjects with relapsed or refractory
hematological malignancies: multiple myeloma, chronic lymphocytic leukemia (CLL), or lymphoma. The recommended Phase II dose,
or RP2D, in patients with hematological malignancies has been determined and the expansion phase of the program has been initiated.
Up to an additional 10 study subjects with multiple myeloma, CLL and lymphoma may be enrolled at the RP2D. We expect
that the expansion phase of the hematological malignancy cohort will take at least 12 months to complete. The protocol has been
amended to include a separate solid tumor dose escalation cohort and patients are being actively screened to enter into this cohort.
In preclinical studies, AR-42 has demonstrated anti-tumor activity in both meningioma and schwannoma. Meningioma and schwannoma
are rare, benign tumors that can present in different locations within the brain and the spinal cord and may cause substantial
morbidity for those affected individuals. The primary treatment option for patients with these tumors is surgical excision. In
February 2012, the FDA granted orphan drug designation for AR-42 for the treatment of meningioma and schwannoma of the central
nervous system. Additionally, AR-42 has been granted orphan-drug designation by the European Medicines Agency’s (EMA)
Committee for Orphan Medicinal Products for the treatment of neurofibromatosis type 2 (NF2). NF2 is a rare genetic
disorder characterized by the growth of noncancerous tumors in the brain and spinal cord, juvenile cataracts, and neurofibromas
of the skin. We have also applied to the FDA for orphan drug designation of AR-42 for the treatment of NF2 associated central
nervous system tumors and to the EMA for the orphan designations for the treatment of meningioma and schwannoma.
|
|
·
|
AR-12
– We are also developing AR-12 as an orally available, targeted anti-cancer agent that has been shown
in pre-clinical studies to inhibit phosphoinositide dependent protein kinase-1, or PDK-1, a protein in the PI3K/Akt pathway that
is involved in the growth and proliferation of cells, including cancer cells. We believe AR-12 may also cause cell death
through the induction of stress in the endoplasmic reticulum. In May 2009, the FDA accepted our investigational new drug application,
or IND, for AR-12. We are currently conducting a multi-centered Phase I clinical study of AR-12 in adult patients with advanced
or recurrent solid tumors or lymphoma. The Phase I study of AR-12 was originally designed to be conducted in two parts.
The first part is a dose-escalating study, which we refer to as the Escalation Phase, primarily designed to evaluate the safety
of AR-12 in order to identify the MTD or RP2D for future studies of the compound. We anticipate that the Escalation Phase
will be completed in the third quarter of 2012. We also anticipate the determination of an RP2D or MTD with the conclusion
of the Escalation Phase in the third quarter of 2012. Following the Escalation Phase, we planned to initiate the second
part of the study, which we refer to as the Expansion Phase, which would have involved enrolling an expanded cohort of additional
patients at the RP2D in multiple tumor types. We will not be moving forward with the Expansion Phase of this study as we
plan to conduct further clinical development of AR-12 with a novel and improved formulation that has been shown to substantially
increase the bioavailability in preclinical models.
|
We have no product sales to date and we
will not generate any product revenue until we receive approval from the U.S. Food and Drug Administration, or the FDA, or equivalent
foreign regulatory bodies to begin selling our pharmaceutical product candidates. Developing pharmaceutical products is a lengthy
and very expensive process. Assuming we do not encounter any unforeseen safety or other 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. To date,
a significant amount of our development expenses have related to two of our product candidates: AR-12 and AR-67. As we proceed
with the clinical development of our product candidates, primarily focusing our resources on onapristone and AR-42, our
research and development expenses will further increase. 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. To date, our major sources of working capital have been proceeds from private and public sales of our common and preferred
stock and debt financings.
Research and development, or R&D, 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, costs related to obtaining
and maintaining our product license agreements, contractual review, and other expenses relating to the design, development, testing,
and enhancement of our product candidates. We expense our R&D costs as they are incurred.
General and administrative, or G&A, expenses
consist primarily of salaries and related expenses for executive, finance and other administrative personnel, accounting, legal
and other professional fees, business development expenses, rent, business insurance and other corporate expenses.
Our results include non-cash compensation
expense as a result of the issuance of stock options and warrants. We expense the fair value of stock options and warrants over
the vesting period. When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes
option-pricing model. 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 performance and product development. 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.
Results of Operations
General and Administrative Expenses
.
G&A expenses for the three months ended March 31, 2012 and 2011 were approximately $0.6 million and $0.3 million, respectively.
The increase of approximately $0.3 million over the same period in 2011 is primarily attributable to an increase of approximately
$0.2 million in personnel costs, including stock compensation expense due to having a full-time CEO and executive assistant during
the three months ended March 31, 2012 and no employees in those positions during the first quarter of 2011. There was also an approximately
$0.1 million increase in travel expenses related to general business activities during the three months ended March 31, 2012 over
the comparable period in 2011.
Research and Development
Expenses
. R&D expenses for the three months ended March 31, 2012 and 2011 were approximately $1.9 million and $1.3
million, respectively. The increase of approximately $0.6 million over the same period of 2011 is primarily due to the
approximately $0.7 million spent on our new product, onapristone, which was in-licensed during the first quarter of 2012.
Onapristone-related costs included a $0.5 million one-time cash payment to the licensor, approximately $0.1 million on
initial manufacturing activities and approximately $0.1 million on clinical development support services. This increase
related to onapristone was partially offset by an approximately $0.4 million decrease in manufacturing activities for AR-12
over the 2011 period resulting from reformulation activities performed during the first quarter of 2011 that were not
actively ongoing during the first quarter of 2012. Additionally, there was an increase of approximately $0.2 million related
to the license termination of AR-67 during the first quarter of 2012 and an increase of approximately $0.1 million in
compensation costs related to the having a full-time Chief Medical Officer during the first quarter of 2012 with the position
being vacant during the same period of 2011.
The following table summarizes our R&D
expenses incurred for preclinical support, contract manufacturing of clinical supplies, clinical trial services provided by third
parties and milestone payments for in-licensed technology for each of our product candidates for the three months ended March 31,
2012 and 2011, as well as the cumulative amounts since we began development of each product candidate through March 31, 2012. The
table also summarizes unallocated costs, which consist of personnel, facilities and other costs not directly allocable to development
programs:
|
|
Three Months Ended March 31,
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
amounts during
|
|
|
|
2012
|
|
|
2011
|
|
|
development
|
|
Onapristone
|
|
$
|
828,356
|
|
|
$
|
-
|
|
|
$
|
854,774
|
|
AR-12
|
|
|
132,304
|
|
|
|
645,641
|
|
|
|
8,975,192
|
|
AR-67
|
|
|
259,011
|
|
|
|
106,756
|
|
|
|
7,924,228
|
|
AR-42
|
|
|
206,628
|
|
|
|
78,489
|
|
|
|
4,238,105
|
|
Unallocated R&D
|
|
|
451,294
|
|
|
|
436,144
|
|
|
|
8,193,372
|
|
Total
|
|
$
|
1,877,593
|
|
|
$
|
1,267,030
|
|
|
$
|
30,185,671
|
|
Onapristone.
We are currently developing onapristone,
an anti-progestin hormone blocker that has been shown to have considerable anti-tumor activity in breast and endometrial cancer.
We intend to conduct pre-clinical toxicology studies and manufacturing activities and to file an IND by the second quarter of 2013.
Based on our current development plans for onapristone, we anticipate spending approximately $5.3 million on external development
costs during the fiscal year 2012, which includes the one-time cash payment of $0.5 million that we made to Invivis upon execution
of the license agreement in February 2012.
AR-42.
AR-42 is currently being studied in an investigator-initiated
Phase I/II clinical study in adult subjects with relapsed or refractory hematological malignancies; multiple myeloma, chronic lymphocytic
leukemia (CLL), or lymphoma. The recommended Phase II dose, or RP2D, in patients with hematological malignancies has been
determined and the expansion phase of the program has been initiated. Up to an additional 10 study subjects with multiple
myeloma, CLL and lymphoma, may be enrolled at the RP2D. We expect that the expansion phase of the hematological malignancy
cohort will take at least 12 months to complete. The protocol has been amended to include a separate solid tumor dose escalation
cohort, and subjects are being actively screened to enter into this cohort.
During 2012, we intend
to collaborate with Ohio State to conduct a Phase 0 investigator-initiated study of AR-42 in patients with schwannoma and meningioma.
The primary purpose of this study will be to assess intra-tumoral concentrations of AR-42, identify apoptosis markers and assess
gene regulation.
Based on our current development plans for AR-42, we anticipate spending approximately $2.8 million on
external development costs during the fiscal year 2012.
AR-12.
We are also developing AR-12 as a potentially
first-in-class, orally available, targeted anti-cancer agent that has been shown in pre-clinical studies to inhibit phosphoinositide
dependent protein kinase-1, or PDK-1, a protein in the PI3K/Akt pathway that is involved in the growth and proliferation of cells,
including cancer cells. We are currently conducting a multi-centered Phase I clinical study of AR-12 in adult patients
with advanced or recurrent solid tumors or lymphoma. The Phase I study of AR-12 is designed to evaluate the safety of AR-12
in order to identify the MTD or RP2D for future studies of the compound. We anticipate the determination of an RP2D or MTD
in the third quarter of 2012. In addition, d
uring 2012, we intend to collaborate with Ohio
State to conduct a Phase 0 investigator-initiated study of AR-42 in patients with schwannoma and meningioma. The primary purpose
of this study will be to assess intra-tumoral concentrations of AR-42, identify apoptosis markers and assess gene regulation.
Based
on our current development plans for AR-12, we anticipate spending approximately $0.5 million on external development costs during
the fiscal year 2012.
Our expenditures on current and future clinical
development programs are expected to be substantial, particularly in relation to our available capital resources, and to increase.
However, these planned expenditures 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, it is very difficult to
accurately predict 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:
|
·
|
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 the ability to secure regulatory approvals.
|
Interest Income
. Interest income for
the three months ended March 31, 2012 and 2011 were $3,388 and $9,252, respectively. This decrease in interest income over the
same period in 2011 is primarily due to lower average cash balances.
Other (Expense) Income.
Other expense
for the three months ended March 31, 2012 was approximately $0.1 million compared to other expense of approximately $0.7 million
for the same period of 2011. This decrease in other expense of approximately $0.6 million over 2011 is primarily due to an approximately
$0.7 million noncash adjustment to the warrant liability during the three months end March 31, 2011 versus an adjustment of approximately
$0.1 million during the three months ended March 31, 2012.
Liquidity and Capital Resources
The following table
summarizes our liquidity and capital resources as of March 31, 2012 and December 31, 2011 and our net changes in cash and cash
equivalents for the three months ended March 31, 2012 and 2011 (the amounts stated are expressed in thousands):
Liquidity and capital resources
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
Cash and cash equivalents
|
|
$
|
4,517
|
|
|
$
|
6,678
|
|
Working Capital
|
|
$
|
2,688
|
|
|
$
|
5,012
|
|
Stockholders' equity (deficiency)
|
|
$
|
(1,045
|
)
|
|
$
|
1,356
|
|
|
|
Three Months Ended March 31,
|
|
Cash flow data
|
|
2012
|
|
|
2011
|
|
Cash used in:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(2,161
|
)
|
|
$
|
(1,868
|
)
|
Investing activities
|
|
|
-
|
|
|
|
(2
|
)
|
Net decrease in cash and cash equivalents
|
|
$
|
(2,161
|
)
|
|
$
|
(1,870
|
)
|
Our total cash resources as of March 31,
2012 were approximately $4.5 million compared to approximately $6.7 million as of December 31, 2011. As of March 31, 2012, we had
approximately $5.8 million in liabilities (of which approximately $3.8 million represented a non-cash warrant liability),
and approximately $2.7 million in net working capital. We incurred a net loss of approximately $2.6 million and had negative cash
flow from operating activities of $2.2 million for the three months ended March 31, 2012. Since August 1, 2005 (inception) through
March 31, 2012, we have incurred an aggregate net loss of approximately $38.1 million, while negative cash flow from operating
activities has amounted to $30.9 million. As we continue to develop our product candidates, we expect to continue to incur substantial
and increasing losses, which will continue to generate negative net cash flows from operating activities as we expand our technology
portfolio and engage in further research and development activities, particularly the conducting of pre-clinical studies and clinical
trials.
Based on our resources at March 31, 2012,
we believe that we have sufficient capital to fund our planned operations through approximately the third quarter of 2012.
As we have not generated any revenue from operations to date, and we do not expect to generate revenue for several years, if ever,
we will need to raise substantial additional capital 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. From inception through March
31, 2012, we have financed our operations through private sales of our equity and debt securities. We may seek to raise additional
funds through various potential sources, such as equity and debt financings, or through strategic collaborations and license agreements.
However, we do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us, or at all. We can give no assurances that we will be able to
secure such additional sources of funds to support our operations, or if such funds are available to us, that such additional financing
will be sufficient to meet our needs.
Potential sources of financing include strategic
relationships, public or private sales of equity or debt and other sources. We may seek to access the public or private equity
markets when conditions are favorable due to our long-term capital requirements. 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. The continuation
of our business beyond the third quarter of 2012 is dependent upon obtaining further long-term financing, the successful development
of our drug product candidates and related technologies, the successful and sufficient market acceptance of any product offerings
that we may introduce, and, finally, the achievement of a profitable level of operations. Obtaining commercial loans, assuming
those loans would be available, on acceptable terms or even at all, will increase our liabilities and future cash commitments.
If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to
significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
In such an event, we will be required to undertake a thorough review of our programs and the opportunities presented by such programs
and allocate our resources in the manner most prudent.
Notwithstanding the foregoing estimates,
based on the various options for future clinical studies of onapristone, AR-42 and AR-12, our projected cash needs are difficult
to predict. In addition, there are other factors which may also cause our actual cash requirements to vary materially, including
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. If we are unable to raise
additional funds when needed, we may not be able to continue development and regulatory approval of our products, and we could
be required to delay, scale back or eliminate some or all our research and development programs and we may need to wind down our
operations altogether. Each of these alternatives would likely have a material adverse effect on our business.
The actual amount of funds we will need
to operate is subject to many factors, some of which are beyond our control. These factors include the following:
|
·
|
the progress of our research activities;
|
|
·
|
the costs of hiring additional full-time personnel;
|
|
·
|
the number and scope of our research programs;
|
|
·
|
the progress of our pre-clinical and clinical development activities;
|
|
·
|
the costs and timing of manufacturing our drug candidates;
|
|
·
|
the progress of the development efforts of parties with whom we have entered into research and development agreements;
|
|
·
|
our ability to maintain current research and development programs and to establish new research and development and licensing
arrangements;
|
|
·
|
the cost involved in prosecuting and enforcing patent claims and other intellectual property rights; and the cost and timing
of regulatory approvals.
|
We have based our estimates on assumptions
that may prove to be wrong. We may need to obtain additional funds sooner than planned or in greater amounts than we currently
anticipate.
License Agreement Commitments
Onapristone
License Agreement
Our rights to onapristone are governed by
a license agreement with Invivis Pharmaceuticals, Inc. (“Invivis”), dated February 13, 2012. Under this agreement,
we hold an exclusive, royalty-bearing license for the rights to commercialize onapristone for all therapeutic uses. The license
agreement provides us with worldwide rights to onapristone with the exception of France; provided, however, that we have an option
to acquire French commercial rights from Invivis upon notice to Invivis together with a cash payment.
The onapristone license agreement provides
us with exclusive, worldwide rights to a U.S. provisional patent application that relates to assays for predictive biomarkers for
anti-progestin efficacy. We intend to expand our patent portfolio by filing additional patent applications covering the use of
onapristone and/or a companion diagnostic product. If the pending patent application issues, the issued patent would be scheduled
to expire in 2031.
We made a one-time cash payment of $500,000
to Invivis upon execution of the license agreement on February 13, 2012. Additionally, Invivis will receive performance-based cash
payments of up to an aggregate of $15.1 million upon successful completion of clinical and regulatory milestones relating to onapristone,
which milestones include the marketing approval of onapristone in multiple indications in the United States or the European Union
as well as Japan. We will make the first milestone payment to Invivis upon the dosing of the first subject in the first Company-sponsored
Phase I clinical trial of onapristone, which is not anticipated until 2013. In addition, we will pay Invivis low single digit sales
royalties based on net sales of onapristone by us or any of our sublicensees. Pursuant to a separate services agreement, Invivis
will provide us with certain clinical development support services, which includes the assignment of up to two full-time employees
to perform such services, in exchange for a monthly cash payment.
Under the license agreement with Invivis,
we also agreed to indemnify and hold Invivis and its affiliates harmless from any and all claims arising out of or in connection
with the production, manufacture, sale, use, lease, consumption or advertisement of onapristone, provided, however, that we shall
have no obligation to indemnify Invivis for claims that (a) any patent rights infringe third party intellectual property, (b) arise
out of the gross negligence or willful misconduct of Invivis, or (c) result from a breach of any representation, warranty confidentiality
obligation of Invivis under the license agreement. The license agreement will terminate upon the later of (i) the last to expire
valid claim contained in the patent rights, and (ii) February 13, 2032. In general, Invivis may terminate the license agreement
at any time upon a material breach by us to the extent we fail to cure any such breach within 90 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 for the rights to commercialize technologies
embodied by certain issued patents, patent applications, know-how and improvements relating to AR-12 and AR-42 for all therapeutic
uses.
Under our license agreement for AR-12,
we have exclusive, worldwide rights to one issued U.S. patent and four pending U.S. patent applications that relate to AR-12 and
particular uses of AR-12 according to our business plan. The issued patent includes composition of matter claims. The issued patent
is currently scheduled to expire in 2024. If the pending patent applications issue, the latest of the issued patent or patents
would be scheduled to expire in 2028.
Under our license agreement for AR-42,
we have exclusive, worldwide rights to two pending U.S. patent applications that relate to AR-42 and particular uses of AR-42 according
to our business plan. If either or both of the pending patent applications issue, the issued patent or patents would both be scheduled
to expire in 2024. In addition, in 2010, we filed one U.S. provisional patent application directed primarily to particular methods
of using AR-42. If any U.S. patent claiming priority to the provisional patent applications issues, such a patent would be scheduled
to expire in 2031.
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 license agreements for AR-12 and AR-42 provide for aggregate
potential milestone payments of up to $6.1 million for AR-12, of which $5.0 million is due only after marketing approval in the
United States, Europe and Japan, and $5.1 million for AR-42, of which $4.0 million is due only after marketing approval in the
United States, Europe and Japan. In September 2009, we paid Ohio State a milestone payment upon the commencement
of the Phase I clinical study of AR-12. The first milestone payment for AR-42 will be due when the first patient is dosed
in the first Company-sponsored Phase I clinical trial. Pursuant to the license agreements for AR-12 and AR-42, we must pay Ohio
State royalties on net sales of licensed products at rates in the low-single digits. 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.
AR-67 License Agreement
Our rights to AR-67 were governed by an
October 2006 license agreement with the University of Pittsburgh (“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.
Under the terms of the 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 was
entitled to receive performance-based cash payments upon successful completion of clinical and regulatory milestones relating to
AR-67. We would have made the first milestone payment to Pitt upon the acceptance of the first new drug application by the FDA
for AR-67. We were 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. We do not anticipate making any milestone
payments during 2012 under this license agreement.
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.
On January 12, 2012, we received a notice
from Pitt, indicating that we were in default under the license agreement for failure to pay a $250,000 annual license fee under
the terms of that agreement and providing us with 60 days’ notice to remedy the default. On March 29, 2012, following our
determination not to proceed with further development of AR-67, we agreed with Pitt to terminate the license agreement. As of March
31, 2012, we have accrued for the outstanding annual license fee of $250,000, while we are working with Pitt to wind down our AR-67
program.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements
as of March 31, 2012.
Critical Accounting Policies and Estimates
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, including research and development and clinical trial accruals, and stock-based
compensation estimates. 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 the following critical accounting policies
reflect the more significant judgments and estimates used in the preparation of our financial statements and accompanying notes.
Research and Development Expenses and Accruals
R&D 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, costs related to obtaining and maintaining our product
licenses, contractual review, and other expenses relating to the design, development, testing, and enhancement of our product candidates.
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 R&D activities are based on estimates of the services received and efforts expended pursuant to contracts with numerous
clinical trial centers and clinical 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 CROs 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 CROs 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 R&D 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 R&D 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 R&D 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. We have issued stock options to employees, directors,
consultants and Scientific Advisory Board members under our 2005 Stock Option Plan, as amended.
We expense the fair value of employee stock-based
compensation over the vesting period. When more precise pricing data is unavailable, 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.
Stock options or other equity instruments
to non-employees (including consultants and all members of our Scientific Advisory Board) issued as consideration for goods or
services received by us are accounted for 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.
During the period in which our common stock
was registered under the Securities Exchange Act and publicly traded (October 3, 2008 through May 5, 2009), our management used
the following assumptions: On the option grant date, the current available quoted market price for determining the fair value of
our common stock, an expected volatility based on the average expected volatilities of a sampling of five companies with similar
attributes to us, including industry, stage of life cycle, size and financial leverage, an expected dividend rate of 0% based on
management plan of operations, a risk free interest rate based on the current U.S. Treasury 5-year Treasury Bill and an expected
forfeiture rate of 0%.
Subsequent to the deregistration of our common
stock in May 2009, for all options granted in 2009, management estimated the fair value of our common stock to be $1.00 based on
the following factors. The stock was publicly trading at $1.00 per share prior to being deregistered. Subsequent to the deregistration,
we did not experience any significant events including clinical trial results, new product acquisitions or discoveries which management
believes would influence a material change in share price following the deregistration. In addition, our management used the following
assumptions for options granted during this period: An expected volatility based on the average expected volatilities of a sampling
of five companies with similar attributes to us, including industry, stage of life cycle, size and financial leverage, an expected
dividend rate of 0% based on management plan of operations, a risk free interest rate based on the current U.S. Treasury 5-year
Treasury Bill and an expected forfeiture rate of 0%.
On February 9, 2011, the effective date
of the registration statement filed in connection with our September 2010 private placement of Series A Preferred Stock, we
again became subject to the reporting requirements of the Exchange Act. Due to the lack of an active public market for our
common stock, management estimated the fair value of our common stock using a Monte Carlo simulation model and, in doing
so, utilized a third-party valuation report. The Monte Carlo simulation is a generally accepted statistical method used
to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of our future
expected stock prices and minimizes standard error. Management used this valuation for options granted in 2011. In addition,
our management used the following assumptions for options granted during this period: An expected volatility based on the
average expected volatilities of a sampling of five companies with similar attributes to us, including industry, stage of
life cycle, size and financial leverage, an expected dividend rate of 0% based on management plan of operations, a risk free
interest rate based on the current U.S. Treasury 5-year Treasury Bill and an expected forfeiture rate of 0%.
The terms and vesting schedules for share-based
awards vary by type of grant and the employment status of the grantee. Generally, the awards vest based upon time-based or performance-based
conditions. Performance-based conditions generally include the attainment of goals related to our financial and development performance.
Stock-based compensation expense is included in the respective categories of expense in the Statements of Operations. We expect
to record additional non-cash compensation expense in the future, which may be significant.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls
and Procedures.
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and
that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Commission Rule 13a-15(b),
we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the quarter covered by this report. Based on the foregoing, our Principal Executive Officer and Principal Financial
Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in our internal
control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal
Proceedings.
The Company is not a party to any material
pending legal proceedings.
Item 1A. Risk
Factors.
Not applicable.
Item 2. Unregistered
Sales of Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults
Upon Senior Securities.
Not applicable.
Item 4. Mine
Safety Disclosures.
Not applicable.
Item 5. Other
Information.
None.
Item 6. Exhibits.
Exhibit No.
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Exhibit Description
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10.1
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Exclusive License Agreement dated February 13, 2012 between Arno Therapeutics, Inc. and Invivis Pharmaceuticals, Inc.+
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10.2
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Master Services Agreement dated February 13, 2012 between Arno Therapeutics, Inc. and Invivis Pharmaceuticals, Inc.+
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31.1
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Certification of Principal Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101
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The following financial information from Arno Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Balance Sheets as of March 31, 2012 and December 31, 2011, (ii) Condensed Statements of Operations for the three months ended March 31, 2012 and March 31, 2011, and for the period from August 1, 2005 (inception) through March 31, 2012, (iii) Condensed Statement of Stockholders’ Equity (Deficiency) for the period from August 1, 2005 (inception) through March 31, 2012, (iv) Condensed Statements of Cash Flows for the three months ended March 31, 2012 and March 31, 2011, and for the period from August 1, 2005 (inception) through March 31, 2012, and (v) Notes to Condensed Financial Statements.*
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+
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Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment
under Rule 24b-2 of the Exchange Act. The entire exhibit has been separately filed with the Commission.
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*
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101
to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement,
prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific
reference in such filings.
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SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ARNO THERAPEUTICS, INC.
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Date: May 15, 2012
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By:
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/s/ Glenn R. Mattes
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Glenn R. Mattes
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date: May 15, 2012
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By:
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/s/ Scott L. Navins
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Scott L. Navins
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Treasurer
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(Principal Financial and Accounting Officer)
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