PROSPECTUS SUMMARY
This summary highlights information
contained elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that is important
to you. Accordingly, you are urged to carefully review this prospectus in its entirety, including the risks of investing
in our securities discussed under the caption “Risk Factors” and the financial statements and other information that
is contained in or incorporated by reference into this prospectus or the registration statement of which this prospectus is a
part before making an investment decision. Unless the context otherwise requires, hereafter in this prospectus the terms
the “Company,” “Arno,” “we,” “us,” or “our” refer to Arno Therapeutics,
Inc., a Delaware corporation.
Company 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:
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Onapristone
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On February 13, 2012, we entered into a license agreement granting
us rights to develop and commercialize onapristone, an anti-progestin hormone blocker
that has been previously reported to have considerable anti-tumor activity in patients
with breast cancer. Onapristone appears to have a unique ability to block the activation
of the progesterone receptor and inhibit tumor growth. Onapristone was originally developed
by Schering AG for potential use in the treatment of benign gynecological disorders (uterine
leiomyoma, endometriosis), as a contraceptive and an anti-endocrine treatment of breast
cancer. In published 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 have engaged Leica Biosystems to
perform a feasibility study leading to the development of an immunohistochemistry based
diagnostic test to identify tumors with the activated form of the progesterone receptor,
which may identify which patients are more likely to benefit from treatment with onapristone.
We have also engaged Clarient Diagnostic Services, Inc. to perform the interpretation/analysis
of tumor samples with the developed diagnostic test. We completed initial pre-clinical
toxicology studies that enabled the submission of an Investigational Medicinal Product
Dossier, or IMPD, the foreign equivalent of an investigational new drug application,
or IND, in the second quarter of 2013 to support a pharmacokinetic/food effect study,
which we completed in the fourth quarter of 2013. We also submitted an IMPD
to support the conduct of a Phase I study in patients with progesterone receptor expressing
cancers in the third quarter of 2013. We initiated this study in the fourth quarter of
2013 and began enrolling patients in early 2014. We are also evaluating onapristone as
a potential treatment for patients with prostate cancer and began enrolling the first
patient in a Phase I clinical study in adult male subjects with castrate resistant prostate
cancer in April 2014.
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AR-42
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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.
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. We are also supporting
an investigator initiated Phase I study of AR-42 in combination with decitabine in patients
with hematological malignancies that was initiated during the third quarter of 2013.
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 two orphan drug designations
for AR-42 for the treatment of meningioma and the treatment of schwannoma of the central
nervous system. Additionally, AR-42 has been granted three orphan-drug designations by
the European Medicines, or EMA, for the treatment of neurofibromatosis type 2 (NF2),
the treatment of meningioma and the treatment of schwannoma. 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.
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AR-12
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We are also developing AR-12 as an orally available, targeted
anti-cancer agent that has been shown in early 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 and
work is ongoing to further understand the mechanism of action. Preliminary data demonstrates
that AR-12 may inhibit multiple different kinase targets. In May 2009, the FDA accepted
our 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 and RP2D for future studies
of the compound. We have completed the dose escalation phase of the Phase I trial, and
have determined the RP2D and MTD of the current formulation. 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 an improved formulation that has been shown to substantially
increase bioavailability in preclinical models has been developed. During the first quarter
of 2013, the last study subject completed the planned dose-escalation phase of the study.
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In June 2008, we were acquired by Laurier
International, Inc., a Delaware corporation, in a “reverse” merger whereby a wholly-owned subsidiary of Laurier merged
with and into Arno Therapeutics, with Arno Therapeutics remaining as the surviving corporation and a wholly-owned subsidiary of
Laurier. In accordance with the terms of this merger, stockholders of Arno Therapeutics exchanged all of their shares of common
stock of Arno Therapeutics for shares of Laurier common stock at a rate of 1.99377 shares of Laurier common stock for each share
of Arno Therapeutics common stock. As a result of the issuance of the shares of Laurier common stock to the former Arno Therapeutics
stockholders, following the merger the former stockholders of Arno Therapeutics held 95 percent of the outstanding common stock
of Laurier, assuming the issuance of all shares underlying outstanding options and warrants. Upon completion of the merger,
all of the former officers and directors of Laurier resigned and were replaced by the officers and directors of Arno Therapeutics.
Additionally, following the merger Laurier changed its name to Arno Therapeutics, Inc.
Our executive offices are located at 200
Route 31 North, Suite 104, Flemington, New Jersey 08822. Our telephone number is (862) 703-7170. Our website is
www.arnothera.com
.
Information contained in, or accessible through, our website does not constitute a part of this prospectus.
Risk Factors
As with most biopharmaceutical product
candidates, the development of our product candidates is subject to numerous risks, including the risk of delays in or discontinuation
of development from lack of financing, inability to obtain necessary regulatory approvals to market the products, unforeseen safety
issues relating to the products and dependence on third party collaborators to conduct research and development of the products. Because
we are a development stage company with a limited history of operations, we are also subject to many risks associated with early-stage
companies. For a more detailed discussion of some of the risks you should consider before purchasing shares of our common
stock, you are urged to carefully review and consider the section entitled “Risk Factors” beginning on page 5 of this
prospectus.
The Offering
The selling stockholders
identified beginning on page 19 of this prospectus are offering on a resale basis a total of 44,861,891 shares of our common
stock, of which 36,448,537 are issuable upon the exercise of outstanding warrants. The total value of all the common stock
offered pursuant to this prospectus is approximately $85.2 million, based upon a per share price of $1.90, which represents
the closing sale price of our common stock as reported on the OTCQB on May 14, 2014.
Common stock offered
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44,861,891 shares
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Common stock outstanding before the offering
(1)
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20,370,331 shares
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Common stock outstanding after the offering
(2)
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56,818,868 shares
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Use of Proceeds
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We will receive none of the proceeds from the sale of the shares
by the selling stockholders, except for the warrant exercise price upon exercise of the warrants, which would be used for
working capital and other general corporate purposes.
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OTCQB Symbol
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ARNI
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(1)
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Based on the number of shares outstanding as of March
31, 2014, not including 55,929,172 shares issuable upon exercise of various warrants
and options to purchase our common stock.
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(2)
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Assumes the issuance of all shares offered hereby that
are issuable upon exercise of warrants.
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RISK FACTORS
Investment in our common stock involves
significant risk. You should carefully consider the information described in the following risk factors, together with the other
information appearing elsewhere in this prospectus, before making an investment decision regarding our common stock. If any of
these risks actually occur, our business, financial conditions, results of operations and future growth prospects would likely
be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may
lose all or a part of your investment in our common stock. Moreover, the risks described below are not the only ones that we face.
Risks Relating to Our Business
We currently have no product revenues and will need to
raise substantial additional capital to operate our business.
To date, we have generated no product revenues.
Until, and unless, we receive approval from the FDA and/or other regulatory authorities for our product candidates, we cannot
sell our drugs and will not have product revenues. Currently, none of our product candidates are approved for sale by the FDA.
Therefore, for the foreseeable future, we will have to fund all of our operations and capital expenditures from cash on hand and,
potentially, future offerings of our equity and debt securities. Based on our current development plans, and taking into account
the net proceeds from our 2013 Offering, we believe we have cash on hand to fund our operations through approximately the fourth
quarter of 2014. We will require substantial additional funds to support our continued research and development activities, and
the anticipated costs of preclinical studies and clinical trials, regulatory approvals and eventual commercialization. There can
be no assurance that such additional financing can be obtained on desirable terms, if at all. In addition, changes may occur that
would consume our available capital before that time, including changes in and progress of our development activities, acquisitions
of additional product candidates and changes in regulation. Accordingly, we will need additional capital to fund our continuing
operations. Since we do not generate any recurring revenue, the most likely sources of such additional capital include private
placements of our equity securities, including our common stock, debt financing or funds from a potential strategic licensing
or collaboration transaction involving the rights to one or more of our product candidates. To the extent that we raise additional
capital by issuing equity securities, our stockholders will likely experience dilution, which may be significant depending on
the number of shares we may issue and the price per share. If we raise additional funds through collaborations and licensing arrangements,
it may be necessary to relinquish some rights to our technologies, product candidates or products, or grant licenses on terms
that are not favorable to us. If we raise additional funds by incurring debt, we could incur significant interest expense and
become subject to covenants in the related transaction documentation that could affect the manner in which we conduct our business.
We currently have no committed sources
of additional capital and our access to capital funding is always uncertain. This uncertainty is exacerbated due to the global
economic turmoil of the last few years, which continues to severely restrict access to the U.S. and international capital markets,
particularly for small biopharmaceutical and biotechnology companies like us. Accordingly, despite our ability to secure adequate
capital in the past, there is no assurance that additional equity or debt financing will be available to us when needed, on acceptable
terms or even at all. If we fail to obtain the necessary additional capital when needed, we may be forced to significantly curtail
our planned research and development activities, which will cause a delay in our drug development programs and may severely harm
our business.
We are a development stage
company.
We have not received any operating revenues
to date and are in the development stage. You should be aware of the problems, delays, expenses and difficulties encountered by
an enterprise in our stage of development, and particularly for companies engaged in the development of new biotechnology or biopharmaceutical
product candidates, many of which may be beyond our control. These include, but are not limited to, problems relating to product
development, testing, regulatory compliance, manufacturing, marketing, costs and expenses that may exceed current estimates and
competition. No assurance can be given that our existing product candidates, or any technologies or products that we may acquire
in the future will be successfully developed, commercialized and accepted by the marketplace or that sufficient funds will be
available to support operations or future research and development programs.
We are not currently profitable and may never become
profitable.
We expect to incur substantial losses
and negative operating cash flows for the foreseeable future, and we may never achieve or maintain profitability. For the years
ended December 31, 2013 and 2012, we had a net loss of $39.7 million and $14.4 million, respectively. For the period from our
inception on August 1, 2005 through December 31, 2013, we had a net loss of $89.6 million. Even if we succeed in developing and
commercializing one or more of our product candidates, we expect to incur substantial losses for the foreseeable future, as we:
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continue
to undertake pre-clinical development and clinical trials for our product candidates;
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seek
regulatory approvals for our product candidates;
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in-license
or otherwise acquire additional products or product candidates;
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seek
patent protection for our product candidates;
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implement
additional internal systems and infrastructure; and
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hire
additional personnel.
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Further, for the years ended December
31, 2013 and 2012, we had negative cash flows from operating activities of $14.2 million and $9.4 million, respectively. Since
inception on August 1, 2005 through December 31, 2013, we had negative cash flows from operating activities of $52.4 million.
We expect to continue to experience negative cash flows for the foreseeable future as we fund our operating losses and capital
expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may
not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability
could negatively impact the value of our common stock.
We have a limited operating history upon which to base
an investment decision.
We are a development stage company and
have not demonstrated our ability to perform the functions necessary for the successful commercialization of any of our product
candidates. The successful commercialization of our product candidates will require us to perform a variety of functions, including:
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continuing
to undertake pre-clinical development and clinical trials for our product candidates;
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participating
in regulatory approval processes;
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formulating
and manufacturing products; and
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conducting
sales and marketing activities.
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Our operations have been limited to organizing
our company, acquiring, developing and securing our proprietary technologies and performing pre-clinical and clinical trials of
our product candidates. These operations provide a limited basis for you to assess our ability to commercialize our product candidates
and the advisability of investing in our securities.
We may not successfully manage our growth.
Our success will depend upon the expansion
of our operations and the effective management of our growth, which will place a significant strain on our management and on our
administrative, operational and financial resources. To manage this growth, we may need to expand our facilities, augment our
operational, financial and management systems and hire and train additional qualified personnel. If we are unable to manage our
growth effectively, our business would be harmed.
Certain of our directors are officers and directors
of other biotechnology companies, which may present potential conflicts of interest.
Some of our directors serve as officers
and directors of other biotechnology and life science companies, some of which may be considered a potential competitor of ours.
See “Management and Board of Directors – Directors and Executive Officers.” We do not believe that any of the
other companies on whose board of directors members of our board sit compete directly with us and our product candidates. However,
there can be no assurance that such other companies will not in the future have interests in conflict with our own.
We are substantially dependent on the services of
various consultants.
We have seven employees and we rely
in substantial part, and for the foreseeable future will continue to rely, on certain independent organizations and consultants
to provide other important services, including substantially all aspects of regulatory approval, clinical management, and manufacturing.
There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available
to us on a timely basis when needed, or that we can find qualified replacements.
If we are unable to hire additional qualified personnel
in the future, our ability to grow our business may be harmed.
Until recently, we had relied on various
third parties to perform a variety of management, accounting and other services on our behalf on a consulting basis, we expect
to directly hire employees, including at the senior management level, in the future as we further the development of our clinical
programs. Accordingly, our ability to attract and retain qualified personnel will be critical to managing and growing our business
in the future, especially the hiring and retention of key executive personnel and scientific staff. There is intense competition
and demand for qualified personnel in our area of business and no assurances can be made that we will be able to retain the personnel
necessary for the development of our business on commercially reasonable terms, if at all.
We may incur substantial liabilities and may be required
to limit commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products
entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we
may incur substantial liabilities or be required to limit commercialization of our products candidates, if approved. Even successful
defense against product liability claims would require significant financial and management resources. Regardless of the merit
or eventual outcome, product liability claims may result in:
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decreased
demand for our product candidates;
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injury
to our reputation;
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withdrawal
of clinical trial participants;
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withdrawal
of prior governmental approvals;
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costs
of related litigation;
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substantial
monetary awards to patients;
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the
inability to commercialize our product candidates.
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Because we do not yet have any products
approved for sale, we currently do not carry product liability insurance. While we intend to obtain product liability
insurance prior to any commercial product sales, such insurance coverage may not be adequate to cover claims against us or available
to us at an acceptable cost, if at all. Our inability to obtain sufficient product liability insurance at an acceptable
cost to protect against potential product liability claims could prevent or inhibit the commercialization of the pharmaceutical
products we develop, alone or with commercialization partners. Even if our agreements with any future commercialization partners
entitle us to indemnification against damages from product liability claims, such indemnification may not be available or adequate
should any claim arise.
We may incur substantial liabilities in connection with
the clinical trials of our product candidates and may be required to cease our clinical trials in response to lawsuits brought
by clinical trial participants.
Conducting clinical trials entails an
inherent risk of liability resulting from lawsuits brought by clinical trial participants who experience unexpected adverse reactions
to our product candidates or as a result of the medical care they receive while participating in a clinical trial. If
we cannot successfully defend ourselves against such claims, we may incur substantial liabilities or be required to cease clinical
trials of our products candidates, which would have a material adverse effect on our business, financial condition and results
of operations. We currently maintain a clinical trial insurance policy with a $5 million per occurrence and aggregate
limit, which may not be adequate to cover claims against us. While our agreements with the research institutions that
conduct our clinical trials often provide that the institutions will indemnify us against damages from claims brought by clinical
trial participants that result from the institutions’ conduct, such indemnification may not be available or adequate should
any such claim arise.
We are controlled by current directors and principal
stockholders.
Our executive officers, directors and
principal stockholders (i.e. those beneficially owning more than 5% of our outstanding voting securities) beneficially own approximately
88.7% of our outstanding voting securities. Accordingly, our executive officers, directors, principal stockholders and certain
of their affiliates will have the ability to exert substantial influence over the election of our board of directors and the outcome
of issues submitted to our stockholders.
The co-lead investors in our September 2010 private placement
own a significant amount of our voting securities and are entitled to substantial governance rights that may limit our management’s
autonomy.
The three co-lead investors in our September
2010 private placement, Pontifax (investing through three affiliated funds: Pontifax (Cayman) II L.P., Pontifax (Israel) II Individual
Investors L.P., and Pontifax (Israel) II L.P., which we collectively refer to as “Pontifax”), Commercial Street Capital,
LLC (“Commercial Street Capital”), and UTA Capital LLC (“UTA Capital”) beneficially own approximately
15.2%, 19.3% and 1.9% of our outstanding common stock, respectively. In addition, pursuant to the terms of the purchase agreement
that we entered into with the investors in our 2010 private placement, each co-lead investor has the right to designate one individual
to be appointed to our board of directors, subject to certain ownership and other requirements and conditions. Moreover, the 2010
purchase agreement provides that each such director has the right to serve on any or all of the committees of our board of directors.
The purchase agreement also provides that the affirmative vote of each such investor-designated director then in office shall
be required to approve the appointment of our chief executive officer and to authorize certain transactions between us and one
of our officers, directors, principal stockholders or their affiliates. Pursuant to their rights under the purchase agreement,
Pontifax, Commercial Street Capital, and UTA Capital designated Tomer Kariv, Steven Ruchefsky, and Yacov Reizman, respectively,
for appointment to our board of directors. This concentration of ownership and governance rights among the co-lead investors may
not be in the best interests of all our stockholders. The co-lead investors will be able to exert significant control over our
management and affairs requiring stockholder approval, including approval of significant corporate transactions. Such concentration
of voting power could have the effect of delaying or preventing a change of control or other business combination, and may adversely
affect the market price of our common stock.
We are required to maintain finance and accounting systems,
procedures and controls in order to satisfy requirements under the securities laws, including the Sarbanes-Oxley Act of 2002,
which increase our costs and divert management’s time and attention.
We have established processes, controls
and procedures that allow our management to report on our internal controls over financial reporting pursuant to Section 404
of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. As a company with limited capital and human resources, the diversion
of management’s time and attention away from our business to ensure compliance with these regulatory requirements may have
a material adverse effect on our business, financial condition and results of operations.
In the event we identify significant deficiencies
or material weaknesses in our internal controls over financial reporting that we cannot remediate in a timely manner, investors
and others may lose confidence in the reliability of our financial statements. If this occurs, the trading price of our common
stock, if any, and our ability to obtain any necessary financing could suffer. In addition, in the event that our independent
registered public accounting firm is unable to rely on our internal controls over financial reporting in connection with its audit
of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself
as to the material accuracy of our financial statements and related disclosures, we may be unable to file our periodic reports
with the SEC. This would likely have an adverse effect on the trading price of our common stock, if any, and our ability to secure
any necessary additional financing, and could result in the delisting of our common stock if we are listed on an exchange in the
future. In such event, the liquidity of our common stock would be severely limited and the market price of our common stock would
likely decline significantly.
Risks Relating to the Clinical Testing,
Regulatory Approval, Manufacturing
and Commercialization of Our Product
Candidates
We may not obtain the necessary U.S. or worldwide regulatory
approvals to commercialize our product candidates.
We will need FDA approval to commercialize
our product candidates in the U.S. and approvals from the FDA equivalent regulatory authorities in foreign jurisdictions to commercialize
our product candidates in those jurisdictions. In order to obtain FDA approval of any of our product candidates, we must submit
to the FDA a new drug application, or NDA, demonstrating that the product candidate is safe for humans and effective for its intended
use. This demonstration requires significant research and animal tests, which are referred to as pre-clinical studies, as well
as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes
many years, depends upon the type, complexity and novelty of the product candidate and requires substantial resources for research,
development and testing. We cannot predict whether our research and clinical approaches will result in drugs that the FDA considers
safe for humans and effective for indicated uses. The FDA has substantial discretion in the drug approval process and may require
us to conduct additional pre-clinical and clinical testing or to perform post-marketing studies. The approval process may also
be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur
prior to or during our regulatory review. Delays in obtaining regulatory approvals may:
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delay
commercialization of, and our ability to derive product revenues from, our product candidates;
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impose
costly procedures on us; or
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diminish
any competitive advantages that we may otherwise enjoy.
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Even if we comply with all FDA requests,
the FDA may ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory clearance for our
product candidates. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by reducing
our number of salable products and, therefore, corresponding product revenues.
In foreign jurisdictions, we must receive
approval from the appropriate regulatory authorities before we can commercialize our drugs. Foreign regulatory approval processes
generally include all of the risks associated with the FDA approval procedures described above. We cannot assure that we will
receive the approvals necessary to commercialize our product candidate for sale outside the U.S.
All of our product candidates are in the very early stages
of development and will require extensive clinical trials before they may be approved for marketing. Clinical trials are very
expensive and time-consuming. Any failure or delay in completing clinical trials for our product candidates could harm our business.
All of our current product candidates
are in early stages of development and will require extensive clinical and other testing and analysis before we will be in a position
to consider seeking regulatory approval to sell such product candidates. Conducting clinical trials is a lengthy, time consuming
and very expensive process and the results are inherently uncertain. The duration of clinical trials can vary substantially according
to the type, complexity, novelty and intended use of the product candidate. We estimate that clinical trials of our product candidates
will take at least several years to complete. The completion of clinical trials for our product candidates may be delayed or prevented
by many factors, including without limitation:
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delays
in patient enrollment, and variability in the number and types of patients available
for clinical trials;
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difficulty
in maintaining contact with patients after treatment, resulting in incomplete data;
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poor
effectiveness of product candidates during clinical trials;
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safety
issues, side effects, or other adverse events;
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results
that do not demonstrate the safety or effectiveness of the product candidates;
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governmental
or regulatory delays and changes in regulatory requirements, policy and guidelines; and
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varying
interpretation of data by the FDA or equivalent foreign regulatory authority.
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In conducting clinical trials, we may
fail to establish the effectiveness of a compound for the targeted indication or discover that it is unsafe due to unacceptable
side effects or other reasons. Even if our clinical trials are commenced and completed as planned, their results may not support
our product candidate claims. Further, failure of product candidate development can occur at any stage of clinical trials, or
even thereafter, and we could encounter problems that cause us to abandon or repeat clinical trials. These problems could interrupt,
delay or halt clinical trials for our product candidates and could result in FDA, or other regulatory authorities, delaying or
declining approval of our product candidates for any or all indications. The results from pre-clinical testing and prior clinical
trials may not be predictive of results obtained in later or other larger clinical trials. A number of companies in the pharmaceutical
industry have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing promising results
in earlier clinical trials. Our failure to adequately demonstrate the safety and effectiveness of any of our product candidates
will prevent us from receiving regulatory approval to market these product candidates and will negatively impact our business.
In addition, we or the FDA may suspend or curtail our clinical trials at any time if it appears that we are exposing participants
to unacceptable health risks or if the FDA finds deficiencies in the conduct of these clinical trials or in the composition, manufacture
or administration of the product candidates. Accordingly, we cannot predict with any certainty when or if we will ever be in a
position to submit a new drug application, or NDA, for any of our product candidates, or whether any such NDA would ever be approved.
Our products use novel alternative technologies and therapeutic
approaches, which have not been widely studied.
Our product development efforts focus
on novel therapeutic approaches and technologies that have not been widely studied. These approaches and technologies may not
be successful. We are applying these approaches and technologies in our attempt to discover new treatments for conditions that
are also the subject of research and development efforts of many other companies.
Physicians and patients may not accept and use our drugs.
Even if the FDA approves our product candidates,
physicians and patients may not accept and use them. Acceptance and use of our products will depend upon a number of factors including:
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perceptions
by members of the health care community, including physicians, about the safety and effectiveness
of our drugs;
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cost-effectiveness
of our products relative to competing products;
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availability
of reimbursement for our products from government or other healthcare payers; and
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effectiveness
of marketing and distribution efforts by us and our licensees and distributors, if any.
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Because we expect sales of our current
product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure
of any of these drugs to find market acceptance would harm our business and could require us to seek additional financing.
Because we are dependent on clinical research organizations
and other contractors for clinical testing and for research and development activities, the results of our clinical trials and
such research activities are, to a certain extent, not within our control.
We depend upon independent investigators
and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical trials under agreements
with us. These parties are not our employees and we cannot control the amount or timing of resources that they devote to our programs.
These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking
such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug development programs,
or if their performance is substandard, the approval of our FDA applications, if any, and our introduction of new drugs, if any,
will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete with
us. If our collaborators assist our competitors at our expense, our competitive position would be harmed.
Our reliance on third parties to formulate and manufacture
our product candidates exposes us to a number of risks that may delay the development, regulatory approval and commercialization
of our products or result in higher product costs.
We have no direct experience in drug formulation
or manufacturing and do not intend to establish our own manufacturing facilities. We lack the resources and expertise to formulate
or manufacture our own product candidates. Instead, we will contract with one or more manufacturers to manufacture, supply, store
and distribute drug supplies for our clinical trials. If any of our product candidates receive FDA approval, we will rely on one
or more third-party contractors to manufacture our drugs. Our anticipated future reliance on a limited number of third-party manufacturers
exposes us to the following risks:
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We
may be unable to identify manufacturers on acceptable terms or at all because the number
of potential manufacturers is limited and the FDA must approve any replacement contractor.
This approval would require new testing and compliance inspections. In addition, a new
manufacturer would have to be educated in, or develop substantially equivalent processes
for, production of our products after receipt of FDA approval, if any.
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Our
third-party manufacturers might be unable to formulate and manufacture our drugs in the
volume and of the quality required to meet our clinical and/or commercial needs, if any.
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Our
future contract manufacturers may not perform as agreed or may not remain in the contract
manufacturing business for the time required to supply our clinical trials or to successfully
produce, store and distribute our products.
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Drug
manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding
state agencies to ensure strict compliance with good manufacturing practice and other
government regulations and corresponding foreign standards. We do not have control over
third-party manufacturers’ compliance with these regulations and standards, but
we will be ultimately responsible for any of their failures.
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If
any third-party manufacturer makes improvements in the manufacturing process for our
products, we may not own, or may have to share, the intellectual property rights to the
innovation. This may prohibit us from seeking alternative or additional manufacturers
for our products.
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Each of these risks could delay our clinical
trials, the approval, if any, of our product candidates by the FDA, or the commercialization of our product candidates or result
in higher costs or deprive us of potential product revenues.
We have no direct experience selling, marketing or distributing
products and no internal capability to do so.
We currently have no sales, marketing
or distribution capabilities. We do not anticipate having resources in the foreseeable future to allocate to the sales and marketing
of our proposed products. Our future success depends, in part, on our ability to enter into and maintain sales and marketing collaborative
relationships, the collaborator’s strategic interest in the products under development and such collaborator’s ability
to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing
of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements,
or if able to do so, that they will have effective sales forces. To the extent that we decide not to, or are unable to, enter
into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures,
management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise.
There can also be no assurance that we will be able to establish or maintain relationships with third-party collaborators or develop
in-house sales and distribution capabilities. To the extent that we depend on third parties for marketing and distribution, any
revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be
successful. In addition, there can also be no assurance that we will be able to market and sell our product in the U.S. or overseas.
If we cannot compete successfully for market share against
other drug companies, we may not achieve sufficient product revenues and our business will suffer.
The market for our product candidates
is characterized by intense competition and rapid technological advances. If our product candidates receive FDA approval, they
will compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. Existing
or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication
than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share,
we may not achieve sufficient product revenues and our business will suffer.
We will compete against fully integrated
pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions,
government agencies and other public and private research organizations. Many of these competitors have technologies already approved
or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate
larger research and development programs and have substantially greater financial resources than we do, as well as significantly
greater experience in:
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undertaking
pre-clinical testing and human clinical trials;
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obtaining
FDA and other regulatory approvals of drugs;
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formulating
and manufacturing drugs; and
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launching,
marketing and selling drugs.
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Developments by competitors may render our products or
technologies obsolete or non-competitive
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The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological change. The drugs that we are attempting to develop
will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of pharmaceuticals
that target the same diseases and conditions that we are targeting. We face competition from pharmaceutical and biotechnology
companies in the U.S. and abroad. In addition, companies pursuing different but related fields represent substantial competition.
Many of these organizations competing with us have substantially greater capital resources, larger research and development staffs
and facilities, longer drug development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities
than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures
or other collaborations.
Our ability to generate product revenues will be diminished
if our drugs sell for inadequate prices or patients are unable to obtain adequate levels of reimbursement.
Our ability to commercialize our drugs,
alone or with collaborators, will depend in part on the extent to which reimbursement will be available from:
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government
and health administration authorities;
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private
health maintenance organizations and health insurers; and
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other
healthcare payers.
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Significant uncertainty exists as to the
reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare payers increasingly attempt to contain healthcare costs
by limiting both coverage and the level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance
coverage may not be available, and reimbursement levels may be inadequate, to cover our drugs. If government and other healthcare
payers do not provide adequate coverage and reimbursement levels for any of our products, once approved, market acceptance of
our products could be reduced.
We may be exposed to liability claims associated with
the use of hazardous materials and chemicals.
Our research and development activities
may involve the controlled use of hazardous materials and chemicals by our third-party service providers. Although we believe
that our service providers maintain appropriate safety procedures for using, storing, handling and disposing of these materials
in compliance with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury
or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and
any liability could materially adversely affect our business, financial condition and results of operations. In addition, the
federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive
materials and waste products may require us or our service providers to incur substantial compliance costs that could materially
adversely affect our business, financial condition and results of operations. We do not carry insurance against liability
resulting from the use of hazardous materials and chemicals. While we generally require our service providers to carry
insurance against liability resulting from their use of such materials, we cannot be certain that such insurance will be sufficient
to cover any related liability. To the extent our service providers fail to carry adequate levels of insurance, we
could be exposed to liability claims associated with their use of hazardous materials and chemicals.
Risks Related to Our Intellectual Property
If we fail to protect or enforce our intellectual property
rights adequately or secure rights to patents of others, the value of our intellectual property rights would diminish.
Our success, competitive position and
future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection
for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing
on our proprietary rights and to operate without infringing upon the proprietary rights of third parties. Additionally, if any
third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share,
the intellectual property rights to the innovation.
To date, we hold certain exclusive rights
under U.S. patents and patent applications as well as rights under foreign patent applications. We anticipate filing additional
patent applications both in the U.S. and in other countries, as appropriate. However, we cannot predict:
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the
degree and range of protection any patents will afford us against competitors including
whether third parties will find ways to invalidate or otherwise circumvent our patents;
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if
and when patents will issue;
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whether
or not others will obtain patents claiming aspects similar to those covered by our patents
and patent applications; or
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whether
we will need to initiate litigation or administrative proceedings which may be costly
whether we win or lose.
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If any of our know-how or other proprietary information
is disclosed, the value of our know-how and other proprietary rights would be significantly impaired and our business and competitive
position would suffer.
Our success also depends upon the skills,
knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors and
contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to
obtain, we rely on confidentiality agreements. To this end, we require all of our employees, consultants, advisors and contractors
to enter into agreements which prohibit the disclosure of confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements may not provide
adequate protection for our know-how or other proprietary information in the event of any unauthorized use or disclosure or the
lawful development by others of such information. If any of our know-how or other proprietary information is disclosed, the value
of our know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.
If we infringe upon the rights of third parties we could
be prevented from selling products, forced to pay damages, and defend against litigation.
If our products, methods, processes and
other technologies infringe upon the proprietary rights of other parties, we could incur substantial costs and we may have to:
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obtain
licenses, which may not be available on commercially reasonable terms, if at all;
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redesign
our products or processes to avoid infringement;
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stop
using the subject matter claimed in the patents held by others;
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defend
litigation or administrative proceedings which may be costly whether we win or lose,
and which could result in a substantial diversion of our valuable management resources.
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If requirements under our license agreements are not
met, we could suffer significant harm, including losing rights to our products.
We depend on licensing agreements with
third parties to maintain the intellectual property rights to our products under development. We have licensed rights from Invivis
Pharmaceuticals, Inc. and The Ohio State University Research Foundation. These agreements require us and our licensors to perform
certain obligations that affect our rights under these licensing agreements. All of these agreements last either throughout the
life of the patents, or with respect to other licensed technology, for a number of years after the first commercial sale of the
relevant product.
In addition, we are responsible for the
cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us. If we do not
meet our obligations under our license agreements in a timely manner, we could lose the rights to our proprietary technology.
Finally, we may be required to obtain
licenses to patents or other proprietary rights of third parties in connection with the development and use of our products and
technologies. Licenses required under any such patents or proprietary rights might not be made available on terms acceptable to
us, if at all.
Risks Related to Our Securities
The exercise of our outstanding warrants could cause
the market price of our common stock to fall, and may have significant dilution and other effects on our existing stockholders.
We issued warrants, or the 2012 Warrants
and the 2013 Warrants, to certain holders to purchase an aggregate of approximately 42.6 million shares of our common stock. The
exercise prices applicable to the 2012 Warrants and to some of the 2013 Warrants are subject to adjustment pursuant to certain
anti-dilution provisions. The issuance by us of the shares of common stock issuable upon exercise of the 2012 and 2013 Warrants
would significantly reduce the percentage ownership of our existing common stockholders and could, among other things, depress
the price of the common stock. This result could significantly and adversely affect our ability to raise additional equity capital
in the future.
The exercise of the 2012 Warrants could
result in the issuance of up to approximately 16.8 million shares of common stock. Approximately 16.5 million of the 2012 Warrants
are now exercisable at a price of $2.40 per share. The exercise of the 2013 Warrants could result in the issuance of up to approximately
30.2 million shares of common stock. Approximately 4.5 million of the 2013 Warrants are initially exercisable at a price per share
equal to $0.01, approximately 12.9 million of the 2013 Warrants are exercisable at a price per share equal to $4.00, and the remaining
are exercisable at a price of $2.40 per share.
The exercise prices of the 2012 Warrants
and certain of the 2013 Warrants are subject to adjustment, however, in the event we sell or issue additional shares of our common
stock (subject to certain exceptions) at a price per share less than the applicable conversion or exercise prices. If we make
future issuances of common stock or rights to acquire common stock (subject to certain exceptions) at a per share price less than
the applicable exercise prices of the 2012 Warrants and 2013 Warrants (other than those with an exercise price of $0.01 per share),
then the applicable exercise prices are subject to a weighted-average price adjustment.
We expect that we will need substantial
additional capital in order to fund our operations during the applicable terms of the 2012 Warrants and the 2013 Warrants and
that a likely source of such capital will be through the sale and issuance of additional shares of our common stock or securities
convertible into our common stock. Consequently, if we make such future issuances at prices lower than the applicable 2012 Warrant
or 2013 Warrant exercise prices, our stockholders could experience a significant dilution of their investment.
The holders of the 2012 Warrants and the
2013 Warrants may immediately sell the full amount of common stock received upon conversion or exercise of such instruments. As
these shares are sold, the price of the common stock is likely to decrease, perhaps substantially, unless there is sufficient
demand by purchasers of our common stock in the trading markets to meet the additional volume of shares of our common stock available
from the exercise of the 2012 Warrants and the 2013 Warrants.
We cannot assure you that our common stock will ever
be listed on NASDAQ or any other securities exchange.
Our common stock is currently eligible
for trading on the OTCQB tier of the OTC Markets, an automated quotation system. Stocks traded on the OTCQB and other
electronic over-the-counter markets are often less liquid than stocks traded on national securities exchanges. In fact, the historical
trading of our common stock has been extremely limited and sporadic. We may seek listing on NASDAQ or the New York Stock Exchange
in the future, but we cannot assure you that we will be able to meet the initial listing standards of either of those or any other
stock exchange, or that we will be able to maintain a listing of our common stock on either of those or any other stock exchange.
To the extent that our common stock is not traded on a national securities exchange, such as NASDAQ, the decreased liquidity of
our common stock may make it more difficult to sell shares of our common stock at desirable times and at prices.
Our common stock is considered a “penny stock.”
The SEC has adopted regulations which
generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject
to specific exemptions. Since trading of our common stock commenced, the market price has been below $5.00 per share. Therefore,
our common stock is deemed a “penny stock” according to SEC rules. This designation requires any broker or dealer
selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser
and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers
or dealers to sell shares of our common stock.
Because we did not become public through an underwritten
initial public offering, we may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we did
not become public through an initial public offering underwritten by an investment bank. Security analysts of major brokerage
firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock.
No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our company in the future.
The lack of such analyst coverage may decrease the public demand for our common stock, making it more difficult for you to resell
your shares when you deem appropriate.
Because we do not expect to pay dividends, you will not
realize any income from an investment in our common stock unless and until you sell your shares at profit.
We have never paid dividends on our common
stock and do not anticipate paying any dividends for the foreseeable future. You should not rely on an investment in our common
stock if you require dividend income. Further, you will only realize income on an investment in our shares in the event you sell
or otherwise dispose of your shares at a price higher than the price you paid for your shares. Such a gain would result only from
an increase in the market price of our common stock, which is uncertain and unpredictable.
There may be issuances of shares of “blank check”
preferred stock in the future.
Our amended and restated certificate of
incorporation authorizes the issuance of up to 35,000,000 shares of preferred stock, none of which are issued or currently outstanding.
Our board of directors has the authority to fix and determine the relative rights and preferences of up to 35,000,000 preferred
shares, as well as the authority to issue such shares, without further stockholder approval. As a result, our board of directors
could authorize the issuance of a series of preferred stock that is senior to our common stock and that would grant to holders
preferred rights to our assets upon liquidation, the right to receive dividends, additional registration rights, anti-dilution
protection, the right to the redemption to such shares, together with other rights, none of which will be afforded holders of
our common stock.
If we obtain an analyst following, and if our results
do not meet such analysts’ forecasts and expectations, our stock price could decline.
We do not believe that any securities
analysts cover us. The lack of analyst coverage of our business and operations may decrease the public demand for our
common stock, making it more difficult for you to resell your shares when you deem appropriate. To the extent we obtain
an analyst following in the future, such analysts may provide valuations regarding our stock price and make recommendations whether
to buy, hold or sell our stock. Our stock price may be dependent upon such valuations and recommendations. Analysts’ valuations
and recommendations are based primarily on our reported results and their forecasts and expectations concerning our future results
regarding, for example, expenses, revenues, clinical trials, regulatory marketing approvals and competition. Our future results
are subject to substantial uncertainty, and we may fail to meet or exceed analysts’ forecasts and expectations as a result
of a number of factors, including those discussed above under the sections “Risks Related to Our Business” and “Risks
Related to the Clinical Testing, Regulatory Approval, Manufacturing and Commercialization of Our Product Candidates.” If
our results do not meet analysts’ forecasts and expectations, our stock price could decline as a result of analysts lowering
their valuations and recommendations or otherwise.
We are at risk of securities class action litigation.
In the past, securities class action litigation
has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant
for us because biotechnology companies have experienced greater than average stock price volatility in recent years. If we faced
such litigation, it could result in substantial costs and a diversion of our management’s attention and resources, which
could harm our business.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking
statements.” The forward-looking statements are only predictions and provide our current expectations or forecasts of future
events and financial performance and may be identified by the use of forward-looking terminology, including the terms “believes,”
“estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,”
“will” or “should” or, in each case, their negative, or other variations or comparable terminology, though
the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements include
all matters that are not historical facts and include, without limitation, statements concerning our business strategy, outlook,
objectives, future milestones, plans, intentions, goals, future financial conditions, our research and development programs and
planning for and timing of any clinical trials, the possibility, timing and outcome of submitting regulatory filings for our product
candidates under development, research and development of particular drug products, the development of financial, clinical, manufacturing
and marketing plans related to the potential approval and commercialization of our drug products, and the period of time for which
our existing resources will enable us to fund our operations.
Forward-looking statements are subject
to many risks and uncertainties that could cause our actual results to differ materially from any future results expressed or
implied by the forward-looking statements. Examples of the risks and uncertainties include, but are not limited to:
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the
risk that recurring losses, negative cash flows and the inability to raise additional capital could threaten our ability to continue
as a going concern;
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the
risk that we may not successfully develop and market our product candidates, and even if we do, we may not become profitable;
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risks
relating to the progress of our research and development;
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risks
relating to significant, time-consuming and costly research and development efforts, including pre-clinical studies, clinical
trials and testing, and the risk that clinical trials of our product candidates may be delayed, halted or fail;
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risks
relating to the rigorous regulatory approval process required for any products that we may develop independently, with our development
partners or in connection with any collaboration arrangements;
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the
risk that changes in the national or international political and regulatory environment may make it more difficult to gain FDA
or other regulatory approval of our drug product candidates;
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risks
that the FDA or other regulatory authorities may not accept any applications we file;
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risks
that the FDA or other regulatory authorities may withhold or delay consideration of any applications that we file or limit such
applications to particular indications or apply other label limitations;
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risks
that, after acceptance and review of applications that we file, the FDA or other regulatory authorities will not approve the marketing
and sale of our drug product candidates;
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risks
relating to our drug manufacturing operations, including those of our third-party suppliers and contract manufacturers;
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risks
relating to the ability of our development partners and third-party suppliers of materials, drug substance and related components
to provide us with adequate supplies and expertise to support manufacture of drug product for initiation and completion of our
clinical studies;
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risks
relating to the transfer of our manufacturing technology to third-party contract manufacturers; and
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other
risks and uncertainties detailed in “Risk Factors.”
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Pharmaceutical and biotechnology companies
have suffered significant setbacks in advanced clinical trials, even after obtaining promising earlier trial results. Data
obtained from such clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory
approval. Except to the extent required by applicable laws or rules, we do not undertake to update any forward-looking statements
or to publicly announce revisions to any of our forward-looking statements, whether resulting from new information, future events
or otherwise.
DESCRIPTION OF 2013 OFFERING
General
On October 29, 2013, we entered into a
Securities Purchase Agreement with certain purchasers identified therein pursuant to which we agreed to sell, and the purchasers
agreed to purchase, an aggregate of 12,868,585 units of the Company’s securities, which we refer to as the Units, each Unit
consisting of the following:
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either
(a) one share of common stock, or (b) a five-year common stock warrant to purchase one
share of common stock at an exercise price of $0.01 per share, referred to as the Series
C Warrants;
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a
five-year warrant to purchase one share of common stock at an exercise price of $4.00
per share, referred to as the Series D Warrants; and
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a
warrant, expiring on October 31, 2014, to purchase one share of common stock at an exercise
price of $2.40 per share, referred to as the Series E Warrants.
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We sold and issued 8,413,354
Units consisting of shares of common stock, Series D Warrants and Series E Warrants at a purchase price of $2.40 per Unit, and
4,455,231 Units consisting of Series C Warrants, Series D Warrants and Series E Warrants at a purchase price of $2.39 per Unit,
for total gross proceeds to us of $30.84 million, before deducting fees and other transaction related expenses of approximately
$750,000. A closing of the sale of 12,826,752 Units was completed on October 29, 2013, and the sale of the remaining 41,833 Units
was completed on October 30, 2013. These transactions are collectively referred to as the 2013 Offering.
The purchase agreement contains
customary representations, warranties and covenants by each of us and the purchasers. In addition, the purchase agreement provides
that each purchaser has a right, subject to certain exceptions described in the agreement, to participate in future issuances
of equity and debt securities by us for a period of 18 months following the effective date of the registration statement covering
the resale of the warrant shares.
Description of the 2013 Warrants
The following description is qualified
in its entirety by the terms and conditions of the Series C Warrants, Series D Warrants and Series E Warrants, collectively referred
to as the 2013 Warrants, the form of which is incorporated by reference into the registration statement of which this prospectus
forms a part. The following description may not contain all the information with respect to the 2013 Warrants that is important
to you. We encourage you to read each form of 2013 Warrant in its entirety.
Under the terms of the purchase agreement,
each purchaser had the option to elect to receive a Series C Warrant in lieu of a share of common stock in connection with each
Unit it purchased. The Series C Warrants have a five-year term and are exercisable at a price of $0.01 per share. The Series D
Warrants are exercisable for a period of 5 years from the issuance date at an initial exercise price of $4.00 per share, subject
to adjustment for stock splits, combinations, recapitalization events and certain dilutive issuances (as described below). The
Series E Warrants are exercisable until October 31, 2014 at an initial exercise price of $2.40 per share, subject to adjustment
for stock splits, combinations, recapitalization events and certain dilutive issuances (as described below). The applicable exercise
price of the Series D Warrants and Series E Warrants (but not the Series C Warrants) is subject to a weighted-average price adjustment
in the event we make future issuances of common stock or rights to acquire common stock (subject to certain exceptions) at a per
share price less than the applicable warrant exercise price. The Series D Warrants may be redeemed by us at a price of $0.01 per
warrant share if, in addition to certain other conditions specified in such warrants, for a period of 10 consecutive trading days
following the effective date of a Securities Act registration statement covering the resale of the warrant shares, the volume-weighted
average price is at least $12.00 and the average daily trading volume of the common stock is at least 100,000 shares on each day
during such 10-day period (in each case, subject to adjustment for stock splits, combinations and similar recapitalization events).
The 2013 Warrants are required to be exercised
for cash, provided that if during the term of the 2013 Warrants there is not an effective registration statement under the Securities
Act covering the resale of the shares issuable upon exercise of the 2013 Warrants, then the 2013 Warrants may be exercised on
a cashless (net exercise) basis.
Registration Rights Agreement
The following description is qualified
in its entirety by the terms and conditions set forth in the registration rights agreement with respect to the 2013 Offering incorporated
by reference to the registration statement that contains this prospectus hereto, which we refer to as the Registration Rights
Agreement. The following description may not contain all the information with respect to such registration rights important to
you. We encourage you to read the Registration Rights Agreement.
In connection with the entry
into the purchase agreement, and as contemplated thereby, on October 29, 2013, we entered into a Registration Rights Agreement
with the purchasers. Pursuant to the terms of the Registration Rights Agreement, we agreed to file, on or before December 30,
2013, a registration statement under the Securities Act covering the resale of the shares of common stock issued as part of the
Units and the shares of common stock issuable upon exercise of the 2013 Warrants, and to cause such registration statement to
be declared effective by the Commission as soon as practicable thereafter, but not later than 120 days following the date of the
Registration Rights Agreement. If we do not file the registration statement by December 30, 2013 or obtain its effectiveness by
the 120 days following the date of the Registration Rights Agreement, then we are required to pay liquidated damages to the purchasers
in an amount equal to 1% of the aggregate purchase price paid by such purchaser for the Units per month until the registration
statement is filed or declared effective, as applicable, subject to a maximum of 10% of the aggregate purchase price paid by each
purchaser for the units. We are required to maintain the effectiveness of the registration statement until all of the shares covered
thereby are sold or may be sold pursuant to Rule 144 under the Securities Act without volume or manner-of-sale restrictions and
without the requirement that we be in compliance with the current public information requirements of Rule 144.
Agreement with OPKO Health, Inc.
On October 29, 2013, in connection
with the entry into the securities purchase agreement, we entered into an agreement with OPKO Health, Inc. and Frost Group, LLC,
which we refer to in this prospectus as the OPKO Agreement. Under the terms of the OPKO Agreement, as in inducement to the participation
by OPKO and Frost Group (or its affiliates and associates) in the 2013 Offering, we granted OPKO the right to appoint a non-voting
observer to attend all meetings of our board of directors, provided that such appointee enters into a confidentiality agreement
with us and shall be subject to all applicable Company policies; and (2) OPKO shall have a right of first negotiation that provides
it with exclusive rights to negotiate with the company for a 45-day period regarding any potential strategic transactions that
our board of directors elects to pursue. Such rights continue so long as OPKO continues to hold at least 3% of the total number
of outstanding shares of our common stock, determined on a fully-diluted basis (i.e., assuming the issuance of all shares underlying
outstanding options, warrants and other rights to acquire common stock.
USE OF PROCEEDS
We will receive none of the proceeds from
the sale of the shares by the selling stockholders, except for the warrant exercise price upon exercise of the warrants, which
would be used for working capital and other general corporate purposes.
SELLING STOCKHOLDERS
This prospectus covers the resale by
the selling stockholders identified below of 44,861,891 shares of our common stock, which were issued or are issuable to the selling
stockholders, as follows:
|
·
|
8,413,354
shares of our outstanding common stock issued and sold to the selling stockholders in
connection with our 2013 Offering;
|
|
·
|
30,258,051
shares of our common stock issuable upon the exercise of our outstanding Series C Warrants,
Series D Warrants and Series E Warrants, all of which were issued and sold to the selling
stockholders in connection with our 2013 Offering; and
|
|
·
|
6,190,486
shares of our common stock issuable upon the exercise of our outstanding Series B Warrants,
which were issued and sold to the selling stockholders in connection with our 2012 Offering.
|
The following table sets forth the number
of shares of our common stock beneficially owned by the selling stockholders as of January 27, 2014, and after giving effect to
this offering, except as otherwise referenced below.
|
|
Shares
beneficially
owned
|
|
|
Number of
outstanding
shares
offered by
|
|
|
Number of
shares
offered by
selling
stockholder
upon
exercise of
|
|
|
Number of
shares
offered by
selling
stockholder
upon exercise
of 2012
|
|
|
Beneficial
ownership
after offering (1)
|
|
Selling Stockholder
|
|
before
offering (1)
|
|
|
selling
stockholder
|
|
|
2013
Warrants
|
|
|
Series
B
Warrants
|
|
|
Number
of shares
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abel
G. Halpern (2)
|
|
|
286,965
|
|
|
|
41,666
|
|
|
|
83,332
|
|
|
|
41,666
|
|
|
|
161,967
|
|
|
|
*
|
|
Alan Mendelson
(2.1)
|
|
|
14,193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,083
|
|
|
|
12,110
|
|
|
|
*
|
|
Alan T. Yuasa as
Trustee of the Michael J. Shimoko Trust (3)
|
|
|
96,415
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
12,500
|
|
|
|
53,915
|
|
|
|
*
|
|
Alexander A. Zukiwski
(4)
|
|
|
555,967
|
|
|
|
41,666
|
|
|
|
83,332
|
|
|
|
62,500
|
|
|
|
368,469
|
|
|
|
*
|
|
Allan Pantuck and
Jodi Pantuck (JTWROS) (4.1)
|
|
|
9,840
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,083
|
|
|
|
7,757
|
|
|
|
*
|
|
Anesta Management
Limited (5)
|
|
|
65,502
|
|
|
|
20,834
|
|
|
|
41,668
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Aspiration Growth
Opportunities, LP (6)
|
|
|
62,499
|
|
|
|
20,833
|
|
|
|
41,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Arie and Rebecka
Belldegrun as Trustees of the Belldegrun Family Trust dated February 18, 1994 (7)
|
|
|
3,734,000
|
|
|
|
187,500
|
|
|
|
375,000
|
|
|
|
145,833
|
|
|
|
1,893,749
|
|
|
|
9.2
|
|
Arie S. Belldegrun
M.D. Inc. Profit Sharing Plan (7)
|
|
|
3,734,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83,333
|
|
|
|
1,893,749
|
|
|
|
9.2
|
|
Auriga Global Investors
SV, SA (8)(9)
|
|
|
1,285,137
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
312,500
|
|
|
|
897,637
|
|
|
|
2.4
|
|
Benjamin Domb (10)
|
|
|
572,700
|
|
|
|
83,333
|
|
|
|
166,666
|
|
|
|
83,333
|
|
|
|
322,701
|
|
|
|
*
|
|
Bonderman Family
Limited Partnership (9) (11)
|
|
|
3,750,000
|
|
|
|
1,250,000
|
|
|
|
2,500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Bonnie B. Kazam
(10.1)
|
|
|
82,613
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,416
|
|
|
|
72,197
|
|
|
|
*
|
|
Brio Capital Master
Fund Ltd. (9)(12)
|
|
|
1,022,880
|
|
|
|
125,000
|
|
|
|
250,000
|
|
|
|
166,666
|
|
|
|
481,214
|
|
|
|
1.3
|
|
Commercial Street
Capital LLC (13)
|
|
|
4,493,943
|
|
|
|
687,500
|
|
|
|
1,375,000
|
|
|
|
520,833
|
|
|
|
1,910,610
|
|
|
|
8.9
|
|
Daniel Mendelow
|
|
|
49,998
|
|
|
|
16,666
|
|
|
|
33,332
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
David Rosenberg
|
|
|
30,000
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Deefield Special Situations International Master Fund, L.P. (16)
|
|
|
281,874
|
|
|
|
93,958
|
|
|
|
187,916
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Deefield Special
Situations Fund, L.P. (16)
|
|
|
343,125
|
|
|
|
114,375
|
|
|
|
228,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
F. Mitchell Howell
|
|
|
60,000
|
|
|
|
20,000
|
|
|
|
40,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Fidaco Investments,
C.V. (18)
|
|
|
187,500
|
|
|
|
62,500
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
440 Lend LLC (18.1)
|
|
|
38,402
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,416
|
|
|
|
27,986
|
|
|
|
*
|
|
Frost Gamma Investments
Trust (19)
|
|
|
2,062,500
|
|
|
|
687,500
|
|
|
|
1,375,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Gems Progressive
Fund III SPC – Perennial S.P. (19.1)
|
|
|
208,890
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52,083
|
|
|
|
—
|
|
|
|
*
|
|
Gerald Lieberman
(20)
|
|
|
76,265
|
|
|
|
10,416
|
|
|
|
20,832
|
|
|
|
10,416
|
|
|
|
34,601
|
|
|
|
*
|
|
Glenn R. Mattes
(21)
|
|
|
444,736
|
|
|
|
20,833
|
|
|
|
41,666
|
|
|
|
20,833
|
|
|
|
361,404
|
|
|
|
*
|
|
Green Fields Offshore
Inc. (9) (22)
|
|
|
2,582,115
|
|
|
|
—
|
|
|
|
2,259,414
|
|
|
|
83,333
|
|
|
|
239,368
|
|
|
|
*
|
|
IVC Investors,
LLLP (23)
|
|
|
312,501
|
|
|
|
104,167
|
|
|
|
208,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Prine Intervest
Limited (23)
|
|
|
312,501
|
|
|
|
104,167
|
|
|
|
208,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Henry Rothman (24)
|
|
|
88,556
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
12,500
|
|
|
|
38,556
|
|
|
|
*
|
|
HSU Gamma Investment
LP (25)
|
|
|
300,000
|
|
|
|
100,000
|
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Irvin R. Kessler
(26)
|
|
|
303,360
|
|
|
|
41,667
|
|
|
|
83,334
|
|
|
|
41,750
|
|
|
|
136,609
|
|
|
|
*
|
|
James K. Hu (26.1)
|
|
|
30,721
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,333
|
|
|
|
22,388
|
|
|
|
*
|
|
Juan F. Rodriguez
|
|
|
12,501
|
|
|
|
4,167
|
|
|
|
8,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Jeffrey E. Donfeld,
a Professional Corporation, 401(k) Profit Sharing Plan (28)
|
|
|
300,462
|
|
|
|
20,833
|
|
|
|
41,666
|
|
|
|
20,833
|
|
|
|
175,464
|
|
|
|
*
|
|
Joshua Kazam Trust
(29)
|
|
|
34,025
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,416
|
|
|
|
23,609
|
|
|
|
*
|
|
Kate Inman
|
|
|
12,501
|
|
|
|
4,167
|
|
|
|
8,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Leumi Overseas
Trust Corporation Limited as Trustee of the BTL Trust (7)
|
|
|
3,734,000
|
|
|
|
104,166
|
|
|
|
208,332
|
|
|
|
—
|
|
|
|
1,893,749
|
|
|
|
9.2
|
|
Leumi Overseas
Trust Corporation Limited as Trustee of the Tampere Trust (7)
|
|
|
3,734,000
|
|
|
|
104,166
|
|
|
|
208,332
|
|
|
|
125,000
|
|
|
|
1,893,749
|
|
|
|
9.2
|
|
Lillian Tauber
|
|
|
37,500
|
|
|
|
12,500
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Lorber Alpha II
LP (31)
|
|
|
252,000
|
|
|
|
84,000
|
|
|
|
168,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Adam Malamed
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Mara Schainuck
|
|
|
62,100
|
|
|
|
20,700
|
|
|
|
41,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Marie V. Wolf
|
|
|
31,251
|
|
|
|
10,417
|
|
|
|
20,834
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Marjorie Kaufman
and David Kaufman (JTWROS) (32)
|
|
|
384,025
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104,166
|
|
|
|
279,859
|
|
|
|
1.3
|
|
Marlin Capital
Investments, LLC (35)
|
|
|
249,999
|
|
|
|
83,333
|
|
|
|
166,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Maxim Partners
LLC (36)
|
|
|
356,900
|
|
|
|
—
|
|
|
|
65,650
|
|
|
|
—
|
|
|
|
291,250
|
|
|
|
*
|
|
MDRB Partnership,
L.P. (7)
|
|
|
3,734,000
|
|
|
|
83,333
|
|
|
|
166,666
|
|
|
|
62,500
|
|
|
|
1,893,749
|
|
|
|
9.2
|
|
Michael Leibowitz
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Michael Novak
|
|
|
75,000
|
|
|
|
25,000
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
MZ Trading LLC
(38)
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Ogier Employee
Benefit Trustee Limited as Trustee of the MBES Employee Benefit Trust – JD Sub Trust (38.1)
|
|
|
171,621
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,666
|
|
|
|
129,955
|
|
|
|
*
|
|
Olyrca Limited
Partnership (39)
|
|
|
187,500
|
|
|
|
62,500
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
OPKO Health, Inc.
(9)(40)
|
|
|
2,499,999
|
|
|
|
833,333
|
|
|
|
1,666,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Otro Mas, LLC (41)
|
|
|
31,248
|
|
|
|
10,416
|
|
|
|
20,832
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Perceptive Life
Sciences Master Fund Ltd. (9) (42)
|
|
|
11,110,083
|
|
|
|
527,500
|
|
|
|
5,742,029
|
|
|
|
1,250,000
|
|
|
|
4,840,554
|
|
|
|
9.9
|
|
Peter Kash and
Donna Kash (JTWROS) (9)(43)
|
|
|
569,195
|
|
|
|
10,416
|
|
|
|
20,832
|
|
|
|
75,000
|
|
|
|
537,947
|
|
|
|
1.1
|
|
Richard Pfenninger
Jr.
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Robert Prego Pineda
|
|
|
125,001
|
|
|
|
41,667
|
|
|
|
83,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Pontifax (Cayman)
II L.P. (46)
|
|
|
3,417,613
|
|
|
|
203,682
|
|
|
|
407,364
|
|
|
|
203,682
|
|
|
|
2,167,615
|
|
|
|
4.2
|
|
Pontifax (Israel)
II - Individual Investors L.P. (46)
|
|
|
3,417,613
|
|
|
|
59,558
|
|
|
|
119,116
|
|
|
|
59,558
|
|
|
|
2,167,615
|
|
|
|
4.2
|
|
Pontifax (Israel)
II L.P. (46)
|
|
|
3,417,613
|
|
|
|
153,426
|
|
|
|
306,852
|
|
|
|
153,426
|
|
|
|
2,167,615
|
|
|
|
4.2
|
|
Quantum Partners
LP (9)(47)
|
|
|
12,770,676
|
|
|
|
369,165
|
|
|
|
7,157,580
|
|
|
|
1,354,166
|
|
|
|
5,243,931
|
|
|
|
9.9
|
|
Rachel Family Partnership
LP (48)
|
|
|
77,295
|
|
|
|
10,416
|
|
|
|
20,832
|
|
|
|
10,416
|
|
|
|
46,047
|
|
|
|
*
|
|
Rafay H. Faroouqi
|
|
|
124,998
|
|
|
|
41,666
|
|
|
|
83,332
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Richard Lampen
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Richard Rosenstock
|
|
|
31,248
|
|
|
|
10,416
|
|
|
|
20,832
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
RJB Partners LLC
(51)
|
|
|
307,220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83,333
|
|
|
|
223,887
|
|
|
|
1.1
|
|
The Robert F. Johnston
Living Trust(52)
|
|
|
249,999
|
|
|
|
83,333
|
|
|
|
166,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
FHC Stock Holdings,
LLC (53)
|
|
|
937,500
|
|
|
|
312,500
|
|
|
|
625,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Sabby Healthcare
Volatility Master Fund, Ltd. (9)(54)
|
|
|
4,250,124
|
|
|
|
312,500
|
|
|
|
625,000
|
|
|
|
520,833
|
|
|
|
2,166,793
|
|
|
|
9.9
|
|
Sabby Volatility
Warrant Master Fund, Ltd. (9)(54)
|
|
|
4,250,124
|
|
|
|
104,166
|
|
|
|
208,332
|
|
|
|
312,500
|
|
|
|
2,166,793
|
|
|
|
9.9
|
|
Jacqueline Simkin
Revocable Trust, as amended and restated December 16, 2003 (55)
|
|
|
249,999
|
|
|
|
83,333
|
|
|
|
166,666
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Stefan Proniuk
(55.1)
|
|
|
80,006
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,333
|
|
|
|
71,673
|
|
|
|
*
|
|
Steven D. Rubin
(56)
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Primafides (Suisse)
SA as Trustees of Sirius Trust (57)
|
|
|
290,171
|
|
|
|
41,666
|
|
|
|
83,332
|
|
|
|
20,833
|
|
|
|
165,173
|
|
|
|
*
|
|
Talpion Equity
Partners Master Fund LP (58)
|
|
|
1,250,001
|
|
|
|
416,667
|
|
|
|
833,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
David Thalheim
Revocable Living Trust (59)
|
|
|
12,498
|
|
|
|
4,166
|
|
|
|
8,332
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
The Donfeld Living
Trust, dated February 3, 1983, as amended (28)
|
|
|
300,462
|
|
|
|
20,833
|
|
|
|
41,666
|
|
|
|
20,833
|
|
|
|
175,464
|
|
|
|
*
|
|
Subbarao Uppaluri
|
|
|
63,000
|
|
|
|
21,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
*
|
|
Uzi Zucker (61)
|
|
|
466,744
|
|
|
|
83,333
|
|
|
|
166,666
|
|
|
|
41,666
|
|
|
|
216,745
|
|
|
|
*
|
|
Wealthplan Corporation
(61.1)
|
|
|
28,692
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,083
|
|
|
|
21,609
|
|
|
|
*
|
|
Wei-wu Hu (61.2)
|
|
|
76,804
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,833
|
|
|
|
55,971
|
|
|
|
*
|
|
William
F. Hamilton (62)
|
|
|
72,547
|
|
|
|
20,833
|
|
|
|
41,666
|
|
|
|
—
|
|
|
|
10,048
|
|
|
|
*
|
|
TOTALS
|
|
|
|
|
|
|
8,413,354
|
|
|
|
30,258,051
|
|
|
|
6,190,486
|
|
|
|
|
|
|
|
|
|
__________________
(1)
|
Beneficial ownership is determined in accordance
with Rule 13d-3 under the Exchange Act, and includes any shares as to which the security or stockholder has sole or shared
voting power or investment power, and also any shares which the security or stockholder has the right to acquire within 60
days of the date hereof, whether through the exercise or conversion of any stock option, convertible security, warrant or
other right. The indication herein that shares are beneficially owned is not an admission on the part of the security or stockholder
that he, she or it is a direct or indirect beneficial owner of those shares. Percentage of shares beneficially owned after
the resale of all the shares offered by this prospectus assumes there are outstanding 50,563,311 shares of common stock, including
all shares offered hereby that are issuable upon exercise of warrants.
|
(2)
|
In addition to the shares offered hereby, beneficial ownership
also includes 50,858 shares of our common stock, 69,443 shares issuable upon the exercise of Series A Warrants and 41,666
shares issuable upon the exercise of Series B Warrants.
|
(2.1)
|
In addition to the shares offered hereby, beneficial ownership
also includes 8,485 shares of our common stock, 2,083 shares issuable upon the exercise of Series A Warrants, and 154 shares
issuable upon the exercise of other warrants.
|
(3)
|
In addition to the shares offered hereby, beneficial ownership
also includes 27,832 shares of our common stock, 20,833 shares issuable upon the exercise of Series A Warrants, 12,500 shares
issuable upon the exercise of Series B Warrants and 5,250 shares issuable upon the exercise of other warrants.
|
(4)
|
Dr. Zukiwski is our Vice President, Chief Medical Officer. In addition
to the shares offered hereby, beneficial ownership also includes 75,360 shares of our common stock, 104,166 shares issuable
upon the exercise of Series A Warrants, 62,500 shares issuable upon the exercise of Series B Warrants, and 188,943 shares
issuable upon the exercise of options.
|
(4.1)
|
In addition to the shares offered hereby, beneficial ownership
also includes 3,471 shares issuable upon the exercise of Series A Warrants, and 630 shares issuable upon the exercise of other
warrants.
|
(5)
|
Jeanette Gelman holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(6)
|
Joseph Sandberg holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(7)
|
In addition to the shares offered hereby, beneficial ownership
also includes: (i) 3,115 shares of our common stock and 262,660 shares issuable upon the exercise of stock options held by
Arie Belldegrun, M.D.; (ii) 191,794 shares of our common stock, 243,055 shares issuable upon the exercise of Series A Warrants,
145,833 shares issuable upon the exercise of Series B Warrants, and 6,562 shares issuable upon the exercise of other warrants
held by Arie and Rebecka Belldegrun as Trustees of the Belldegrun Family Trust dated February 18, 1994; (iii) 39,643 shares
of our common stock and 13,125 shares issuable upon the exercise of warrants held by Leumi Overseas Trust Corporation Limited
(“Leumi”) as Trustee of the BTL Trust; (iv) 150,721 shares of our common stock, 208,333 shares issuable upon the
exercise of Series A Warrants, and 125,000 shares issuable upon the exercise of Series B Warrants held by Leumi as Trustee
of the Tampere Trust; (v) 100,481 shares of our common stock, 138,888 shares issuable upon the exercise of Series A Warrants
and 83,333 shares issuable upon the exercise of Series B Warrants held by the Arie S. Belldegrun M.D. Inc. Profit Sharing
Plan; and (vi) 91,312 shares of our common stock, 104,166 shares issuable upon the exercise of Series A Warrants, 62,500 shares
issuable upon the exercise of Series B Warrants, and 6,562 shares issuable upon the exercise of other warrants held by MDRB
Partnership, L.P. (“MDRB”). Dr. Belldegrun, who serves as Chairman of our Board of Directors, is a beneficiary
of each of the BTL Trust and the Tampere Trust and is the managing partner of MDRB. Dr. Belldegrun holds voting and/or
dispositive power over the shares held by MDRB and the Arie S. Belldegrun M.D. Inc. Profit Sharing Plan. Richard J. Guillaume
and Christopher R.P. Lees, directors of Leumi Overseas Trust Corporation Limited (“Leumi”), hold voting and/or
dispositive power over the shares held by Leumi as trustee of each of the BTL Trust and the Tampere Trust.
|
(8)
|
Dr. Raj Mehra holds voting and/or dispositive power over the shares
held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 376,804
shares of our common stock, 520,833 shares issuable upon the exercise of Series A Warrants, and 312,500 shares issuable upon
the exercise of Series B Warrants held by Auriga Investors – Montserrat Global Fund.
|
(9)
|
Notwithstanding the number of shares of our common stock shown
as beneficially owned by the selling stockholder in the table above, the Series A Warrants, Series B Warrants, or 2013 Warrants
held by the selling stockholder provide that the selling stockholder may not exercise such Series A Warrants, Series B Warrants,
or 2013 Warrants to the extent that the selling stockholder would beneficially own in excess of 9.99% of our outstanding common
stock immediately after giving effect to such exercise.
|
(10)
|
In addition to the shares offered hereby, beneficial ownership
also includes 100,480 shares of our common stock, 138,888 shares issuable upon the exercise of Series A Warrants, and 83,333
shares issuable upon the exercise of Series B Warrants.
|
(10.1)
|
In addition to the shares offered hereby, beneficial ownership
includes: (i) 29,850 shares of our common stock and 10,416 shares issuable upon the conversion of Series A Warrants held by
Bonnie Kazam; (ii) 13,204 shares of our common stock, and 10,416 shares issuable upon the conversion of Series A Warrants
held by the Joshua Kazam Trust; (iii) 4,153 shares of our common stock held by the Abigail R. Kazam Trust; and (iv) 4,153
shares of our common stock held by the Noah M. Kazam Trust. Ms. Kazam is the trustee of each of the Joshua Kazam Trust, the
Abigail R. Kazam Trust, and the Noah M. Kazam Trust.
|
(11)
|
Wildcat Capital Management, LLC (“WCM”) serves as investment
advisor to the Bonderman Family Limited Partnership (“BFLP”) and, as such, has investment discretion over the
shares held by BFLP. Leonard Potter is President and Chief Investment Officer of WCM.
|
(12)
|
Shaye Hirsch holds voting and/or dispositive power over the shares
held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 203,438
shares of our common stock, 277,776 shares issuable upon the exercise of Series A Warrants, and 166,666 shares issuable upon
the exercise of Series B Warrants.
|
(13)
|
Steven Ruchefsky, President of Commercial Street Capital, LLC,
is a director of Arno and holds voting and/or dispositive power over the shares held by the selling stockholder. In addition
to the shares offered hereby, beneficial ownership also includes (i) 908,772 shares of our common stock, 868,055 shares issuable
upon the exercise of Series A Warrants, 520,833 shares issuable upon the exercise of Series B Warrants, and 115,500 shares
issuable upon the exercise of other warrants held by Commercial Street Capital, LLC, and (ii) 18,283 shares of our common
stock issuable upon the exercise of options and warrants held by Mr. Ruchefsky.
|
(16)
|
Deerfield Capital, L.P. is the general partner of Deerfield Special
Situations Fund, L.P. Deerfield Management Company, L.P. is the investment manager of Deerfield Special Situations Fund
International Limited. James E. Flynn, managing member of Deerfield Capital, L.P. and Deerfield Management Company, L.P.,
holds voting and dispositive power over the shares held by the selling stockholders.
|
(18)
|
Leslie Alan Rozencwaig, Esq., as attorney-in-fact of the General
Partner, holds voting and/or dispositive power over the shares held by the selling stockholder.
|
(18.1)
|
Joseph Sitt holds voting and/or dispositive power over the shares
held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 17,360 shares
issuable upon the exercise of Series A Warrants.
|
(19)
|
Phillip Frost holds voting and/or investment power over the shares
held by the selling stockholder.
|
(19.1)
|
Cedric Carroll holds voting and/or dispositive power over the
shares held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 52,083
shares issuable upon the exercise of Series A Warrants.
|
(20)
|
In addition to the shares offered hereby, beneficial
ownership also includes 17,241 shares of our common stock, 17,360 shares issuable upon the exercise of Series A Warrants,
and 10,416 shares issuable upon the exercise of Series B Warrants.
|
(21)
|
Mr. Mattes is our President and Chief Executive Officer and a member
of our board of directors. In addition to the shares offered hereby, beneficial ownership also includes 56,370 shares of our
common stock, 34,721 shares issuable upon the exercise of Series A Warrants, 20,833 shares issuable upon the exercise of Series
B Warrants, and 270,313 shares issuable upon the exercise of options.
|
(22)
|
Anton Linderum holds voting and/or dispositive power over the shares
held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 100,480
shares of our common stock, 138,888 shares issuable upon the exercise of Series A Warrants, and 83,333 shares issuable upon
the exercise of Series B Warrants.
|
(23)
|
Glenn L. Halpryn holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(24)
|
In addition to the shares offered hereby, includes 20,833 shares
issuable upon the exercise of Series A Warrants and 12,500 shares issuable upon the exercise of Series B Warrants held by
the selling stockholder.
|
(25)
|
Jane Hsiao holds voting and/or dispositive power over the shares
held by the selling stockholder.
|
(26)
|
In addition to the shares offered hereby, beneficial ownership
also includes 67,026 shares of our common stock, 69,583 shares issuable upon the exercise of Series A Warrants and 41,750
shares issuable upon the exercise of Series B Warrants.
|
(26.1)
|
In addition to the shares offered hereby, beneficial ownership
also includes 13,888 shares issuable upon the exercise of Series A Warrants.
|
(28)
|
Jeffrey E. Donfeld holds voting and/or dispositive power over
the shares held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also
includes: (i) 24,178 shares of our common stock, 34,721 shares issuable upon the exercise of Series A Warrants, and 20,833
shares issuable upon the exercise of Series B Warrants held by Jeffrey E. Donfeld, a Professional Corporation, 401(k) Profit
Sharing Plan; and (ii) 24,178 shares of our common stock, 34,721 shares issuable upon the exercise of Series A Warrants, and
20,833 shares issuable upon the exercise of Series B Warrants held by The Donfeld Living Trust, dated February 3, 1983, as
amended.
|
(29)
|
Bonnie Kazam, the trustee of the Joshua Kazam Trust, holds voting
and/or dispositive power over the shares held by the selling stockholder. In addition to the shares offered hereby, beneficial
ownership also includes 10,416 shares issuable upon the exercise of Series A Warrants.
|
(31)
|
Howard M. Lorber holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(32)
|
In addition to the shares offered hereby, beneficial ownership
also includes 106,249 shares of our common stock and 173,610 shares issuable upon the exercise of Series A Warrants.
|
(35)
|
Michael Brauser, manager of the selling stockholder, holds voting
and/or dispositive power over the shares held by the selling stockholder.
|
(36)
|
Michael Rabinowitz holds voting and/or dispositive power over the
shares held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 283,750
shares issuable upon the exercise of 2012 Placement Agent warrants and 7,500 shares of common stock.
|
(38)
|
Mark Zeitchick holds voting and/or dispositive power over the shares
held by the selling stockholder.
|
(38.1)
|
Tania Bearryman and Donna Laverty, solely in their capacities
as authorized signatories of the selling stockholder, hold voting and/or dispositive power over the shares held by the selling
stockholder. In addition to the shares offered hereby, beneficial ownership also includes 55,261 shares of our common stock,
69,444 shares issuable upon the exercise of Series A Warrants, and 5,250 shares issuable upon the exercise of other warrants.
Ms. Bearryman and Ms. Laverty disclaim beneficial ownership of all securities beneficially owned by the selling stockholder.
|
(39)
|
Leslie Alan Rozencwaig, Esq., as attorney-in-fact of the General
Partner, holds voting and/or dispositive power over the shares held by the selling stockholder.
|
(40)
|
Pursuant to an agreement with us dated October 29, 2013, and in
connection with its investment in the 2013 Offering, OPKO Health, Inc. has the right to designate one person as a non-voting
observer to our board of directors and has a right of first negotiation with respect to certain strategic transactions that
we may wish to pursue, in each case for as long as OPKO Health continues to hold at least 3% of our outstanding
common stock determined on a fully-diluted basis. See “Prospectus Summary – Recent Developments –
Agreement with OPKO Health, Inc.”
|
(41)
|
Leslie Alan Rozencwaig, Manager, holds voting and/or dispositive
power over the shares held by the selling stockholder.
|
(42)
|
Joseph Edelman holds voting and/or dispositive power over the shares
held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 1,507,221 shares
of our common stock, 2,083,333 shares issuable upon the exercise of Series A Warrants and 1,250,000 shares issuable upon the
exercise of Series B Warrants.
|
(43)
|
In addition to the shares offered hereby, beneficial ownership
also includes: (i) 103,194 shares of our common stock, 125,000 shares issuable upon the exercise of Series A Warrants, 75,000
shares issuable upon the exercise of Series B Warrants, and 5,250 shares issuable upon the exercise of other warrants held
by Dr. and Mrs. Kash (JTWROS); (ii) 165,953 shares of our common stock and 18,691 shares issuable upon the exercise of options
and warrants held by Dr. Kash; and (iii) 44,859 shares of our common stock held by Mrs. Kash as custodian for the benefit
of their minor children under the UGMA.
|
(46)
|
Tomer Kariv and Ran Nussbaum hold voting and/or dispositive power
over the shares held by the selling stockholder. Mr. Kariv is a director of Arno. In addition to the shares offered
hereby, beneficial ownership also includes: (i) 435,777 shares of our common stock, 339,470 shares issuable upon the exercise
of Series A Warrants, 203,682 shares issuable upon the exercise of Series B Warrants and 76,991 shares issuable upon the exercise
of other warrants held by Pontifax (Cayman) II L.P., (ii) 127,424 shares of our common stock, 99,263 shares issuable upon
the exercise of Series A Warrants, 59,558 shares issuable upon the exercise of Series B Warrants, and 22,513 shares issuable
upon the exercise of other warrants held by Pontifax (Israel) II - Individual Investors L.P., (iii) 328,254 shares of our
common stock, 255,710 shares issuable upon the exercise of Series A Warrants, 153,426 shares issuable upon the exercise of
Series B Warrants, and 57,995 shares issuable upon the exercise of other warrants held by Pontifax (Israel) II L.P., and (iv)
7,552 shares of our common stock issuable upon the exercise of options held by Mr. Kariv.
|
(47)
|
Soros Fund Management LLC (“SFM”)
serves as principal investment manager to Quantum Partners LP. As such, SFM has been granted investment discretion over portfolio
investments, including the shares reported in the table above, held for the account of Quantum Partners LP. George Soros serves
as Chairman of SFM and Robert Soros serves as President and Deputy Chairman of SFM. In addition to the shares offered
hereby, beneficial ownership also includes 1,632,822 shares of our common stock, 2,256,943 shares issuable upon the exercise
of Series A Warrants and 1,354,166 shares issuable upon the exercise of Series B Warrants.
|
(48)
|
Ruki Renov holds voting and/or dispositive power over the shares
held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 18,271 shares
of our common stock, 17,360 shares issuable upon the exercise of Series A Warrants and 10,416 shares issuable upon the exercise
of Series B Warrants.
|
(51)
|
Joseph Sanberg holds voting and/or dispositive power over the
shares held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also includes 84,999
shares of our common stock and 138,888 shares issuable upon the exercise of Series A Warrants.
|
(52)
|
Robert Johnston holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(53)
|
Ronald Dozoretz holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(54)
|
Each of Sabby Healthcare Volatility Master Fund, Ltd. and Sabby
Volatility Warrant Master Fund, Ltd. (collectively, the “Sabby Funds”) has indicated to us that Hal Mintz has
voting and investment power over the shares held by it. Each of the Sabby Funds has also indicated to us that Sabby Management,
LLC serves as its investment manager, that Hal Mintz is the manager of Sabby Management, LLC and that each of Sabby Management,
LLC and Hal Mintz disclaim beneficial ownership over these shares except to the extent of any pecuniary interest therein. In
addition to the shares offered hereby, beneficial ownership also includes: (i) with respect to Sabby Healthcare Volatility
Master Fund, Ltd., 495,134 shares of our common stock, 868,055 shares issuable upon the exercise of Series A Warrants, and
520,833 shares issuable upon the exercise of Series B Warrants; and (ii) with respect to Sabby Volatility Warrant Master Fund,
Ltd., 282,771 shares of our common stock, 520,833 shares issuable upon the exercise of Series A Warrants, and 312,500 shares
issuable upon the exercise of Series B Warrants.
|
(55)
|
Jacqueline Simkin holds voting and/or dispositive power over the
shares held by the selling stockholder.
|
(55.1)
|
Dr. Proniuk is our Vice President of Product Development. In
addition to the shares offered hereby, beneficial ownership also includes 1,333 shares of our common stock, 66,667 shares
issuable upon the conversion of Debentures, 66,667 shares issuable upon the exercise of Series A Warrants, and 265,441 shares
issuable upon the exercise of options.
|
(56)
|
Pursuant to an October 29, 2013 agreement with us and OPKO Health,
Inc., Steven D. Rubin has been designated by OPKO Health as a non-voting observer to our board of directors.
|
(57)
|
Ari Tatos, Magali Garcia-Baudin, Philip Dean, Philippe De Salis
and Bonnie Steiner are directors of Primafides (Suisse) SA, the trustee of the Sirius Trust, and share voting and/or dispositive
power over the shares held by the selling stockholder. In addition to the shares offered hereby, beneficial ownership also
includes 104,369 shares of our common stock, 34,721 shares issuable upon the conversion of Series A Warrants, 20,833 shares
issuable upon the conversion of Series B Warrants, and 5,250 shares issuable upon the exercise of other warrants.
|
(58)
|
Henry Swieca holds voting and/or dispositive power over the shares
held by the selling stockholder.
|
(59)
|
David Thalheim holds voting and/or dispositive power over the shares
held by the selling stockholder.
|
(61)
|
In addition to the shares offered hereby, beneficial ownership
also includes 86,886 shares of our common stock, 69,443 shares issuable upon the conversion of Series A Warrants, 41,666 shares
issuable upon the conversion of Series B Warrants, and 18,750 shares issuable upon the exercise of other warrants.
|
(61.1)
|
F. Lawrence Plotnick, president of Wealthplan Corporation, holds
voting and/or dispositive power over the shares held by the selling stockholder. In addition to the shares offered hereby,
beneficial ownership also includes 9,804 shares of our common stock and 11,805 shares issuable upon the exercise of Series
A Warrants.
|
(61.2)
|
In addition to the shares offered hereby, beneficial ownership
also includes 21,249 shares of our common stock and 34,722 shares issuable upon the exercise of Series A Warrants.
|
(62)
|
In addition to the shares offered hereby, beneficial ownership
also includes 1,246 shares of our common stock and 8,802 shares issuable upon the exercise of stock options. Dr. Hamilton
is a member of our board of directors.
|
ADDITIONAL DISCLOSURE REGARDING TRANSACTIONS
BETWEEN THE COMPANY AND THE SELLING
STOCKHOLDERS
Payments in connection with 2013 Offering
The following table summarizes the total
payments and potential payments to the selling stockholders and their affiliates in connection with our 2013 Offering.
|
|
Amounts paid as of
March 31, 2014
|
|
|
Potential Future
Payment Obligations
|
|
|
Total
|
|
Placement Fees (1)
|
|
$
|
636,000
|
|
|
|
-
|
|
|
$
|
636,000
|
|
Placement Warrants (2)
|
|
|
69,589
|
|
|
|
-
|
|
|
|
69,589
|
|
Potential Liquidated Damages for Delayed Registration (3)
|
|
$
|
-
|
|
|
$
|
3,084,005
|
|
|
$
|
3,084,005
|
|
Legal Fees (4)
|
|
|
4,000
|
|
|
|
-
|
|
|
|
4,000
|
|
Total payments and potential payments
|
|
$
|
709,589
|
|
|
$
|
3,084,005
|
|
|
$
|
3,793,594
|
|
___________
|
(1)
|
We engaged Maxim Group, LLC as placement agent
in connection with our 2012 offering of warrants and debentures. Pursuant to certain “fee tail” provisions under
our 2012 agreement with Maxim Group, LLC relating to the 2012 offering, we paid Maxim a cash fee of $636,000 upon the closing
of our 2013 offering.
|
|
(2)
|
In addition to the cash fee described in footnote (1), we also
issued five-year warrants to purchase 65,650 shares of common stock at an initial exercise price of $2.64 per share (the “Maxim
Warrants”) to Maxim Partners, LLC. We have engaged the services of a third-party valuation consultant to determine the
value of the Maxim Warrants. Using a Monte Carlo simulation model, the third-party valuation consultant estimated
the value of the Maxim Warrants to be approximately $1.06 per shares as of October 29, 2013.
|
|
(3)
|
Under the Registration Rights Agreement, we agreed to file,
on or before December 30, 2013, a registration statement under the Securities Act covering the resale of the shares of common
stock issued as part of the Units and the shares of common stock issuable upon exercise of the 2013 Warrants, and to cause
such registration statement to be declared effective by the Commission as soon as practicable thereafter, but not later than
120 days following the date of the Registration Rights Agreement. If we do not file the registration statement by December
30, 2013 or obtain its effectiveness by 120 days following the date of the Registration Rights Agreement, then we are required
to pay liquidated damages to the purchasers in an amount equal to 1% of the aggregate purchase price paid by such purchaser
for the Units per month until the registration statement is filed or declared effective, as applicable, subject to a maximum
of 10% of the aggregate purchase price paid by each purchaser for the units. We are required to maintain the effectiveness
of the registration statement until all of the shares covered thereby are sold or may be sold pursuant to Rule 144 under the
Securities Act without volume or manner-of-sale restrictions and without the requirement that we be in compliance with the
current public information requirements of Rule 144.
|
|
(4)
|
We paid one of the investors in the 2013 Offering the amount of
$4,000 as reimbursement of legal fees incurred in connection with negotiating the Conversion Agreement relating to the conversion
of the 2012 Debentures.
|
Potential Selling Stockholder Profit
The following tables summarize the potential
profit the selling stockholders could realize as a result of the conversion discount for the shares underlying the Series C Warrants,
the Series E Warrants and the Placement Warrants. The 2012 Series B Warrants and the warrants issued to the placement agent in
connection with the 2012 offering also provide for a conversion discount. No other securities held by the selling stockholders
or their affiliates provide for any conversion discount.
Potential Profit Underlying Series
C Warrants
Market price per share of common stock on October 28, 2013 (1)
|
|
$
|
2.76
|
|
|
|
|
|
|
Exercise price per share
|
|
$
|
0.01
|
|
Price paid per Unit containing Series C Warrants
|
|
$
|
2.39
|
|
Effective exercise price per share
|
|
$
|
2.40
|
|
|
|
|
|
|
Total shares underlying Warrants
|
|
|
4,455,231
|
|
|
|
|
|
|
Aggregate market price of shares underlying Warrants
|
|
$
|
12,296,438
|
|
Aggregate effective exercise price of shares underlying Warrants
|
|
$
|
10,692,554
|
|
Total discount to market price of shares underlying Warrants
|
|
$
|
1,603,884
|
|
___________
|
(1)
|
Represents the average of the high and low prices
of our common stock as reported on the OTCQB on October 28, 2013, the most recent date on which shares of our common stock
were traded prior to our 2013 Offering.
|
Potential Profit Underlying Series
E Warrants
Market price per share of common stock on October 28, 2013 (1)
|
|
$
|
2.76
|
|
|
|
|
|
|
Exercise price per share
|
|
$
|
2.40
|
|
|
|
|
|
|
Total shares underlying Warrants
|
|
|
12,868,585
|
|
|
|
|
|
|
Aggregate market price of shares underlying Warrants
|
|
$
|
35,517,295
|
|
Aggregate exercise price of shares underlying Warrants
|
|
$
|
30,884,604
|
|
Total discount to market price of shares underlying Warrants
|
|
$
|
4,632,691
|
|
___________
|
(1)
|
Represents the average of the high and low prices
of our common stock as reported on the OTCQB on October 28, 2013, the most recent date on which shares of our common stock
were traded prior to our 2013 Offering.
|
Potential Profit Underlying Placement
Warrants
Market price per share of common stock on October 28, 2013 (1)
|
|
$
|
2.76
|
|
|
|
|
|
|
Exercise price per share
|
|
$
|
2.64
|
|
|
|
|
|
|
Total shares underlying Warrants
|
|
|
65,650
|
|
|
|
|
|
|
Aggregate market price of shares underlying Warrants
|
|
$
|
181,194
|
|
Aggregate exercise price of shares underlying Warrants
|
|
$
|
173,316
|
|
Total discount to market price of shares underlying Warrants
|
|
$
|
7,878
|
|
___________
|
(1)
|
Represents the average of the high and low prices
of our common stock as reported on the OTCQB on October 28, 2013, the most recent date on which shares of our common stock
were traded prior to our 2013 Offering.
|
Comparison of Issuer Proceeds to Potential Selling Stockholder
Profit.
The following table provides a comparison
of the gross proceeds to the Company from the 2013 Offering to: (i) the total payments and potential payments to the selling stockholders
and their affiliates (summarized above under “—Payments in connection with the 2013 Offering”); (ii) the resulting
net proceeds to the Company; and (iii) the combined potential profit the selling stockholders could realize as a result of the
conversion discount for the shares underlying the 2013 Series C Warrants, the 2013 Series E Warrants and the Placement Warrants
(summarized above under “—Potential Selling Stockholder Profit”).
Gross Company Proceeds from 2013 Offering
|
|
$
|
30,840,050
|
|
Payments and Potential Payments to Selling Stockholders
|
|
$
|
3,793,594
|
|
Net Company Proceeds from 2013 Offering
|
|
$
|
27,046,456
|
|
Potential Selling Stockholder Profit
|
|
$
|
6,236,573
|
|
Payments and Potential Payments to Selling Stockholders and Potential Selling Stockholder Profit
as a Percentage of Net Company Proceeds from 2013 Offering
|
|
|
13.2
|
%
|
Prior Transactions between the Company and the Selling Stockholders.
The following table summarizes the
securities transactions between the Company and the selling stockholders and their affiliates prior to the 2013 Offering.
Selling Stockholder
|
|
Date of
Transaction
|
|
Total Number
of
Shares
Outstanding
Prior to the
Transaction
|
|
|
Total Number
of
Shares held by
Non-Affiliates
Prior to the
Transaction (1)
|
|
|
Total Number
of Shares
Issued or
Issuable to the
Selling
Stockholder
in the
Transaction
|
|
|
Shares Issued
or Issuable in
Transaction as
a Percentage of
Shares held by
Non-Affiliates
|
|
|
Market Price
Per
Share
Immediately
Prior to the
Transaction
(2)
|
|
|
Current
Market
Price Per
Share (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abel G. Halpern (4)
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
161,967
|
|
|
|
5.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Alan T. Yuasa as Trustee of the
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
19,011
|
|
|
|
1.0
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
Michael J. Shimoko Trust (5)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
48,434
|
|
|
|
1.6
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Alexander Zukiwski (6)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
242,026
|
|
|
|
7.9
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Arie S. Belldegrun, M.D. (6)
|
|
8/9/05
|
|
|
-
|
|
|
|
-
|
|
|
|
3,115
|
|
|
|
N/A
|
|
|
$
|
0.004
|
|
|
$
|
2.61
|
|
Arie and Rebecka Belldegrun as
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
23,764
|
|
|
|
4.6
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
Trustees of the Belldegrun Family Trust dated February 18, 1994 (7)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
564,728
|
|
|
|
18.4
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Auriga Investors – Montserrat Global Fund (8)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
1,210,137
|
|
|
|
39.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Benjamin Domb (9)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
322,701
|
|
|
|
10.5
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Brio Capital Master Fund Ltd. (10)
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
623,473
|
|
|
|
20.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Commercial Street Capital LLC (11)
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
421,388
|
|
|
|
22.0
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
2,016,895
|
|
|
|
65.5
|
|
|
|
4.00
|
|
|
$
|
2.61
|
|
Gerald Lieberman (12)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
5,153
|
|
|
|
*
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
39,864
|
|
|
|
1.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Glenn Mattes (13)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
80,673
|
|
|
|
2.6
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Green Fields Offshore Inc. (14)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
322,701
|
|
|
|
10.5
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Henry Rothman (15)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
3,400
|
|
|
|
*
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
47,840
|
|
|
|
1.6
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Irvin R. Kessler (16)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
18,879
|
|
|
|
3.6
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
153,083
|
|
|
|
5.0
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Jeffrey E. Donfeld, a Professional Corporation, 401(k) Profit Sharing Plan (17)
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
79,732
|
|
|
|
2.6
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Peter Kash and Donna Kash
|
|
8/9/05
|
|
|
-
|
|
|
|
-
|
|
|
|
205,141
|
|
|
|
N/A
|
|
|
$
|
0.004
|
|
|
$
|
2.61
|
|
(JTWROS) (18)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
5,980
|
|
|
|
1.1
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
35,203
|
|
|
|
1.8
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
290,433
|
|
|
|
9.4
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Leumi Overseas Trust Corporation
|
|
8/9/05
|
|
|
-
|
|
|
|
-
|
|
|
|
7,739
|
|
|
|
N/A
|
|
|
$
|
0.004
|
|
|
$
|
2.61
|
|
Limited as Trustee of the BTL Trust (19)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
47,529
|
|
|
|
9.1
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
Leumi Overseas Trust Corporation Limited as Trustee of Tampere Trust (20)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
484,054
|
|
|
|
15.7
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Maxim Partners, LLC (21)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
291,250
|
|
|
|
9.5
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
MDRB Partnership, L.P. (22)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
23,764
|
|
|
|
4.6
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
242,026
|
|
|
|
7.9
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Perceptive Live Sciences Master Fund Ltd.(23)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
4,840,554
|
|
|
|
157.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Pontifax (Cayman) II L.P. (24)
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
278,813
|
|
|
|
14.6
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
791,772
|
|
|
|
25.7
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Pontifax (Israel) II - Individual
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
78,152
|
|
|
|
4.3
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
Investors L.P. (25)
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
231,518
|
|
|
|
7.5
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Pontifax (Israel) II L.P. (26)
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
210,019
|
|
|
|
11.0
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
596,413
|
|
|
|
19.4
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Quantum Partners, LP (27)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
5,243,931
|
|
|
|
170.4
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Sabby Healthcare Volatility Master Fund, Ltd. (28)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
1,983,267
|
|
|
|
64.5
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Sabby Volatility Warrant Master Fund, Ltd. (29)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
1,208,201
|
|
|
|
39.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Primafides (Suisse) as Trustees of the
|
|
8/9/05
|
|
|
-
|
|
|
|
-
|
|
|
|
24,922
|
|
|
|
N/A
|
|
|
$
|
0.004
|
|
|
$
|
2.61
|
|
Sirius Trust (30)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
42,803
|
|
|
|
8.2
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
9/9/10
|
|
|
2,551,503
|
|
|
|
1,912,418
|
|
|
|
19,011
|
|
|
|
1.0
|
|
|
$
|
8.00
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
80,982
|
|
|
|
2.6
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Rachel Family Partnership LP (31)
|
|
6/2/08
|
|
|
1,246,099
|
|
|
|
521,248
|
|
|
|
6,801
|
|
|
|
1.3
|
|
|
$
|
19.36
|
|
|
$
|
2.61
|
|
|
|
12/18/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
39,864
|
|
|
|
1.3
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
The Donfeld Living Trust, dated February 3, 1983, as amended (32)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
79,423
|
|
|
|
2.6
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
Uzi Zucker (33)
|
|
11/26/12
|
|
|
4,541,867
|
|
|
|
3,077,139
|
|
|
|
161,348
|
|
|
|
5.2
|
|
|
$
|
4.00
|
|
|
$
|
2.61
|
|
________________________
* represents less than 1%.
(1)
|
Excludes shares held by the selling stockholders, affiliates of the Company, or affiliates of the selling stockholders.
|
(2)
|
Because there was no market for our common stock at the time of the transaction, the listed price represents the negotiated price per share at the time of the transaction.
|
(3)
|
Represents the average of the high and low prices of our common stock as reported on
the OTCQB on December 26, 2013.
|
(4)
|
In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 41,666 shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 41,666 shares of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 41,666 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling stockholder of 3,091 shares of common stock due to our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 41,666 shares of common stock, (ii) an interest payment of 6,101 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such warrant increased to 69,443 shares.
|
(5)
|
In connection with our September 2010 private placement: (i) 100,000 shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase 8,000 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder; and (iii) five-year warrants to purchase 42,000 shares of Series A Preferred Stock at an exercise price of $1.15 per share were issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration statement filed in connection with our September 2010 private placement, such securities were automatically converted into (i) 12,761 shares of common stock; (ii) two-and-one-half-year warrants to purchase 1,000 shares of common stock at an exercise price of $8.00 per share; and (iii) five-year warrants to purchase 5,250 shares of common stock at an exercise price of $9.20 per share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 12,500 shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 12,500 shares of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 12,500 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling stockholder of 741 shares of common stock due to our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 12,500 shares of common stock, (ii) an interest payment of 1,830 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such warrant increased to 20,833 shares.
|
(6)
|
In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 62,500 shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 62,500 shares of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 62,500shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling stockholder of 2,472 shares of common stock due to our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 62,500 shares of common stock, (ii) an interest payment of 9,152 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such warrant increased to 104,166 shares.
|
(6)
|
On August 9, 2005, 3,115 founders shares were issued to Arie S. Belldegrun, M.D.
|
(7)
|
In connection with our September 2010 private
placement: (i) 125,000 shares of Series A Preferred Stock were issued to the selling stockholders; (ii) two-and-one-half-year
warrants to purchase 10,000 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the
selling stockholders; and (iii) five-year warrants to purchase 52,500 shares of Series A Preferred Stock at an exercise price
of $1.15 per share were issued to the selling stockholders. On February 9, 2011, the effective date of the Company’s
registration statement filed in connection with our September 2010 private placement, such securities were automatically converted
into (i) 15,952 shares of common stock; (ii) two-and-one-half-year warrants to purchase 1,250 shares of common stock at an
exercise price of $8.00 per share; and (iii) five-year warrants to purchase 6,562 shares of common stock at an exercise price
of $9.20 per share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into
145,833 shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 145,833
shares of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month
Series B warrants to purchase 145,833 shares of common stock at an exercise price of $2.40 per share were issued to the selling
stockholder. In March, April and May 2013, we paid liquidated damages to the selling stockholder of 8,652 shares of common
stock due to our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities
to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the
debentures were converted into 145,833 shares of common stock, (ii) an interest payment of 21,355 shares was paid pursuant
to the conversion of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share
and the number of shares of common stock available for purchase pursuant to such warrant increased to 243,055 shares.
|
(8)
|
In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 312,500 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 312,500 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 312,500 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 18,541 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 312,500 shares of common stock, (ii) an interest
payment of 45,763 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 520,833 shares.
|
(9)
|
In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 83,333 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 83,333 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 83,333 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 4,944 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 83,333 shares of common stock, (ii) an interest
payment of 12,203 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 138,888 shares.
|
(10)
|
In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 166,666 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 166,666 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 166,666 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 12,365 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 166,666 shares of common stock, (ii) an interest
payment of 24,407 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 277,776 shares.
|
(11)
|
In connection with our September 2010 private placement: (i) 2,200,000
shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase
176,000 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder;
(iii) five-year warrants to purchase 924,000 shares of Series A Preferred Stock at an exercise price of $1.15 per share were
issued to the selling stockholder; and (iv) five-year warrants to purchase 25,000 shares of Series A Preferred Stock at an
exercise price of $1.10 per share were issued to Steven B. Ruchefsky as a designee of Riverbank Capital Securities, Inc.,
which served as placement agent. On February 9, 2011, the effective date of the Company’s registration statement
filed in connection with our September 2010 private placement, such securities were automatically converted into (i) 280,763
shares of common stock; (ii) two-and-one-half-year warrants to purchase 22,000 shares of common stock at an exercise price
of $8.00 per share; (iii) five-year warrants to purchase 115,500 shares of common stock at an exercise price of $9.20 per
share; and (iv) five-year warrants to purchase 3,125 shares of common stock at an exercise price of $8.80 per share. In connection
with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 520,833 shares of common stock
were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 520,833 shares of common stock at an
exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase
520,833 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April
and May 2013, we paid liquidated damages to the selling stockholder of 30,902 shares of common stock due to our failure to
successfully cause a registration statement covering the resale of 100% of the registrable securities to be declared effective
by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted
into 520,833 shares of common stock, (ii) an interest payment of 76,272 shares was paid pursuant to the conversion of the
debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of shares
of common stock available for purchase pursuant to such warrant increased to 868,055 shares. Mr. Ruchefsky, a member of our
board of directors, is president of the selling stockholder.
|
(12)
|
In connection with our June 2, 2008 private
placement, 5,153 shares of common stock were issued to the selling stockholder. In connection with our 2012 Debenture and
Warrant Offering: (i) three-year 8% debentures convertible into 10,416 shares of common stock were issued to the selling stockholder,
(ii) five-year Series A warrants to purchase 10,416 shares of common stock at an exercise price of $4.00 per share were issued
to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 10,416 shares of common stock at an exercise
price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages
to the selling stockholder of 772 shares of common stock due to our failure to successfully cause a registration statement
covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October
29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 10,416 shares of common stock, (ii)
an interest payment of 900 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the
Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant
to such warrant increased to 17,360 shares.
|
(13)
|
In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 20,833 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 20,833 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 20,833 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 1,236 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 20,833 shares of common stock, (ii) an interest
payment of 1,800 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series A
warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 34,721 shares.
|
(14)
|
In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 83,333 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 83,333 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 83,333 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 4,944 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 83,333 shares of common stock, (ii) an interest
payment of 12,203 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 138,888 shares.
|
(15)
|
In connection with our June 2, 2008 private placement: (i) 3,091
shares of common stock were issued to the selling stockholder; and (ii) five-year warrants to purchase 309 shares of common
stock at an exercise price of $19.36 per share were issued to the selling stockholder. In connection with our 2012 Debenture
and Warrant Offering: (i) three-year 8% debentures convertible into 12,500 shares of common stock were issued to the selling
stockholder, (ii) five-year Series A warrants to purchase 12,500 shares of common stock at an exercise price of $4.00 per
share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 12,500 shares of common
stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid
liquidated damages to the selling stockholder of 927 shares of common stock due to our failure to successfully cause a registration
statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013.
On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 12,500 shares of common
stock, (ii) an interest payment of 1,080 shares was paid pursuant to the conversion of the debentures and (iii) the exercise
price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase
pursuant to such warrant increased to 20,833 shares.
|
(16)
|
In connection with our June 2, 2008 private placement: (i) 18,570
shares of common stock were issued to the selling stockholder; and (ii) five-year warrants to purchase 309 shares of common
stock at an exercise price of $19.36 per share were issued to the selling stockholder. In connection with our 2012 Debenture
and Warrant Offering: (i) three-year 8% debentures convertible into 41,750 shares of common stock were issued to the selling
stockholder, (ii) five-year Series A warrants to purchase 41,750 shares of common stock at an exercise price of $4.00 per
share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 41,7503 shares of common
stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid
liquidated damages to the selling stockholder of 3,097 shares of common stock due to our failure to successfully cause a registration
statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013.
On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 41,750 shares of common
stock, (ii) an interest payment of 3,609 shares was paid pursuant to the conversion of the debentures and (iii) the exercise
price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase
pursuant to such warrant increased to 69,583 shares.
|
(17)
|
In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8%debentures convertible into 20,833 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 20,833 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 20,833 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 1,545 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 20,833 shares of common stock, (ii) an interest
payment of 1,800 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series A
warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 34,721 shares.
|
(18)
|
On August 9, 2005: (i) 160,282 founders shares
were issued to Peter Kash; and (ii) 44,859 founders shares were issued to Mrs. Kash as custodian for the benefit of their
minor children under the UGMA. In connection with our June 2, 2008 private placement: (i) 5,671 shares of common stock
were issued to Dr. Kash; and (ii) five-year warrants to purchase 309 shares of common stock at an exercise price of $19.36
per share were issued to Dr. Kash. In connection with our September 2010 private placement: (i) 100,000 shares of Series
A Preferred Stock were issued to the selling stockholders; (ii) two-and-one-half-year warrants to purchase 8,000 shares of
Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholders; (iii) five-year
warrants to purchase 42,000 shares of Series A Preferred Stock at an exercise price of $1.15 per share were issued to the
selling stockholders; and (iv) five-year warrants to purchase 129,534 shares of Series A Preferred Stock at an exercise price
of $1.10 per share were issued to Dr. Kash as a designee of Riverbank Capital Securities, Inc., which served as placement
agent. On February 9, 2011, the effective date of the Company’s registration statement filed in connection with
our September 2010 private placement, such securities were automatically converted into (i) 12,761 shares of common stock;
(ii) two-and-one-half-year warrants to purchase 1,000 shares of common stock at an exercise price of $8.00 per share; (iii)
five-year warrants to purchase 5,250 shares of common stock at an exercise price of $9.20 per share; and (iv) five-year warrants
to purchase 16,191 shares of common stock at an exercise price of $8.80 per share. In connection with our 2012 Debenture and
Warrant Offering: (i) three-year 8% debentures convertible into 75,000 shares of common stock were issued to the selling stockholder,
(ii) five-year Series A warrants to purchase 75,000 shares of common stock at an exercise price of $4.00 per share were issued
to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 75,000 shares of common stock at an exercise
price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages
to the selling stockholder of 4,450 shares of common stock due to our failure to successfully cause a registration statement
covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October
29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 75,000 shares of common stock, (ii)
an interest payment of 10,983 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of
the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant
to such warrant increased to 125,000 shares.
|
(19)
|
In connection with our June 2, 2008 private placement, 7,739 shares
of common stock were issued to the selling stockholder. In connection with our September 2010 private placement: (i)
250,000 shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to
purchase 20,000 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder;
and (iii) five-year warrants to purchase 105,000 shares of Series A Preferred Stock at an exercise price of $1.15 per share
were issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration
statement filed in connection with our September 2010 private placement, such securities were automatically converted into
(i) 31,904 shares of common stock; (ii) two-and-one-half-year warrants to purchase 2,500 shares of common stock at an exercise
price of $8.00 per share; and (iii) five-year warrants to purchase 13,125 shares of common stock at an exercise price of $9.20
per share.
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(20)
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In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 125,000 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 125,000 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 125,000 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 7,416 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 125,000 shares of common stock, (ii) an interest
payment of 18,305 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 208,333 shares.
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(21)
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In connection with our 2012 Debenture and Warrant Offering: (i)
7,500 shares of common stock were issued to the selling stockholder and (ii) five-year warrants to purchase 283,750 shares
of common stock at an exercise price of $4.00 per share were issued to the selling stockholder.
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(22)
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In connection with our September 2010 private placement: (i) 125,000
shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase
10,000 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder;
and (iii) five-year warrants to purchase 52,500 shares of Series A Preferred Stock at an exercise price of $1.15 per share
were issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration
statement filed in connection with our September 2010 private placement, such securities were automatically converted into
(i) 15,952 shares of common stock; (ii) two-and-one-half-year warrants to purchase 1,250 shares of common stock at an exercise
price of $8.00 per share; and (iii) five-year warrants to purchase 6,562 shares of common stock at an exercise price of $9.20
per share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible
into 62,500 shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 62,500
shares of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month
Series B warrants to purchase 62,500 shares of common stock at an exercise price of $2.40 per share were issued to the selling
stockholder. In March, April and May 2013, we paid liquidated damages to the selling stockholder of 3,708 shares of common
stock due to our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities
to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the
debentures were converted into 62,500 shares of common stock, (ii) an interest payment of 9,152 shares was paid pursuant to
the conversion of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and
the number of shares of common stock available for purchase pursuant to such warrant increased to 3,708 shares.
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(23)
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In connection with our 2012 Debenture and Warrant
Offering: (i) three-year 8% debentures convertible into 1,250,000 shares of common stock were issued to the selling stockholder,
(ii) five-year Series A warrants to purchase 1,250,000 shares of common stock at an exercise price of $4.00 per
share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 1,250,000
shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and
May 2013, we paid liquidated damages to the selling stockholder of 74,166 shares of common stock due to our failure to successfully
cause a registration statement covering the resale of 100% of the registrable securities to be declared effective by the SEC
by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 1,250,000
shares of common stock, (ii) an interest payment of 183,055 shares was paid pursuant to the conversion of the debentures and
(iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock
available for purchase pursuant to such warrant increased to 2,083,333 shares.
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(24)
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In connection with our September 2010 private placement: (i) 1,466,512
shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase
117,321 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder;
and (iii) five-year warrants to purchase 615,935 shares of Series A Preferred Stock at an exercise price of $1.15 per share
were issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration
statement filed in connection with our September 2010 private placement, such securities were automatically converted into
(i) 187,156 shares of common stock; (ii) two-and-one-half-year warrants to purchase 14,665 shares of common stock at an exercise
price of $8.00 per share; and (iii) five-year warrants to purchase 76,991 shares of common stock at an exercise price of $9.20
per share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 203,682
shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 203,682 shares
of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series
B warrants to purchase 203,682 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder.
In March, April and May 2013, we paid liquidated damages to the selling stockholder of 15,111 shares of common stock due to
our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be
declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures
were converted into 203,682 shares of common stock, (ii) an interest payment of 29,827 shares was paid pursuant to the conversion
of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of
shares of common stock available for purchase pursuant to such warrant increased to 339,470 shares.
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(25)
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In connection with our September 2010 private placement: (i) 428,820
shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase
34,306 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder;
and (iii) five-year warrants to purchase 180,104 shares of Series A Preferred Stock at an exercise price of $1.15 per share
were issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration
statement filed in connection with our September 2010 private placement, such securities were automatically converted into
(i) 54,725 shares of common stock; (ii) two-and-one-half-year warrants to purchase 4,288 shares of common stock at an exercise
price of $8.00 per share; and (iii) five-year warrants to purchase 22,513 shares of common stock at an exercise price of $9.20
per share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 59,558
shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 59,558 shares
of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series
B warrants to purchase 59,558 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder.
In March, April and May 2013, we paid liquidated damages to the selling stockholder of 4,418 shares of common stock due to
our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be
declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures
were converted into 59,558 shares of common stock, (ii) an interest payment of 8,721 shares was paid pursuant to the conversion
of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of
shares of common stock available for purchase pursuant to such warrant increased to 99,263 shares.
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(26)
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In connection with our September 2010 private placement: (i) 1,104,668
shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase
88,373 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder;
and (iii) five-year warrants to purchase 463,961 shares of Series A Preferred Stock at an exercise price of $1.15 per share
were issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration
statement filed in connection with our September 2010 private placement, such securities were automatically converted into
(i) 140,977 shares of common stock; (ii) two-and-one-half-year warrants to purchase 11,046 shares of common stock at an exercise
price of $8.00 per share; and (iii) five-year warrants to purchase 57,995 shares of common stock at an exercise price of $9.20
per share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 153,426
shares of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 153,426 shares
of common stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series
B warrants to purchase 153,426 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder.
In March, April and May 2013, we paid liquidated damages to the selling stockholder of 11,383 shares of common stock due to
our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be
declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures
were converted into 153,426 shares of common stock, (ii) an interest payment of 22,468 shares was paid pursuant to the conversion
of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of
shares of common stock available for purchase pursuant to such warrant increased to 255,710 shares.
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(27)
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In connection with our 2012 Debenture and Warrant
Offering: (i) three-year 8% debentures convertible into 1,354,166 shares of common stock were issued to the selling stockholder,
(ii) five-year Series A warrants to purchase 1,354,166 shares of common stock at an exercise price of $4.00 per share were
issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 1,354,166 shares of common stock
at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated
damages to the selling stockholder of 80,347 shares of common stock due to our failure to successfully cause a registration
statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013.
On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 1,354,166 shares of common
stock, (ii) an interest payment of 198,309 shares was paid pursuant to the conversion of the debentures and (iii) the exercise
price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase
pursuant to such warrant increased to 2,256,943 shares.
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(28)
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In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 518,470 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 520,833 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 520,833 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 30,902 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 518,470 shares of common stock, (ii) an interest
payment of 45,007 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 868,055 shares.
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(29)
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In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 312,500 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 312,500 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 312,500 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 18,541 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 312,500 shares of common stock, (ii) an interest
payment of 26,990 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series
A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 520,833 shares.
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(30)
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On August 9, 2005, 24,922 founders shares were issued to the selling
stockholder. In connection with our June 2, 2008 private placement: (i) 41,258 shares of common stock were issued to
the selling stockholder; and (ii) five-year warrants to purchase 1,545 shares of common stock at an exercise price of $19.36
per share were issued to the selling stockholder. In connection with our September 2010 private placement: (i) 100,000
shares of Series A Preferred Stock were issued to the selling stockholder; (ii) two-and-one-half-year warrants to purchase
8,000 shares of Series A Preferred Stock at an exercise price of $1.00 per share were issued to the selling stockholder; and
(iii) five-year warrants to purchase 42,000 shares of Series A Preferred Stock at an exercise price of $1.15 per share were
issued to the selling stockholder. On February 9, 2011, the effective date of the Company’s registration statement
filed in connection with our September 2010 private placement, such securities were automatically converted into (i) 12,761
shares of common stock; (ii) two-and-one-half-year warrants to purchase 1,000 shares of common stock at an exercise price
of $8.00 per share; and (iii) five-year warrants to purchase 5,250 shares of common stock at an exercise price of $9.20 per
share. In connection with our 2012 Debenture and Warrant Offering: (i) three-year 8% debentures convertible into 20,833 shares
of common stock were issued to the selling stockholder, (ii) five-year Series A warrants to purchase 20,833 shares of common
stock at an exercise price of $4.00 per share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants
to purchase 20,833 shares of common stock at an exercise price of $2.40 per share were issued to the selling stockholder.
In March, April and May 2013, we paid liquidated damages to the selling stockholder of 1,545 shares of common stock due to
our failure to successfully cause a registration statement covering the resale of 100% of the registrable securities to be
declared effective by the SEC by March 26, 2013. On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures
were converted into 20,833 shares of common stock, (ii) an interest payment of 3,050 shares was paid pursuant to the conversion
of the debentures and (iii) the exercise price of the Series A warrants was adjusted to $2.40 per share and the number of
shares of common stock available for purchase pursuant to such warrant increased to 34,721 shares.
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In connection with our June 2, 2008 private placement: (i) 6,183
shares of common stock were issued to the selling stockholder; and (ii) five-year warrants to purchase 618 shares of common
stock at an exercise price of $19.36 per share were issued to the selling stockholder. In connection with our 2012 Debenture
and Warrant Offering: (i) three-year 8% debentures convertible into 10,416 shares of common stock were issued to the selling
stockholder, (ii) five-year Series A warrants to purchase 10,416 shares of common stock at an exercise price of $4.00 per
share were issued to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 10,416 shares of common
stock at an exercise price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid
liquidated damages to the selling stockholder of 772 shares of common stock due to our failure to successfully cause a registration
statement covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013.
On October 29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 10,416 shares of common
stock, (ii) an interest payment of 900 shares was paid pursuant to the conversion of the debentures and (iii) the exercise
price of the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase
pursuant to such warrant increased to 17,360 shares.
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(32)
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In connection with our 2012 Debenture and Warrant
Offering: (i) three-year 8% debentures convertible into 20,833 shares of common stock were issued to the selling stockholder,
(ii) five-year Series A warrants to purchase 20,833 shares of common stock at an exercise price of $4.00 per share were issued
to the selling stockholder, and (iii) eighteen-month Series B warrants to purchase 20,833 shares of common stock at an exercise
price of $2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages
to the selling stockholder of 1,236 shares of common stock due to our failure to successfully cause a registration statement
covering the resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October
29, 2013, the closing date of our 2013 Offering, (i) the debentures were converted into 20,833 shares of common stock, (ii)
an interest payment of 1,800 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of
the Series A warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant
to such warrant increased to 34,721 shares.
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(33)
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In connection with our 2012 Debenture and Warrant Offering: (i)
three-year 8% debentures convertible into 41,666 shares of common stock were issued to the selling stockholder, (ii) five-year
Series A warrants to purchase 41,666 shares of common stock at an exercise price of $4.00 per share were issued to the selling
stockholder, and (iii) eighteen-month Series B warrants to purchase 41,666 shares of common stock at an exercise price of
$2.40 per share were issued to the selling stockholder. In March, April and May 2013, we paid liquidated damages to the selling
stockholder of 2,472 shares of common stock due to our failure to successfully cause a registration statement covering the
resale of 100% of the registrable securities to be declared effective by the SEC by March 26, 2013. On October 29, 2013, the
closing date of our 2013 Offering, (i) the debentures were converted into 41,666 shares of common stock, (ii) an interest
payment of 6,101 shares was paid pursuant to the conversion of the debentures and (iii) the exercise price of the Series A
warrants was adjusted to $2.40 per share and the number of shares of common stock available for purchase pursuant to such
warrant increased to 69,443 shares.
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Comparison of Registered Shares to Outstanding Shares
The following table compares the number
of shares held by persons other than the selling stockholders, affiliates of the Company, and affiliates of the selling stockholders
with the number of shares registered for resale and sold by such parties in prior transactions as well as in the current transaction
involving the 2013 Warrants:
Shares outstanding prior to the 2013 Offering held by persons other than the selling
stockholders, affiliates of the Company, or affiliates of the selling stockholders
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|
|
3,419,184
|
|
|
|
|
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|
Shares registered for resale by the selling stockholders or affiliates of the selling stockholders
in prior registration statements, including shares issuable upon the exercise of warrants
|
|
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7,053,808
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|
|
|
|
|
|
Shares registered for resale by selling stockholders or affiliates of the selling stockholders
that continue to be held by such persons, including shares issuable upon the exercise of warrants
|
|
|
6,983,308
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(1)
|
|
|
|
|
|
Shares sold in registered resale transactions by the selling stockholders or affiliates of the
selling stockholders
|
|
|
0
|
|
|
|
|
|
|
Shares registered for resale on behalf of the selling stockholders or affiliates of the selling
stockholders in connection with the 2013 Offering, including shares issuable upon the exercise of warrants
|
|
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38,671,405
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________________
(1) Reflects the expiration of certain warrants
for which the underlying shares were previously registered.
PLAN OF DISTRIBUTION
We are registering the shares offered by
this prospectus on behalf of the selling stockholders. The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after
the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from
time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common
stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These
sales may be at fixed or negotiated prices. To the extent any of the selling stockholders gift, pledge or otherwise transfer the
shares offered hereby, such transferees may offer and sell the shares from time to time under this prospectus, provided that this
prospectus has been amended under Rule 424(b)(3) or other applicable provision of the Securities Act to include the name of such
transferee in the list of selling stockholders under this prospectus.
The selling stockholders
may use any one or more of the following methods when disposing of shares or interests therein:
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·
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ordinary brokerage transactions and transactions
in which the broker-dealer solicits purchasers;
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|
·
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block trades in which the broker-dealer will
attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
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|
·
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purchases by a broker-dealer as principal and
resale by the broker-dealer for its account;
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|
·
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an exchange distribution in accordance with
the rules of the applicable exchange;
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|
·
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privately negotiated transactions;
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|
·
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settlement of short sales entered into after
the effective date of the registration statement of which this prospectus is a part;
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|
·
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in transactions through broker-dealers that
agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
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|
·
|
through the writing or settlement of options
or other hedging transactions, whether through an options exchange or otherwise;
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|
·
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a combination of any such methods of sale; and
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|
·
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any other method permitted pursuant to applicable
law.
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The selling stockholders may also sell the
shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.
In connection with the sale of the shares
or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the shares in the course of hedging the positions they assume. The selling stockholders
may also sell shares short and deliver these shares to close out their short positions, or loan or pledge the shares to broker-dealers
that in turn may sell these shares. The selling stockholders may also enter into option or other transactions with broker-dealers
or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or
other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers
or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly,
with any person to distribute the shares. In no event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).
We are required to pay certain fees and
expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against
certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because selling stockholders may be deemed
to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. The selling stockholders have advised us that there is no underwriter or
coordinating broker acting in connection with the proposed sale of the shares by the selling stockholders.
We agreed to keep this prospectus effective
until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without
regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with
the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) the date on
which all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar
effect. The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities
laws. In addition, in certain states, the shares covered hereby may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied
with.
Under applicable rules and regulations under
the Exchange Act, any person engaged in the distribution of the shares may not simultaneously engage in market making activities
with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of
the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of our securities by the
selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have
informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).
Shares Eligible For Future Sale
Upon completion of this offering and
assuming the issuance of all shares offered hereby that are issuable upon exercise of warrants, there will be 56,819,447 shares
of our common stock issued and outstanding. The shares purchased in this offering will be freely tradable without registration
or other restriction under the Securities Act, except for any shares purchased by an “affiliate” of our company (as
defined in the Securities Act).
The selling stockholders also may resell
all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet
the criteria and conform to the requirements of such rule. Rule 144 governs resale of “restricted securities”
for the account of any person (other than us), and restricted and unrestricted securities for the account of an “affiliate”
of ours. Restricted securities generally include any securities acquired directly or indirectly from us or our affiliates,
which were not issued or sold in connection with a public offering registered under the Securities Act. An affiliate of
ours is any person who directly or indirectly controls us, is controlled by us, or is under common control with us. Our
affiliates may include our directors, executive officers, and persons directly or indirectly owing 10% or more of our outstanding
common stock. In general, under Rule 144, a person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of ours at the time of, or at any time during the three months preceding, a sale, and who has beneficially owned
restricted securities for at least six months would be entitled to sell those shares, subject to the requirements of Rule 144
regarding publicly available information about us. Affiliates may only sell in any three month period that number of shares
that does not exceed the greater of 1 percent of the then-outstanding shares of our common stock or the average weekly trading
volume of our shares of common stock in the over-the-counter market during the four calendar weeks preceding the sale. However,
because we were formerly a “shell company,” in order for the holders of our restricted securities to resell their
shares in reliance upon Rule 144, we are required to have been subject to the public reporting requirements of the Exchange Act
for at least 90 days, and to have filed all reports required to be filed during the 12 months preceding such sale (or such shorter
period that we were required to file such reports).
Following the date of this prospectus, we
cannot predict the effect, if any, that sales of our common stock or the availability of our common stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales by existing stockholders of substantial amounts of our
common stock could adversely affect prevailing market prices for our stock.
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of
incorporation, as amended, authorizes us to issue 535,000,000 shares of capital stock, par value $0.0001 per share, comprised
of 500,000,000 shares of common stock, and 35,000,000 shares of preferred stock.
As of March 31, 2014, we have issued
and outstanding approximately:
|
·
|
20,370,331 shares of our common stock,
|
|
·
|
options to purchase 7,945,420 shares of our common stock at
exercise prices ranging from $2.23 to $24.00 per share, and
|
|
·
|
warrants to purchase 47,983,752 shares of our common stock at
exercise prices ranging from $2.40 to $19.36 per share.
|
Common Stock
The holders of our common stock are entitled
to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting
rights. Upon our liquidation, dissolution or winding down, holders of our common stock will be entitled to share ratably
in all of our assets that are legally available for distribution, after payment of all debts and other liabilities. The
holders of our common stock have no preemptive, subscription, redemption or conversion rights.
Holders of our common stock are entitled
to receive such dividends, as the board of directors may from time to time declare out of funds legally available for the payment
of dividends. We seek growth and expansion of our business through the reinvestment of profits, if any, and do not anticipate
that we will pay dividends in the foreseeable future.
On November 15, 2010, our stockholders,
acting by written consent together as a single class, authorized the amendment of our amended and restated certificate of incorporation
in order to effect a combination (reverse split) of our common stock at a ratio not to exceed one-for-eight, provided that our
board of directors shall have absolute discretion to determine and fix the exact ratio of such combination (not to exceed one-for-eight)
and the time at which such combination shall become effective, if ever. Our board of directors approved a one-for-eight reverse
split of our common stock, effective as of October 29, 2013 immediately prior to the entry into the purchase agreement for the
2013 Offering. Our board of directors amended our amended and restated certificate of incorporation to effect this reverse split.
Authority to Issue Stock
Our board of directors has the authority
to issue the authorized but unissued shares of our common stock without action by the shareholders. The issuance of such
shares would reduce the percentage ownership held by current shareholders.
Our amended and restated certificate of
incorporation authorizes the issuance of up to 35,000,000 shares of preferred stock, all of which are currently designated as
Series A Convertible Preferred Stock. Following the conversion of our Series A Preferred Stock into common stock on February
9, 2011, our board of directors has the authority to fix and determine the relative rights and preferences of up to 35,000,000
preferred shares, as well as the authority to issue such shares, without further stockholder approval. As a result, our board
of directors could authorize the issuance of a series of preferred stock that is senior to our common stock and that would grant
to holders preferred rights to our assets upon liquidation, the right to receive dividends, additional registration rights, anti-dilution
protection, the right to the redemption to such shares, together with other rights, none of which will be afforded holders of
our common stock.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Our common stock is currently eligible for
trading on the OTCQB tier of the OTC Markets under the symbol “ARNI.” The historical trading of our common stock has
been extremely limited and sporadic. Set forth below are the high and low sales prices for our common stock during each quarter
within the last two fiscal years, as reported by the Pink Sheets, the OTCBB, or the OTCQB, as applicable. The quotations reflect
inter-dealer prices, without retail markup, markdown, or commission, and may not represent actual transactions. Consequently,
the information provided below may not be indicative of our common stock price under different conditions.
Quarter Ended
|
|
High
|
|
|
Low
|
|
March 31, 2012
|
|
$
|
10.00
|
|
|
$
|
4.80
|
|
June 30, 2012
|
|
$
|
8.08
|
|
|
$
|
0.80
|
|
September 30, 2012
|
|
$
|
3.92
|
|
|
$
|
0.88
|
|
December 31, 2012
|
|
$
|
4.00
|
|
|
$
|
0.80
|
|
March 31, 2013
|
|
$
|
36.00
|
|
|
$
|
4.80
|
|
June 30, 2013
|
|
$
|
5.20
|
|
|
$
|
2.56
|
|
September 30, 2013
|
|
$
|
3.60
|
|
|
$
|
1.28
|
|
December 31, 2013
|
|
$
|
4.24
|
|
|
$
|
2.40
|
|
Holders
According to the records of our transfer
agent, American Stock Transfer & Trust Company, as of March 21, 2014, we had approximately 365 holders of record of common
stock, not including those held in “street name.”
Dividends
We have never declared or paid a dividend
on our common stock and do not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation
Plans
We grant stock options and other equity
incentive awards pursuant to our 2005 Stock Option Plan, or 2005 Plan, which has been approved by our stockholders. The following
table sets forth certain information as of December 31, 2013 with respect to the Plan
Plan category
|
|
Number of
Securities to be
Issued Upon Exercise of
Outstanding Options
(A)
|
|
|
Weighted-Average
Exercise Price of
Outstanding Options
(B)
|
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (A))
(C)
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Stock Option Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
5,758,463
|
|
|
$
|
2.66
|
|
|
|
5,356,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,758,463
|
|
|
$
|
2.66
|
|
|
|
5,356,853
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and plan of
operations should be read in conjunction with the financial statements and the notes to those statements included in this prospectus.
This discussion includes forward-looking statements that involve risk and uncertainties. As a result of many factors, such
as those set forth in this prospectus under “Risk Factors,” actual results may differ materially from those anticipated
in these forward-looking statements.
Company 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 develop and commercialize onapristone, an anti-progestin hormone blocker
that has been previously reported to have considerable anti-tumor activity in patients
with breast cancer. Onapristone appears to have a unique ability to block the activation
of the progesterone receptor and inhibit tumor growth. Onapristone was originally developed
by Schering AG for potential use in the treatment of benign gynecological disorders (uterine
leiomyoma, endometriosis), as a contraceptive and an anti-endocrine treatment of breast
cancer. In published 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 have engaged Leica Biosystems to
perform a feasibility study leading to the development of an immunohistochemistry based
diagnostic test to identify tumors with the activated form of the progesterone receptor,
which may identify which patients are more likely to benefit from treatment with onapristone.
We have also engaged Clarient Diagnostic Services, Inc. to perform the interpretation/analysis
of tumor samples with the developed diagnostic test. We completed initial pre-clinical
toxicology studies that enabled the submission of an Investigational Medicinal Product
Dossier, or IMPD, the foreign equivalent of an investigational new drug application,
or IND, in the second quarter of 2013 to support a pharmacokinetic/food effect study,
which we completed in the fourth quarter of 2013. We also submitted an IMPD
to support the conduct of a Phase I study in patients with progesterone receptor expressing
cancers in the third quarter of 2013. We initiated this study in the fourth quarter of
2013 and began enrolling patients in early 2014. We are also investigating onapristone
as a potential treatment for patients with prostate cancer and enrolled the first patient
in a Phase I clinical study in adult male subjects with castrate resistant prostate cancer
in April 2014.
|
|
·
|
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.
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. We are also supporting
an investigator initiated Phase I study of AR-42 in combination with decitabine in patients
with hematological malignancies that was initiated during the third quarter of 2013.
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 two orphan drug designations
for AR-42 for the treatment of meningioma and the treatment of schwannoma of the central
nervous system. Additionally, AR-42 has been granted three orphan-drug designations by
the European Medicines, or EMA, for the treatment of neurofibromatosis type 2 (NF2),
the treatment of meningioma and the treatment of schwannoma. 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.
|
|
·
|
AR-12
– We are also developing AR-12 as an orally available, targeted
anti-cancer agent that has been shown in early 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 and
work is ongoing to further understand the mechanism of action. Preliminary data demonstrates
that AR-12 may inhibit multiple different kinase targets. In May 2009, the FDA accepted
our 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 and RP2D for future studies
of the compound. We have completed the dose escalation phase of the Phase I trial, and
have determined the RP2D and MTD of the current formulation. 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 an improved formulation that has been shown to substantially
increase bioavailability in preclinical models has been developed. During the first quarter
of 2013, the last study subject completed the planned dose-escalation phase of the study.
|
We have no product sales to date
and we will not generate any product revenue until we receive approval from 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, almost all of our development
expenses have been incurred on each of our product candidates: Onapristone, AR-42, AR-12 and AR-67. As we proceed with the clinical
development of our product candidates, primarily focusing our resources on onapristone, 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. We expense the fair value of stock options 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 years ended December 31, 2013 and 2012 were approximately $3.5 million and $2.3 million, respectively.
This increase of approximately $1.2 million over 2012 is primarily attributable to an increase of approximately $0.5 million in
stock compensation costs for our CEO related to new grants in 2013 with no such grants in 2012. Also, during 2013, we had an increase
of approximately $0.3 million in professional fees related to our financing, investor relations service and share registration
efforts along with an increase of approximately $0.2 million over 2012 related to Delaware Franchise Taxes as a result of increased
authorized shares and a higher asset balance at December 31, 2013.
Research and Development Expenses
.
R&D expenses for the years ended December 31, 2013 and 2012 were approximately $13.5 million and $8.5 million, respectively.
The increase of approximately $5.0 million over 2012 was primarily due to increased expenses incurred in further developing our
lead product candidate, onapristone, as we prepared for various clinical trial and related activities. Total direct onapristone
development costs for the year ended December 31, 2013 were approximately $9.9 million compared to approximately $4.5 million
for the year ended December 31, 2012. There were significant increases in manufacturing and pre-clinical development activities
of approximately $2.2 million and $1.7 million, respectively, compared to the year ended December 31, 2012. These increases are
primarily driven by the fact that we had only recently acquired the rights to onapristone during the first quarter of 2012 and
we were just beginning our development efforts versus 2013 when we had significant development efforts as we prepared for clinical
trial activities which started in late 2013. Additionally, we had an increase of approximately $0.3 million in stock compensation
costs related to our R&D employees. This increase was the result of new stock options and re-priced previously granted stock
options in 2013, with no new grants or repricings during 2012.
Offsetting the costs of onapristone development
and increased stock compensation costs for our R&D employees, we had a decrease of approximately $0.6 million relating to
our AR-42 program, primarily by the fact that during the year ended December 31, 2012, AR-42 was still undergoing various preclinical
studies that were completed by the end of 2012 and, therefore, no such development costs were incurred during the year ended December,
2013. Additionally, we had a decrease of approximately $0.4 million relating to our AR-67 program due to the fact that our AR-67
license agreement was terminated during 2012.
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 years ended December 31,
2013 and 2012, as well as the cumulative amounts since we began development of each product candidate through December 31, 2013.
The table also summarizes unallocated costs, which consist of personnel, facilities, stock based compensation and other costs
not directly allocable to development programs:
|
|
Year
Ended December 31,
|
|
|
Cumulative
amounts during
|
|
|
|
2013
|
|
|
2012
|
|
|
development
|
|
Onapristone
|
|
$
|
9,894,052
|
|
|
$
|
4,476,393
|
|
|
$
|
14,396,863
|
|
AR-42
|
|
|
398,633
|
|
|
|
951,732
|
|
|
|
5,381,842
|
|
AR-12
|
|
|
814,972
|
|
|
|
830,849
|
|
|
|
10,488,709
|
|
AR-67
|
|
|
49,577
|
|
|
|
417,418
|
|
|
|
8,132,212
|
|
Unallocated R&D
|
|
|
2,319,135
|
|
|
|
1,860,738
|
|
|
|
11,921,951
|
|
Total
|
|
$
|
13,476,369
|
|
|
$
|
8,537,130
|
|
|
$
|
50,321,577
|
|
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. Onapristone appears to have a unique ability to block the activated progesterone receptor and inhibit
tumor growth. Onapristone was originally being developed by Schering AG for potential use as both 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 breast cancer. Onapristone is an anti-progestin hormone blocker that has been shown to have 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, we have engaged Leica
Biosystems and Clarient Diagnostic Services, Inc. to perform a feasibility study leading to the development of a immunohistochemistry
based diagnostic test to selectively identify patients who express the activated form of the progesterone receptor and therefore
may be more likely to benefit from treatment with onapristone and to perform the interpretation/analysis of tumor samples with
the developed diagnostic test. We completed initial pre-clinical toxicology studies enabling the submission of an IMPD, the foreign
equivalent of an IND, in the second quarter of 2013 to support a pharmacokinetic/food effect study. The IMPD was accepted on July
31, 2013. The study subject accrual and analysis of the pharmacokinetic/food effect study has been completed. We submitted an
IMPD to support the conduct of a phase I study in patients with progesterone receptor expressing cancers in the third quarter
of 2013. We have completed manufacturing activities of onapristone Phase I study supplies and initiated a Phase I study in patients
with progesterone receptor positive carcinomas in January 2014. We are also investigating onapristone as a potential treatment
for patients with prostate cancer and began pre-clinical toxicology studies to enable the submission of an IMPD during the fourth
quarter of 2013 for the Phase I clinical study in adult male subjects with castrate resistant prostate cancer that we initiated
during the first quarter of 2014. Based on our current development plans for onapristone, we anticipate spending approximately
$14.9 million on external development costs during the fiscal year 2014.
AR-42.
We are also developing
AR-42, an orally available, broad spectrum inhibitor of both histone and non-histone deacetylation proteins. AR-42 is currently
being studied in an investigator sponsored Phase I/IIa clinical study in adult patients with relapsed or refractory multiple myeloma,
chronic lymphocytic leukemia or lymphoma and a separate cohort of patients with solid tumors. In preclinical studies, AR-42 has
demonstrated greater potency and activity in solid and liquid tumors when compared to vorinostat (also known as SAHA and marketed
as Zolinza ® by Merck). These data demonstrate the potent and differentiating activity of AR-42. Additionally, pre-clinical
findings presented at the 2009 American Society of Hematology Annual Meeting and Exposition showed that AR-42 potently and selectively
inhibits leukemic stem cells in acute myeloid leukemia. We are also supporting an investigator initiated Phase I study of AR-42
in combination with decitabine in patients with hematological malignancies that was initiated during the third quarter of 2013.
In addition, preclinical models have demonstrated anti-tumor activity in tumor types (schwannoma and meningioma) that are associated
with the genetic illness, neurofibromatosis type 2 (NF2). During the first quarter of 2013, the last study subject completed the
planned dose-escalation phase of the study. Based on our current development plans for AR-42, we anticipate spending approximately
$0.1 million on external development costs during the fiscal year 2014.
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, and may also cause cell death
through the induction of endoplasmic reticulum stress. 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 compound’s
safety in order to identify the maximum tolerated dose, or MTD, or a recommended Phase II dose, or RP2D, for future studies of
AR-12. We have completed the dose escalation phase of the Phase I trial, and have determined the RP2D and MTD of the current AR-12
formulation. 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 in order
to further evaluate and confirm the pharmacodynamics, or PD, effects, potential anti-tumor activity, and safety of AR-12 at the
MTD or RP2D in specific patient populations. We will not be moving forward with the Expansion Phase of this study as a novel and
improved formulation that has shown to increase the bioavailability in preclinical models has been developed. During the first
quarter 2013, the last study subject completed the planned dose-escalation phase of the study. Based on our current development
plans for AR-12, we anticipate spending approximately $0.2 million on external development costs during the fiscal year 2014.
Our expenditures on current and future clinical
development programs are expected to be substantial and to increase particularly in relation to our available capital resources.
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 and timing of manufacturing our
drug candidates; and
|
|
·
|
the costs, requirements, timing of, and the
ability to secure regulatory approvals.
|
Interest Income
. Interest
income for the years ended December 31, 2013 and 2012 was $17,737 and $7,849. The increase in interest income over 2012 is due
to higher average cash balance levels during 2013 as compared to 2012 from our 2013 private placement.
Interest Expense
. Interest
expense for the years ended December 31, 2013 and 2012 was approximately $18.6 million and $6.4 million. This increase in interest
expense over 2012 is due to our 2012 convertible debenture financing and the related derivatives. The 2012 convertible debenture
financing was completed in November 2012 and thus had two months interest and amortization as compared to 2013. Under the terms
of the debenture agreement, we were also required to pay liquidated damages as the registration statement for these securities
was not declared effective within the required time period. Additionally, upon conversion of the 2012 convertible debentures in
2013, there was an acceleration of unamortized discount and interest expense charged.
The following table illustrates the components
of total interest expense for 2013 and 2012. The amounts stated are expressed in thousands.
|
|
Year Ended
December 31,
|
|
Interest Expense
|
|
2013
|
|
|
2012
|
|
Note conversion discount
|
|
$
|
14,366
|
|
|
$
|
5,613
|
|
Interest expense on 2012 debentures
|
|
|
2,174
|
|
|
|
104
|
|
Amortized deferred financing fees
|
|
|
1,710
|
|
|
|
49
|
|
Liquidated damages on 2012 debentures
|
|
|
319
|
|
|
|
595
|
|
Total Interest Expense
|
|
$
|
18,569
|
|
|
$
|
6,361
|
|
Other Income (Expense)
. For
the year ended December 31, 2013, we had other expense of approximately $4.2 million, which was related to noncash adjustments
to the derivative liability primarily driven by our increased stock price. For the year ended December 31, 2012, we had other
income of approximately $2.8 million, which was related to noncash adjustments to the warrant liability.
Liquidity and Capital Resources
The following tables summarize our liquidity
and capital resources as of and for each of the last two fiscal years, and is intended to supplement the more detailed discussion
that follows. The amounts stated are expressed in thousands.
|
|
Year Ended
December 31,
|
|
Liquidity and capital resources
|
|
2013
|
|
|
2012
|
|
Cash and cash equivalents
|
|
$
|
26,774
|
|
|
$
|
10,943
|
|
Working capital
|
|
$
|
22,959
|
|
|
$
|
7,901
|
|
Stockholders' (deficit) equity
|
|
$
|
(12,883
|
)
|
|
$
|
(12,266
|
)
|
|
|
Year Ended
December 31,
|
|
|
Period from
August 1, 2005
(inception) to
December 31,
|
|
Cash flow data
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(14,242
|
)
|
|
$
|
(9,420
|
)
|
|
$
|
(52,399
|
)
|
Investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(185
|
)
|
Financing activities
|
|
|
30,073
|
|
|
|
13,685
|
|
|
|
79,358
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
15,831
|
|
|
$
|
4,265
|
|
|
$
|
26,774
|
|
Our total cash resources as of December
31, 2013 were approximately $26.8 million compared to approximately $10.9 million as of December 31, 2012. As of December 31,
2013, we had approximately $39.8 million in liabilities (of which approximately $35.9 million represented non-cash derivative
liabilities), and approximately $22.9 million of net working capital. We incurred a net loss of approximately $39.7 million and
had negative cash flow from operating activities of $14.2 million for the year ended December 31, 2013. Since August 1, 2005 (inception)
through December 31, 2013, we have incurred an aggregate net loss of approximately $89.6 million, while negative cash flow from
operating activities has amounted to $52.4 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.
On October 29, 2013, we entered into a
Securities Purchase Agreement with certain purchasers identified therein pursuant to which we sold and the purchasers purchased,
an aggregate of 12,868,585 units of our securities, referred to as the Units, with each Unit consisting of the following:
|
·
|
either
(a) one share of common stock, or (b) a five-year common stock warrant to purchase one share of common stock at an exercise price
of $0.01 per share, referred to as the Series C Warrants;
|
|
·
|
a
five-year warrant to purchase one share of common stock at an exercise price of $4.00 per share, referred to as the Series D Warrants;
and
|
|
·
|
a
warrant, expiring on October 31, 2014, to purchase one share of common stock at an exercise price of $2.40 per share, referred
to as the Series E Warrants.
|
We sold and issued 8,413,354 Units consisting
of shares of common stock, Series D Warrants and Series E Warrants at a purchase price of $2.40 per Unit, and 4,455,231 Units
consisting of Series C Warrants, Series D Warrants and Series E Warrants at a purchase price of $2.39 per Unit, for total gross
proceeds to us of $30.84 million, before deducting fees and other transaction related expenses of approximately $760,000.
From inception through December 31, 2013,
we have financed our operations through private sales of our equity and debt securities. 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. We may seek to raise additional funds through various
potential sources, such as equity and debt financings, or through strategic collaborations and license agreements. 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.
Based on our current development plans and
including the proceeds from our 2013 Offering, we believe our existing cash resources are sufficient to fund our operations through
approximately the first quarter of 2015. However, 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 and may result in a loss of your entire investment in our common stock.
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;
and
|
|
·
|
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.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements
as of December 31, 2013.
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 (no stock options were granted during the year ended December
31, 2012). 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.
Convertible Debentures and
Warrant Liability
We account for the warrants issued in connection
with the 2013 private placement, for the convertible debentures and warrants issued in connection with the 2012 private placement
and for the warrants issued in connection with the 2010 private placement in accordance with the guidance on Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity, which provides that we classify 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 us, in connection with private placements of securities, has been estimated
using a Monte Carlo simulation model. 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.
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·
|
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; and
|
|
·
|
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.
OUR BUSINESS
Overview
We are a development stage company
focused on developing innovative products for the treatment of cancer. The following table summarizes our product development
pipeline:
Product
Candidate
|
|
Indications
|
|
Commercial
Rights
|
|
Ongoing Studies / Status
|
Onapristone
|
|
Breast, prostate and endometrial cancer
|
|
Arno
|
|
We have completed a single dose pharmacokinetic and food effect
study. We initiated a Company-sponsored Phase I clinical trial in post-menopausal women with progesterone receptor positive
carcinomas initiated in December 2013 and patients began enrolling in January 2014 at multiple sites in France. We have also
initiated a Phase I/II clinical trial in men with advanced castration-resistant prostate cancer, which is being conducted
in the United Kingdom. We are collaborating with two partners on the development of a companion diagnostic intended
to enhance selection of patients more likely to benefit from treatment with onapristone.
|
|
|
|
|
|
|
|
AR-42
|
|
Hematological malignancies and solid tumors
|
|
Arno
|
|
An investigator-initiated Phase I/IIa clinical study of AR-42
is ongoing at The James Cancer Center at The Ohio State University 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 has completed accrual to the dose escalation phase and has been amended to include additional patients with solid
tumors at the recommended phase II dose. We are also supporting an investigator initiated Phase I study of AR-42 in combination
with decitabine in patients with hematological malignancies that was initiated in the third quarter of 2013.
|
|
|
|
|
|
|
|
AR-12
|
|
Solid tumors and hematological malignancies
|
|
Arno
|
|
A multi-centered Phase I clinical study of AR-12 in adult subjects
with advanced or recurrent solid tumors or lymphoma has been completed. During the first quarter of 2013, the last study subject
completed the study.
|
Corporate History; Merger Transactions
On June 2, 2008, we were acquired by Laurier
International, Inc., a Delaware corporation, in a “reverse” merger whereby a wholly-owned subsidiary of Laurier merged
with and into Arno Therapeutics, with Arno Therapeutics remaining as the surviving corporation and a wholly-owned subsidiary of
Laurier. In accordance with the terms of this merger, stockholders of Arno Therapeutics exchanged all of their shares of common
stock of Arno Therapeutics for shares of Laurier common stock at a rate of approximately 0.25 shares of Laurier common stock for
each share of Arno Therapeutics common stock. As a result of the issuance of the shares of Laurier common stock to the former
Arno Therapeutics stockholders, following the merger the former stockholders of Arno Therapeutics held 95 percent of the outstanding
common stock of Laurier, assuming the issuance of all shares underlying outstanding options and warrants. Upon completion of the
merger, all of the former officers and directors of Laurier resigned and were replaced by the officers and directors of Arno Therapeutics.
Additionally, following the merger Laurier changed its name to Arno Therapeutics, Inc.
Oncology Overview
According to the American Cancer Society,
cancer is the second leading cause of death in the United States, surpassed only by heart disease, accounting for nearly one of
every four deaths. According to the American Cancer Society, more than 1.6 million new cancer cases are expected to be diagnosed
in 2013. According to a 2013 report by the American Cancer Society, the National Institutes of Health estimated direct costs for
medical care for cancer related treatments in the United States in 2008 were $77.4 billion. With a 68% 5-year relative survival
rate for all cancers from 2002-2008, according to the American Cancer Society, oncology remains a significant unmet medical need.
Pharmaceutical treatments are widely used
to treat patients with cancer and are often used alongside surgery or radiation. Different types of cancers respond in unique
ways to different drugs, and some tumors may not respond at all to particular therapies. In many cases, these treatments extend
life by slowing the progression of the disease but become less effective over time as the cancer cells become resistant to a given
therapy or a class of compounds with a particular mechanism of action. For this reason, there is a need to develop new agents,
particularly those with novel mechanisms that can be added to the current arsenal of treatment options.
Many types of drugs are presently used
to treat cancer, including cytotoxics, targeted agents, hormones, and biologics. According to a February 2012 report by Cowen
& Co., the global cancer market was approximately $73.5 billion in 2011, of which cytotoxics accounted for $22.5 billion and
targeted agents accounted for $33.2 billion.
Cytotoxics interfere with essential cellular
processes in order to kill rapidly dividing cells, an effective approach for destroying cancer cells that remains prevalent despite
the fact that these compounds can have significant side effects, particularly in rapidly dividing normal tissues such as those
found in bone marrow and the gastrointestinal tract. By contrast, targeted agents attack cellular processes that are more prevalent
in cancer cells than in normal tissues, and thus aim to simultaneously reduce side effects and improve efficacy.
Although there are many agents available
to treat cancer, a number of factors contribute to determining which particular agent is administered to a patient. There is a
considerable amount of overlap in the mechanisms of action of approved therapies, and in many cases, multiple drugs in a class
are approved and in clinical use. The choice of a particular agent or class of agents is generally based on the results of empirical
clinical trials in specific cancer indications, and a desire to treat the disease aggressively is balanced with considerations
for the patient’s tolerance of the treatment and quality of life. These considerations highlight the need to develop therapies
that not only improve anti-cancer efficacy but also improve patient convenience and reduce side effects.
Product Development Pipeline
Onapristone
Overview
Pursuant to a February 2012 license
agreement with Invivis Pharmaceuticals, Inc., or Invivis, we have the exclusive rights worldwide to develop and (other than in
France) commercialize onapristone, an anti-progestin hormone blocker that has been shown to have considerable anti-tumor activity
in patients with breast cancer. Onapristone appears to have a unique ability to block the activation of the progesterone receptor,
which is believed to be the mechanism by which it may inhibit the growth of breast, endometrial and other cancers. Onapristone
was originally being developed by Schering AG for potential use in the treatment of benign gynecological disorders (uterine leiomyoma,
endometriosis), as a potential contraceptive and an anti-endocrine treatment of breast cancer. In previous published 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, we intend to develop a companion diagnostic, or CDx, to identify patient’s
tumors which express the activated form of the progesterone receptor and therefore may have an enhanced likelihood to benefit
from treatment with onapristone.
The hormones estrogen and progesterone
play important roles in normal female reproductive physiology and the development of certain tissues/organs including the breast
and uterus. These two naturally occurring hormones are believed to play important roles in the development of certain female cancers
(e.g. breast and endometrial) and the biologic effects of these two hormones make the estrogen and progesterone receptors important
therapeutic targets. For example, chronic estrogen exposure unopposed by progesterone predisposes women to endometrial cancer,
and the presence of estrogen or progesterone receptors in breast cancer tissues is predictive of response to anti-estrogen targeted
therapies in women with breast cancer. Breast and endometrial cancers commonly express progesterone receptors, but to date, it
has not been determined whether these receptors are functional and play a role in tumor growth. Prostate cancers also express
the progesterone receptor which may play a role in the development of androgen resistance. We believe a better diagnostic test
may aide in selecting patients who are most likely to benefit from “hormone” treatments, including onapristone.
Onapristone is a type 1 anti-progestin.
Researchers believe its mechanism of action is thought to be a direct result of binding to the progesterone receptor and preventing
the binding of the progesterone receptor to DNA, thereby substantially reducing or eliminating progesterone receptor induced gene
transcription resulting in death of the malignant cell.
Potential Advantages
In prior publications, onapristone
was reported to have a 56% objective response rate in patients with breast cancer as a first line endocrine treatment and a 49%
clinical benefit rate in patients with breast cancer after failure of tamoxifen treatment. Our planned clinical studies of onapristone
are intended to evaluate safety and efficacy which may provide women with breast and endometrial cancer, and men with castrate
resistant prostate cancer an additional treatment option and allow a delay in the time for which patients may need chemotherapy
treatment.
Preclinical Studies
We have completed a series of preclinical
studies of onapristone since we acquired its rights in 2012. In these studies, 10 different breast cancer and endometrial cancer
cell lines where characterized for hormone receptor status and the effect of various hormones and growth factors on proliferation
and progesterone receptor status. When evaluating the effect of onapristone in the various culture conditions tested, cancer cell
lines that expressed the activated form of the progesterone receptor, or APR, were found to respond to treatment with onapristone,
but cell lines that did not express APR did not respond to onapristone treatment. We presented these findings in November 2012
at the 24th European Organization for Research and Treatment of Cancer symposium on Molecular Targets and Cancer Therapeutics
in Dublin, Ireland and the April 2013 meeting of the American Association for Cancer Research in Washington, D.C.
Clinical Development Plans and
Activities
In January 2014, we enrolled the first
patient in a Phase I dose escalation clinical trial evaluating onapristone in post-menopausal women with progesterone receptor
(PR) positive tumors, including breast, endometrial and others solid tumors. This Phase I trial is designed to identify the recommended
Phase II dose and determine the overall safety profile of onapristone. Pursuant to the study protocol, this study will evaluate
onapristone in sustained release and immediate release formulations across six dose levels (10-50 mg, twice daily, and 100 mg,
once daily) to identify the recommended Phase II dose. In addition, we expect that the study will gather data showing anticancer
activity. This multi-site trial is expected to enroll a total of 60 patients. As of March 20, 2014, 8 patients have been enrolled
in the trial, which is being conducted at several sites in France. We have engaged Biotrial, a drug evaluation and pharmacology
research company, as our contract research organization for this Phase I trial, which is expected to complete enrollment in 2014,
subject to our projected patient enrollment rates.
In addition, in April 2014, we enrolled
the first patient in a Phase I/II clinical trial of onapristone in men with advanced castration-resistant prostate cancer, or
CRPC, after failure of abiraterone or enzalutamide. This study is currently being conducted at the Royal Marsden NHS Foundation
Trust in London pursuant to approval of an Investigational Medicinal Product Dossier from the United Kingdom Health Authority,
Medicines and Healthcare products Regulatory Agency in January 2014. The randomized, open-label trial is designed to evaluate
the safety and anti-cancer activity of onapristone in the defined patient population. The study will evaluate onapristone in extended-release
tablet formulations in up to five dose levels (10-50 mg, twice daily) in patients with prostate cancer in which PR may be contributing
to tumor progression. In accordance with the study protocol, study subjects will be evaluated for whether their tumors express
APR, which may help identify patients who are more likely to respond to onapristone. A second cohort of patients will be included
at the recommended Phase II dose to gain additional understanding of the onapristone safety profile and potential anti-cancer
activity. In accordance with the study protocol, we expect to enroll a total of 60 patients.
Companion Diagnostic Program
In addition, as stated above, a key
aspect of our strategy to develop onapristone is to also develop a companion diagnostic, or CDx, that would identify patient’s
tumors that express APR and therefore would be more likely to respond to treatment with onapristone. We and our research collaborators
recently identified a immunohistochemistry technique for identifying activated progesterone receptors in breast cancer tumors,
the initial findings were presented in December 2012 at the 35th Annual San Antonio Breast Cancer Symposium, with more mature
data presented at the June 2013 annual meeting of the American Society of Clinical Oncology in Chicago, and in December 2013 at
the 36th Annual San Antonio Breast Cancer Symposium. This IHC technique was successful in identifying the activated form of the
progesterone receptor via nuclear morphology, which we believe can be done on a routine basis with freshly obtained or formalin-fixed
and paraffin-embedded tissue. We are further refining and testing this method on a larger cohort of breast and endometrial cancer
samples, with correlation to other standard tumor markers and clinical outcomes. We are also evaluating this diagnostic technique
in other malignancies.
In January 2014, we entered into a co-development
agreement with Leica Biosystems, or Leica, a global leader in pathology workflow solutions and automation, for the development
of a CDx for onapristone. The CDx will be an immunohistochemical (IHC)
in vitro
diagnostic (IVD) test used to detect APR
in endometrioid and breast cancer. This CDx test will help to identify patients who are APR positive and therefore more likely
to respond to treatment with onapristone. We believe this diagnostic technique will also have potential application in castration-resistant
prostate cancer, and development of the assay is ongoing in prostate cancer. Under the terms of the co-development agreement,
we will sponsor and conduct clinical trials for onapristone. Leica will develop and validate the CDx for APR with responsibility
for ensuring the investigational companion diagnostic kit is ready, available and meets FDA and other health authority standards
for a planned Phase II trial of onapristone in endometrioid cancer. The co-development program aims to achieve simultaneous approval
and launch of onapristone and the CDx for APR.
In February 2014, we entered into an
Exclusive Patent License Agreement with the University of Minnesota, pursuant to which we were granted an exclusive, worldwide,
royalty-bearing license for the rights to develop and commercialize technology embodied by certain patent applications relating
to a gene expression signature derived from archived breast cancer tissue samples. We plan to develop and commercialize this technology
in connection with our CDx development program as a tool to identify progesterone-stimulated pathway activation, which in turn
may identify patients who would most likely benefit from treatment with onapristone, an anti-progestin therapeutic aimed at treatment
of men’s and women’s cancers.
AR-42
Pursuant to a license agreement with The
Ohio State University, or Ohio State, we also have exclusive rights to develop and commercialize AR-42, a novel oral cancer therapy
currently in early clinical development. AR-42 is a broad spectrum deacetylase inhibitor of both histone and non-histone proteins,
which has demonstrated greater potency and activity in solid tumors and hematological malignancies when compared in preclinical
studies to vorinostat (also known as “SAHA” or Zolinza®), the first of only two marketed compound in the class.
AR-42 may possess additional histone-independent mechanisms, which may contribute to its superior profile
in vitro
and
in vivo
. An investigator-initiated Phase I/IIa trial of AR-42 in patients with hematological malignancies and solid tumors
is ongoing at Ohio State.
Background of HDAC Inhibitors
Histones are proteins that play an important
role in the regulation of genes. Histone modification is a key regulator of gene expression, and improper histone acetylation
is among the modifications that are linked to expression of a cancerous phenotype. These changes can lead to improper cell growth
resulting from altering the expression of important genes involved in cell cycle progression, proliferation, and survival. Histone
deacetylases, or HDACs, are a class of enzymes that participate in this form of regulation and have been linked to both solid
and hematologic malignancies and thus represent a target for cancer therapy.
HDAC inhibitors are an emerging class of
drug compounds that have demonstrated efficacy primarily in hematological malignancies, also called blood cancers, but are currently
being developed in solid tumors as well. It is believed that HDAC inhibitors induce histone hyperacetylation and can cause cell
death. The first drug in this class to gain approval is SAHA, which is approved to treat cutaneous T-cell lymphoma, or CTCL, in
patients that have failed two previous therapies. Another HDAC inhibitor, romidepsin (Istodax®, Celgene Corporation) is approved
to treat CTCL and peripheral T-cell lymphoma. These two compounds and other HDACs are currently in late stage development for
both hematological malignancies as well as solid tumors. In preclinical studies, AR-42 has demonstrated activity against a broad
spectrum of deacetylase targets and increased potency compared to SAHA.
Potential Advantages of AR-42
AR-42 is a broad spectrum inhibitor of
histone and non-histone deacetylase targets that we believe may have advantages over currently approved HDAC inhibitors, including
SAHA. As a result, many of our preclinical data compare AR-42 to SAHA. In preclinical models, AR-42 has shown to be more potent
or effective than SAHA in various cancer types, including chronic lymphocyte leukemia, or CLL, B-cell lymphoma, prostate and ovarian
cancers. Further, preclinical studies suggest that AR-42 has anti-cancer activities that are independent of histone acetylation
and include Akt dephosphorylation, Bcl-xL and survivin suppression, and Ku70 acetylation, all of which disrupt the growth and
proliferation of cancer cells. We believe that this combination of activity and potency could make AR-42 a more effective treatment
for hematological malignancies than currently available HDAC inhibitors and a potential treatment of a number of solid tumors.
In addition, pre-clinical models have demonstrated anti-tumor activity in tumor types (schwannoma and meningioma) that are associated
with the genetic illness neurofibromatosis type 2 (NF2).
In addition to its broad activity against
hematological malignancies, pre-clinical data 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.
Clinical Development
We are collaborating with Ohio State,
which is conducting an investigator-initiated Phase I/IIa study of AR-42 in patients with advanced or recurrent hematological
malignancies for which prior treatments have been ineffective. The primary goal is to evaluate the safety and tolerability of
AR-42 given orally three times per week. Secondary endpoints include characterizing AR-42’s pharmacokinetics and its pharmacodynamic
profile through the measurement of biomarkers and evaluation of clinical response. The recommended dose for further study in patients
with hematological malignancies and solid tumors has been declared.
In addition, we are also supporting
an investigator initiated Phase I study of AR-42 in combination with decitabine in patients with hematological malignancies that
was initiated in the third quarter of 2013.
In February 2012, the FDA granted orphan
drug designation for AR-42 for the treatment of meningioma and schwannoma of the central nervous system. 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
preclinical studies, AR-42 has demonstrated anti-tumor activity in both meningioma and schwannoma. We believe AR-42 may provide
a complement to surgery, particularly in cases where the location of the tumor within the brain or spinal cord precludes surgery.
AR-12
Overview
Pursuant to a license agreement with Ohio
State, we have exclusive rights to develop and commercialize AR-12, a potentially first-in-class, orally available cancer treatment
that is currently enrolling patients in a Phase I clinical study. AR-12 has been shown in pre-clinical studies to inhibit phosphoinositide
dependent protein kinase-1, or PDK-1, that targets the Akt pathway, while also possessing activity in the endoplasmic reticulum
stress pathway and other pathways targeting apoptosis. In pre-clinical studies, AR-12 has demonstrated activity in a wide range
of tumor types and synergistic effects with several widely used anti-cancer agents, enhancing activity or overcoming drug-resistance
when used in combination with Avastin® (Genentech), Herceptin® (Genentech), Gleevec® (Novartis), Tarceva® (Genentech)
and tamoxifen. We are currently enrolling patients with advanced or recurrent solid tumors or lymphoma in a Phase I clinical study
of AR-12.
Mechanism of Action
AR-12 has been shown in pre-clinical studies
to inhibit a protein known as PDK-1, a novel target in an important cell growth and proliferation pathway, which has been validated
by the approval of therapeutics that target proteins both upstream and downstream of PDK-1. Receptor tyrosine kinases, or RTK,
are cell-surface receptors that are involved in cell growth and are upstream of PDK-1. Members of the RTK class are targeted by
some of the most successful and widely used targeted oncology agents, including Avastin® (Genentech), Herceptin® (Genentech),
Gleevec® (Novartis), Tarceva® (Genentech), Iressa® (AstraZeneca), Nexavar® (Bayer/Onyx) and tamoxifen. Downstream
of PDK-1 is the mammalian target of rapamycin, or mTOR protein. The mTOR inhibitors temsirolimus (Torisel®, Wyeth) and everolimus
(Afinitor®, Novartis) are FDA approved for the treatment of renal cancer, and additional studies are being conducted with
mTOR inhibitors in various clinical trials as anti-cancer agents.
Although FDA-approved drugs that target
the Akt pathway have shown efficacy in treating cancer, some tumors either do not respond to these drugs or eventually become
resistant to therapy. Scientists hypothesize that a combination of drugs that inhibit different targets in this pathway could
provide synergistic or additive benefits to increase efficacy and potentially overcome drug resistance. For this reason, there
has been particular interest within the biopharmaceutical industry in developing inhibitors of PI3K, PDK-1, and Akt.
PDK-1 can transform normal human cells
and may be involved in the invasion and metastasis process. PDK-1 and its downstream target, the protein Akt, are frequently activated
in multiple cancer types, and inhibiting PDK-1 facilitates the dephosphorylation and subsequent inactivation of Akt. Activation
of the PDK-1/Akt pathway confers resistance to cell death signaling and the apoptotic activity of other cytotoxic agents. Additionally,
recent research has demonstrated the importance of PDK-1 in oncology that is independent of its Akt modulation. The inhibition
of the PDK-1/Akt pathway in cancer cells where this pathway was previously active has been shown to decrease cell proliferation
and increase programmed cell death, which is known as apoptosis. Preclinical data suggests that AR-12 inhibits PDK-1 and data
collected from preclinical toxicology studies and tumor distribution studies indicate that AR-12 would be expected to exceed therapeutic
concentrations in vivo.
AR-12 has also demonstrated an ability
to induce the endoplasmic reticulum (ER) stress mediated apoptosis pathway, which contribute to its unique profile
in vitro
and
in vivo
. The ER stress pathway is a cellular mechanism that can either induce cellular protection or apoptosis.
AR-12, through the induction of PKR-like Endoplasmic Reticulum Kinase, or PERK, seems to selectively induce the pro-apoptotic
response and appears to have a preferential effect on cancer cells.
Potential Advantages of AR-12
We believe AR-12’s unique mechanisms
and ability to improve the efficacy of other approved agents may enable it to become a first-in-class agent with broad applications
in oncology and significant sales in the market. In preclinical studies, AR-12 has shown efficacy in a wide range of tumor types,
including breast, lung, prostate, pancreatic, brain, and hematological cancers, as both a single-agent as well as in combination
with leading oncology therapeutics. AR-12 demonstrated synergy or additive benefit or overcame drug-resistance when used in combination
with Avastin®, Herceptin®, Gleevec®, Tarceva®, Iressa®, Nexavar® and tamoxifen, all of which are widely-prescribed,
FDA-approved oncology therapeutics that, according to Thomson Reuters Pharma, represented approximately $17 billion in sales in
2009.
We believe AR-12 is a potentially first-in-class
molecule in human clinical development. We also believe that PDK-1 may prove to be highly desirable target for oncology; therapeutic
strategies to modulate the Akt pathway are of great scientific, clinical, and financial interest, and there are a few molecules
in development that seek to target Akt through the inhibition of a protein known as PI3K. PDK-1 is downstream of PI3K and thus
may be more likely to impact the desired molecular targets further downstream and less likely to result in off-target toxicity.
Inhibition of PDK-1 also seems to be able to regulate other important oncology targets that are not be mediated by PI3K. In addition
to targeting PDK-1, we believe that AR-12 also has the ability to induce ER stress and has the potential to become an important
agent in a range of cancer indications.
Clinical Development
We completed study subject enrollment in
a multi-site Phase I clinical trial of AR-12 in patients with solid tumors or lymphomas who have progressed despite treatment
with other therapies. Subjects in this Phase I study receive an oral daily dose of AR-12. The Phase I study was conducted at three
clinical sites, including The Ohio State University (Columbus, Ohio), Scottsdale Healthcare (Phoenix, Arizona), and The Royal
Marsden Hospital (London, UK).
The Phase I study of AR-12 was originally
designed to be conducted in two parts. The first part was a dose-escalating study, which we refer to as the Escalation Phase,
that was primarily designed to evaluate the safety of AR-12 and to identify the maximum tolerated dose, or MTD, or a recommended
Phase II dose, or RP2D, for future clinical studies of AR-12. The study is also designed to utilize biomarkers and functional
imaging to examine the pharmacodynamic effects of AR-12 in modulating certain targets within the PI3K pathway. Secondary objectives
for the Escalation Phase included characterizing the pharmacokinetics of AR-12 (i.e., how AR-12 is absorbed and eliminated in
and from the body) and measuring tumor response. We have determined the RP2D and MTD of the current AR-12 formulation. 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 an improved formulation,
which has been shown to substantially increase the bioavailability in preclinical models.
We believe that the data generated from
the current Phase I study has provided important information to direct future studies, in terms of safety, pharmacokinetics and
potential efficacy. We also believe that the biomarkers and pharmacodynamic assays generated in the Phase I study may provide
deeper understanding of the molecular actions of AR-12 and validate the preclinical hypothesis about AR-12’s activity in
a clinical setting. The biomarker selection and evaluation is being led by Johann de Bono, M.D., Ph.D. of The Royal Marsden Hospital
in London. The information generated in these studies will also help to guide the potential future development of AR-12.
Competition
We compete primarily in the cancer therapeutic segment
of the biopharmaceutical market that addresses cancer therapeutics, which is highly competitive. We face significant competition
from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and selling products designed to
address the cancer market. Many of our competitors have significantly greater financial, manufacturing, marketing and drug development
resources than we do. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining
regulatory approvals for drugs. These companies also have significantly greater research capabilities than we do. In addition,
many universities and private and public research institutes are active in cancer research. We also compete with commercial biotechnology
companies for the rights to product candidates developed by public and private research institutes. Smaller or early-stage companies
are also significant competitors, particularly those with collaborative arrangements with large and established companies. In
addition to the factors described in this prospectus under the section entitled “Risk Factors,” our ability to compete
in the cancer therapeutics market depends on the following factors:
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our ability to develop novel compounds with attractive pharmaceutical
properties and to secure and protect intellectual property rights based on our innovations;
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the efficacy, safety and reliability of our drug candidates;
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the speed at which we develop our drug candidates;
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our ability to design and successfully complete appropriate clinical
trials;
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our ability to maintain a good relationship with regulatory authorities;
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the timing and scope of regulatory approvals;
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our ability to manufacture and sell commercial quantities of future
products to the market; and
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acceptance of future products by physicians and other healthcare
providers.
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Onapristone
If approved, onapristone would compete
with other classes of oncology drugs referred to as “hormonal” agents (antiestrogens, aromatase inhibitors, megestrol
acetate) used in the treatment of breast and endometrial cancers. Antiestrogens, aromatase inhibitors, and megestrol acetate have
been used for a number of decades and the medical community is aware and accepting of their safety and efficacy profile. Many
of these agents are off patent and thus available at a low cost. In addition, combination chemotherapy is routinely used after
patients with breast and endometrial cancer have failed standard hormonal treatments, and thus onapristone may be positioned as
an agent which delays the need for chemotherapy.
Although onapristone has a known risk for
elevated liver function tests, we believe that onapristone’s historical therapeutic profile will allow it to compete successfully
in the crowded space of breast cancer treatments and, potentially, as an effective treatment for women with endometrial carcinoma.
AR-42
If approved, AR-42 would compete with other
HDAC inhibitors. HDAC inhibitors have displayed efficacy in a broad range of settings as single agents and in combination with
other therapeutics. The first HDAC inhibitor to obtain approval is vorinostat (“SAHA,” or Zolinza®), which is
approved for the treatment of recurrent cutaneous T-cell lymphoma (“CTCL”). Additionally, in November 2009 Gloucester
Pharmaceuticals received FDA approval for its novel HDAC inhibitor, romidepsin, to treat CTCL before being acquired by Celgene
Corp. in December 2009. Subsequently, romidepsin (Istodax®, Celgene Corporation) has been approved for the treatment of patients
with peripheral T-cell lymphoma. Other HDAC inhibitors are in Phase II and Phase III trials, primarily in hematological malignancies,
but also in solid tumors as both single agents and in combination with other oncology therapies.
We believe that AR-42 has a therapeutic
profile that will allow it to compete successfully in the crowded class of what are broadly known as HDAC inhibitors. AR-42 is
a pan-DAC inhibitor that has demonstrated preclinical activity that compares favorably with SAHA, as well as potentially differentiating
activity and the ability to target cancer stem cells. Additionally, based on AR-42’s preclinical toxicology package and
dosing schedule, we believe that there is a relatively low risk of cardiac toxicity or fatigue. We also believe that AR-42’s
potential to selectively target leukemic stem cells in AML may sufficiently differentiate AR-42 from other agents in the class
to become an important member of the emerging class of deacetylase inhibitors.
AR-12
AR-12 is believed to target PDK-1, which
is in the PI3K/Akt pathway. Targeting the PI3K/Akt pathway has been of great interest to the pharmaceutical industry, particularly
compounds that target PI3K. The approaches for targeting PI3K are general inhibition or the specific inhibition of the alpha,
beta, gamma, or delta subunit of this kinase. Some of these molecules also combine PI3K inhibition with activity against the mammalian
target of rapamycin (“mTOR”), a target that is believed to also play a role in the PI3K/Akt pathway. Other approaches
to this pathway include targeting Akt directly. Additionally, companies such as Wyeth, Vernalis, GlaxoSmithKline, and Novartis
have published data on their preclinical discovery programs to target PDK-1.
Compounds that inhibit PI3K have been the
foundation of several recent licensing, acquisition, and financing activities. Despite the great deal of activity in the space,
we believe that AR-12 can differentiate itself and become an important agent in the treatment of cancer. In multiple preclinical
studies, AR-12 has demonstrated the ability to inhibit PDK-1 as well as induce ER stress, a combination that could provide a unique
therapeutic profile and differentiate AR-12 from other molecules being developed to inhibit the PI3K/Akt pathway.
License Agreements and Intellectual Property
General
Our goal is to obtain, maintain and enforce
patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets,
and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our
policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current
product candidates and any future product candidates, proprietary information and proprietary technology through a combination
of contractual arrangements and patents, both in the U.S. and abroad. However, even patent protection may not always afford us
with complete protection against competitors who seek to circumvent our patents. If we fail to adequately protect or enforce our
intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.
See “Risk Factors – Risks Related to Our Intellectual Property.”
We will continue to depend upon the skills,
knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary know-how, which is not patentable, and for inventions for which patents
may be difficult to enforce, we currently rely and will in the future rely on trade secret protection and confidentiality agreements
to protect our interests. To this end, we require all of our employees, consultants, advisors and other contractors to enter into
confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions important to our business.
Onapristone License Agreement
Our rights to onapristone are governed
by a license agreement with 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, although under the license agreement we have an option to acquire French commercial
rights from Invivis by providing notice to Invivis and making 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
and manufacture 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 made 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 occurred in January 2014. 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.
University of Minnesota License
In February 2014, we entered into an
Exclusive Patent License Agreement with the Regents of the University of Minnesota (UM), pursuant to which we were granted an
exclusive, worldwide, royalty-bearing license for the rights to develop and commercialize technology embodied by certain patent
applications relating to a gene expression signature derived from archived breast cancer tissue samples. We plan to develop and
commercialize this technology as part of our companion diagnostic development program as a tool to identify progesterone-stimulated
pathway activation, which in turn may identify patients who would be more likely to benefit from treatment with onapristone.
The license agreement requires us to
use our commercially reasonable efforts to commercialize the licensed technology as soon as practicable, and includes several
performance milestones relating to the development and commercialization of the technology to be achieved by us at specified dates
beginning in the second quarter of 2014 and continuing during the term of the agreement. Under the terms of the agreement, we
made a small one-time cash payment and reimbursed UM for past patent expenses it has incurred. The agreement also provides that
we will pay royalties to the UM on net sales of “Licensed Products” (as defined in the agreement) at a rate in the
low-single digits, which royalty obligation terminates on a licensed product-by-licensed product and country-by-country basis
upon the first date when there is no longer a valid claim under a licensed patent or patent application covering such licensed
product in the country where the licensed product is made or sold.
The term of the license agreement continues
until the last date on which there is any active licensed patent or pending patent application. UM may terminate the agreement
earlier upon a breach by us of one or more of our obligations that remains uncured for a period specified in the agreement. UM
may also terminate the agreement if we voluntarily file for bankruptcy or similar proceeding, or if a petition for an involuntary
bankruptcy proceeding is filed and is not released for 60 days. The agreement may be immediately terminated upon notice to us
if we commence or maintain a proceeding in which we assert that the licensed patents are invalid or unenforceable. We may terminate
the agreement at any time and for any reason upon 90 days’ written notice.
The license agreement further provides
that we will indemnify and hold UM and its affiliates harmless from any and all suits, actions, claims, liabilities, demands,
damages, losses or expenses relating to our exercise of its rights under the agreement, including our right to commercialize the
licensed technology. UM is required to indemnify us with respect to claims relating to or resulting from its breach of the agreement.
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.
In 2008, 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. 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
We formerly held exclusive rights to develop
and commercialize an oncology therapeutic drug candidate known as AR-67 pursuant to 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. In the first quarter of 2012, we determined to cease development of AR-67 and agreed with Pitt
to terminate the license agreement. As a result, we no longer have rights in AR-67; however, we retain ownership of all data accumulated
during our development of AR-67.
Government Regulation and Product Approval
The FDA and comparable regulatory agencies
in state and local jurisdictions and in foreign countries impose substantial requirements upon the testing (pre-clinical and clinical),
manufacturing, labeling, storage, recordkeeping, advertising, promotion, import, export, marketing and distribution, among other
things, of drugs and drug product candidates. If we do not comply with applicable requirements, we may be fined, the regulatory
agencies may refuse to approve our marketing applications or allow us to manufacture or market our products, and we may be criminally
prosecuted. We and our manufacturers may also be subject to regulations under other United States federal, state, and local laws.
United States Government Regulation
In the United States, the FDA regulates
drugs under the Food, Drug and Cosmetic Act, or FDCA, and implementing regulations. The process required by the FDA before our
drug candidates may be marketed in the United States generally involves the following (although the FDA is given wide discretion
to impose different or more stringent requirements on a case-by-case basis):
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completion
of extensive pre-clinical laboratory tests, pre-clinical animal studies and formulation
studies, all performed in accordance with the FDA’s good laboratory practice regulations
and other regulations;
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submission
to the FDA of an IND application, which must become effective before clinical trials
may begin;
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performance
of multiple adequate and well-controlled clinical trials meeting FDA requirements to
establish the safety and efficacy of the product candidate for each proposed indication;
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submission
of a new drug application, or NDA, to the FDA;
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satisfactory
completion of an FDA pre-approval inspection of the manufacturing facilities at which
the product candidate is produced, and potentially other involved facilities as well,
to assess compliance with current good manufacturing practice, or cGMP, regulations and
other applicable regulations; and
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FDA
review and approval of the NDA prior to any commercial marketing, sale or shipment of
the drug.
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The testing and approval process
requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our drug candidates
will be granted on a timely basis, if at all. Risks to us related to these regulations are described above under the caption entitled
“Risk Factors – Risks Relating to the Clinical Testing, Regulatory Approval, Manufacturing and Commercialization of
Our Product Candidates.”
Pre-clinical tests may include laboratory
evaluation of product chemistry, formulation and stability, as well as studies to evaluate toxicity and other effects in animals.
The results of pre-clinical tests, together with manufacturing information and analytical data, among other information, are submitted
to the FDA as part of an IND application. Subject to certain exceptions, an IND becomes effective 30 days after receipt by the
FDA, unless the FDA, within the 30-day time period, issues a clinical hold to delay a proposed clinical investigation due to concerns
or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable
health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can
begin. Our submission of an IND, or those of our collaboration partners, may not result in the FDA authorization to commence a
clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during
product development. The FDA must also approve changes to an existing IND. Further, an independent institutional review board,
or IRB, for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial
before it commences at that center and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend
a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable
health risk. Clinical testing also must satisfy extensive Good Clinical Practice requirements and regulations for informed consent.
Clinical Trials
For purposes of NDA submission and approval,
clinical trials are typically conducted in the following three sequential phases, which may overlap (although additional or different
trials may be required by the FDA as well):
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Phase
I clinical trials are
initially conducted in a limited population to test
the drug candidate for safety, dose tolerance, absorption, metabolism, distribution and
excretion in healthy humans or, in patients, such as patients with cancer. In some cases,
particularly in cancer trials, a sponsor may decide to conduct what is referred to as
a “Phase Ib” evaluation, which is a second safety-focused Phase I clinical
trial typically designed to evaluate the impact of the drug candidate in combination
with currently FDA-approved drugs or in a particular patient population.
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Phase
II clinical trials are
generally conducted in a limited patient population
to identify possible adverse effects and safety risks, to determine the efficacy of the
drug candidate for specific targeted indications and to determine dose tolerance and
optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to
obtain information prior to beginning larger and more expensive Phase III clinical trials.
In some cases, a sponsor may decide to conduct what is referred to as a “Phase
IIb” evaluation, which is a second, confirmatory Phase II clinical trial that could,
if accepted by the FDA, serve as a pivotal clinical trial in the approval of a drug candidate.
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Phase
III clinical trials are
commonly referred to as randomized and/or pivotal
trials. When Phase II clinical trials demonstrate that a dose range of the drug candidate
is effective and has an acceptable safety profile, Phase III clinical trials are undertaken
in large patient populations to further evaluate dosage, to provide substantial evidence
of clinical efficacy and to further test for safety in an expanded and diverse patient
population at multiple, geographically dispersed clinical trial sites.
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In some cases, the FDA may condition continued
approval of an NDA on the sponsor’s agreement to conduct additional clinical trials with due diligence. In other cases,
the sponsor and the FDA may agree that additional safety and/or efficacy data should be provided; however, continued approval
of the NDA may not always depend on timely submission of such information. Such post-approval studies are typically referred to
as Phase IV studies.
New Drug Application
The results of drug candidate development,
pre-clinical testing and clinical trials, together with, among other things, detailed information on the manufacture and composition
of the product and proposed labeling, and the payment of a user fee, are submitted to the FDA as part of an NDA. The FDA reviews
all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing.
Once an NDA is accepted for filing, the FDA begins an in-depth review of the application.
During its review of an NDA,
the FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application
should be approved. The FDA may refuse to approve an NDA and issue a “not approvable” letter if the applicable regulatory
criteria are not satisfied, or it may require additional clinical or other data, including one or more additional pivotal Phase
III clinical trials. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria
for approval. Data from clinical trials are not always conclusive and the FDA may interpret data differently than we or our collaboration
partners interpret data. If the FDA’s evaluations of the NDA and the clinical and manufacturing procedures and facilities
are favorable, the FDA may issue either an approval letter or an approvable letter, which contains the conditions that must be
met in order to secure final approval of the NDA. If and when those conditions have been met to the FDA’s satisfaction,
the FDA will issue an approval letter, authorizing commercial marketing of the drug for certain indications. The FDA may withdraw
drug approval if ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market. In
addition, the FDA may require testing, including Phase IV clinical trials, and surveillance programs to monitor the effect of
approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a drug based
on the results of these post-marketing programs. Drugs may be marketed only for the FDA-approved indications and in accordance
with the FDA-approved label. Further, if there are any modifications to the drug, including changes in indications, other labeling
changes, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new NDA or NDA supplement,
which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials.
The Hatch-Waxman Act
Under the Hatch-Waxman Act, newly-approved
drugs and new conditions of use may benefit from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman Act
provides five-year marketing exclusivity to the first applicant to gain approval of an NDA for a new chemical entity, meaning
that the FDA has not previously approved any other new drug containing the same active entity. The Hatch-Waxman Act prohibits
the submission of an abbreviated NDA, or ANDA, or a Section 505(b)(2) NDA for another version of such drug during the five-year
exclusive period; however, submission of a Section 505(b)(2) NDA or an ANDA for a generic version of a previously-approved
drug containing a paragraph IV certification is permitted after four years, which may trigger a 30-month stay of approval of the
ANDA or Section 505(b)(2) NDA. Protection under the Hatch-Waxman Act does not prevent the submission or approval of another
“full” 505(b)(1) NDA; however, the applicant would be required to conduct its own pre-clinical and adequate and well-controlled
clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act also provides three years of marketing exclusivity
for the approval of new and supplemental NDAs, including Section 505(b)(2) NDAs, for, among other things, new indications, dosages,
or strengths of an existing drug, if new clinical investigations that were conducted or sponsored by the applicant are essential
to the approval of the application. Some of our product candidates may qualify for Hatch-Waxman non-patent marketing exclusivity.
In addition to non-patent marketing exclusivity,
the Hatch-Waxman Act amended the FDCA to require each NDA sponsor to submit with its application information on any patent that
claims the drug for which the applicant submitted the NDA or that claims a method of using such drug and with respect to which
a claim of patent infringement could reasonably be asserted if a person not licensed by the owner engaged in the manufacture,
use, or sale of the drug. Generic applicants that wish to rely on the approval of a drug listed in the Orange Book must certify
to each listed patent, as discussed above. We intend to submit for Orange Book listing all relevant patents for our product candidates.
Finally, the Hatch-Waxman Act amended
the patent laws so that certain patents related to products regulated by the FDA are eligible for a patent term extension if patent
life was lost during a period when the product was undergoing regulatory review, and if certain criteria are met. We intend to
seek patent term extensions, provided our patents and products, if they are approved, meet applicable eligibility requirements.
Pediatric Studies and Exclusivity
The FDA provides an additional six months
of non-patent marketing exclusivity and patent protection for any such protections listed in the Orange Book for new or marketed
drugs if a sponsor conducts specific pediatric studies at the written request of the FDA. The Pediatric Research Equity Act of
2003, or PREA, authorizes the FDA to require pediatric studies for drugs to ensure the drugs’ safety and efficacy in children.
PREA requires that certain new NDAs or NDA supplements contain data assessing the safety and effectiveness for the claimed indication
in all relevant pediatric subpopulations. Dosing and administration must be supported for each pediatric subpopulation for which
the drug is safe and effective. The FDA may also require this data for approved drugs that are used in pediatric patients for
the labeled indication, or where there may be therapeutic benefits over existing products. The FDA may grant deferrals for submission
of data, or full or partial waivers from PREA. PREA pediatric assessments may qualify for pediatric exclusivity. Unless otherwise
required by regulation, PREA does not apply to any drug for an indication with orphan designation.
Orphan Drug Designation and Exclusivity
The FDA may grant orphan drug designation
to drugs intended to treat a rare disease or condition, which generally is a disease or condition that affects fewer than 200,000
individuals in the United States. Orphan drug designation must be requested before submitting an NDA. If the FDA grants orphan
drug designation, which it may not, the identity of the therapeutic agent and its potential orphan use are publicly disclosed
by the FDA. Orphan drug designation does not convey an advantage in, or shorten the duration of, the review and approval process.
If a product which has an orphan drug designation subsequently receives the first FDA approval for the indication for which it
has such designation, the product is entitled to seven years of orphan drug exclusivity, meaning that the FDA may not approve
any other applications to market the same drug for the same indication for a period of seven years, except in limited circumstances,
such as a showing of clinical superiority to the product with orphan exclusivity (superior efficacy, safety, or a major contribution
to patient care). Orphan drug designation does not prevent competitors from developing or marketing different drugs for that indication.
In February 2012, AR-42 received orphan-drug designation from the FDA for the treatment of meningioma and schwannoma of the central
nervous system, which are benign tumors that can present in different locations within the brain and the spinal cord and may cause
substantial morbidity for those affected individuals. Where appropriate, we will also seek orphan drug designation for our other
product candidates, including potentially for certain uses of AR-12.
Under European Union medicines laws, the
criteria for designating a product as an “orphan medicine” are similar but somewhat different from those in the United
States. A drug is designated as an orphan drug if the sponsor can establish that the drug is intended for a life-threatening or
chronically debilitating condition affecting no more than five in 10,000 persons in the European Union or that is unlikely to
be profitable, and if there is no approved satisfactory treatment or if the drug would be a significant benefit to those persons
with the condition. Orphan medicines are entitled to ten years of marketing exclusivity, except under certain limited circumstances
comparable to United States law. During this period of marketing exclusivity, no “similar” product, whether or not
supported by full safety and efficacy data, will be approved unless a second applicant can establish that its product is safer,
more effective or otherwise clinically superior. This period may be reduced to six years if the conditions that originally justified
orphan designation change or the sponsor makes excessive profits. On March 8, 2012 the European Medicines Agency, Committee on
Orphan Medicinal Products (COMP) issued a positive opinion on the application for orphan designation of AR-42 for treatment of
neurofibromatosis-type 2 disease complex.
Fast Track Designation
The FDA’s fast track program is intended
to facilitate the development and to expedite the review of drugs that are intended for the treatment of a serious or life-threatening
condition and that demonstrate the potential to address unmet medical needs. Under the fast track program, applicants may seek
traditional approval for a product based on data demonstrating an effect on a clinically meaningful endpoint, or approval based
on a well-established surrogate endpoint. The sponsor of a new drug candidate may request the FDA to designate the drug candidate
for a specific indication as a fast track drug at the time of original submission of its IND, or at any time thereafter prior
to receiving marketing approval of a marketing application. The FDA will determine if the drug candidate qualifies for fast track
designation within 60 days of receipt of the sponsor’s request.
If the FDA grants fast track designation,
it may initiate review of sections of an NDA before the application is complete. This so-called “rolling review” is
available if the applicant provides and the FDA approves a schedule for the submission of the remaining information and the applicant
has paid applicable user fees. The FDA’s review clock for both a standard and priority NDA for a fast track product does
not begin until the complete application is submitted. Additionally, fast track designation may be withdrawn by the FDA if it
believes that the designation is no longer supported by emerging data, or if the designated drug development program is no longer
being pursued.
In some cases, a fast track designated
drug candidate may also qualify for one or more of the following programs:
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Priority Review.
As explained above, a drug
candidate may be eligible for a six-month priority review. The FDA assigns priority review status to an application if
the drug candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention
of a disease. A fast track drug would ordinarily meet the FDA’s criteria for priority review, but may also be assigned
a standard review. We do not know whether any of our drug candidates will be assigned priority review status or, if priority
review status is assigned, whether that review or approval will be faster than conventional FDA procedures, or that the
FDA will ultimately approve the drug.
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·
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Accelerated Approval.
Under the FDA’s accelerated
approval regulations, the FDA is authorized to approve drug candidates that have been studied for their safety and efficacy
in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit to patients over existing
treatments based upon either a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of
an effect on a clinical endpoint other than patient survival or irreversible morbidity. In clinical trials, surrogate endpoints
are alternative measurements of the symptoms of a disease or condition that are substituted for measurements of observable
clinical symptoms. A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase IV or post-approval clinical trials to validate the surrogate endpoint or confirm the effect
on the clinical endpoint. Failure to conduct required post-approval studies with due diligence, or to validate a surrogate
endpoint or confirm a clinical benefit during post-marketing studies, may cause the FDA to seek to withdraw the drug from
the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are
subject to prior review by the FDA.
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When appropriate, we and/or our collaboration
partners intend to seek fast track designation, accelerated approval or priority review for our drug candidates. We cannot predict
whether any of our drug candidates will obtain fast track, accelerated approval, or priority review designation, or the ultimate
impact, if any, of these expedited review mechanisms on the timing or likelihood of the FDA approval of any of our drug candidates.
Satisfaction of the FDA regulations and
approval requirements or similar requirements of foreign regulatory agencies typically takes several years, and the actual time
required may vary substantially based upon the type, complexity and novelty of the product or disease. Typically, if a drug candidate
is intended to treat a chronic disease, as is the case with some of the drug candidates we are developing, safety and efficacy
data must be gathered over an extended period of time. Government regulation may delay or prevent marketing of drug candidates
for a considerable period of time and impose costly procedures upon our activities. The FDA or any other regulatory agency may
not grant approvals for changes in dosage form or new indications for our drug candidates on a timely basis, or at all. Even if
a drug candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations
and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a drug may
result in restrictions on the drug or even complete withdrawal of the drug from the market. Delays in obtaining, or failures to
obtain, regulatory approvals for any of our drug candidates would harm our business. In addition, we cannot predict what adverse
governmental regulations may arise from future United States or foreign governmental action.
Special Protocol Assessment
The FDCA directs the FDA to meet with sponsors,
pursuant to a sponsor’s written request, for the purpose of reaching agreement on the design and size of clinical trials
intended to form the primary basis of an efficacy claim in an NDA. If an agreement is reached, the FDA will reduce the agreement
to writing and make it part of the administrative record. This agreement is called a special protocol assessment, or SPA. While
the FDA’s guidance on SPAs states that documented SPAs should be considered binding on the review division, the FDA has
the latitude to change its assessment if certain exceptions apply. Exceptions include identification of a substantial scientific
issue essential to safety or efficacy testing that later comes to light, a sponsor’s failure to follow the protocol agreed
upon, or the FDA’s reliance on data, assumptions or information that are determined to be wrong.
Other Regulatory Requirements
Any drugs manufactured or distributed by
us or our collaboration partners pursuant to future FDA approvals are subject to continuing regulation by the FDA, including recordkeeping
requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors are required
to register with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain
state agencies for compliance with ongoing regulatory requirements, including cGMP, which impose certain procedural and documentation
requirements upon us and our third-party manufacturers. Failure to comply with the statutory and regulatory requirements can subject
a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, sales or use, seizure
of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future third-party manufacturers
or suppliers will be able to comply with the cGMP regulations and other ongoing FDA regulatory requirements. If our present or
future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials,
require us to recall a drug from distribution, or withdraw approval of the NDA for that drug.
The FDA closely regulates the post-approval
marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion,
industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make
only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can
result in adverse publicity, warning and/or untitled letters, corrective advertising and potential civil and criminal penalties.
Foreign Regulation
In addition to regulations in the United
States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution
of our products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval
process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements
governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Under European Union regulatory systems,
marketing authorizations may be submitted either under a centralized or mutual recognition procedure. The centralized procedure
provides for the grant of a single marketing authorization that is valid for all European Union member states. The mutual recognition
procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing
authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and
assessment report, each member state must decide whether to recognize approval.
In addition to regulations in Europe and
the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial distribution
of our future products.
Manufacturing
We do not currently have our own manufacturing
facilities. We intend to continue to use our financial resources to accelerate development of our product candidates rather than
diverting resources to establish our own manufacturing facilities. We meet our pre-clinical and clinical trial manufacturing requirements
by establishing relationships with third-party manufacturers and other service providers to perform these services for us. We
rely on individual proposals and purchase orders to meet our needs and typically rely on terms and conditions proposed by the
third party or us to govern our rights and obligations under each order (including provisions with respect to intellectual property,
if any). We do not have any long-term agreements or commitments for these services. Likewise, we do not have any long-term agreements
or commitments with vendors to supply the underlying component materials of our product candidates, some of which are available
from only a single supplier.
Should any of our product candidates obtain
marketing approval, we anticipate establishing relationships with third-party manufacturers and other service providers in connection
with the commercial production of our products. We have some flexibility in securing other manufacturers to produce our product
candidates; however, our alternatives may be limited due to proprietary technologies or methods used in the manufacture of some
of our product candidates.
Research and Development Expenses
We spent approximately $13.5 million
in fiscal year 2013 and $8.5 million in fiscal year 2012 on research and development activities. These expenses include cash and
non-cash expenses relating to the development of our clinical and pre-clinical programs.
Employees
As of March 27, 2014, we had seven
full-time employees, none of whom are covered by a collective bargaining agreement. We believe our relations with our employees
are satisfactory.
We retain several consultants who serve
in various operational and administrative capacities, and we utilize clinical research organizations and third parties to perform
our pre-clinical studies, clinical studies, and manufacturing. We may hire additional research and development staff, as required,
to support our product development.
Legal Proceedings
We are not involved in any pending legal
proceedings.
Description of Property
Our principal offices are located at 200
Route 31 North, Suite 104, Flemington, New Jersey 08822, where we occupy approximately 4,168 square feet of office space pursuant
to the terms of a lease agreement dated August 4, 2011. The lease commencement date was November 17, 2011, with lease payments
beginning in February 2012. The lease expiration date is three years from the rent commencement date. We provided a cash security
deposit of $10,455, or two months’ base rent. We are also responsible for payment of our share of common area maintenance
costs and taxes.
MANAGEMENT AND BOARD OF DIRECTORS
Directors and Executive Officers
The following table lists our executive
officers, directors and key employees and their respective ages and positions as of the date of this prospectus:
Name
|
|
Age
|
|
Positions
|
Arie S. Belldegrun, M.D.
|
|
64
|
|
Chairman of the Board
|
Glenn Mattes
|
|
58
|
|
President, Chief Executive Officer
and Director
|
Lawrence A. Kenyon
|
|
49
|
|
Chief Financial Officer
|
Alexander Zukiwski, M.D.
|
|
56
|
|
Vice President, Chief Medical Officer
|
David M. Tanen
|
|
42
|
|
Secretary and Director
|
Stefan Proniuk, Ph.D.
|
|
43
|
|
Vice President of Product Development
|
William F. Hamilton, Ph.D.
|
|
74
|
|
Director
|
Tomer Kariv
|
|
52
|
|
Director
|
Yacov Reizman
|
|
62
|
|
Director
|
Steven B. Ruchefsky
|
|
51
|
|
Director
|
Randy Thurman
|
|
64
|
|
Vice Chairman of the Board
|
Arie S. Belldegrun, M.D.,
FACS
has served as the Chairman of the Board of Arno since March 2008. Dr. Belldegrun is the Director of the UCLA
Institute of Urologic Oncology and Professor and Chief of Urologic Oncology at the David Geffen School of Medicine at the University
of California, Los Angeles, where he has held the Roy and Carol Doumani Chair in Urologic Oncology since 2000. He is also currently
the Chairman of Two River Consulting, LLC, an organization that provides management, consulting and operational services for development
stage biotechnology companies, which in the past has included Arno. See “Transactions with Related Persons, Promoters and
Certain Control Persons.” Dr. Belldegrun serves as a director of Teva Pharmaceuticals Industries Ltd., a publicly-held global
pharmaceutical company, and he also serves as Executive Chairman, Chief Executive Officer and Founder of Kite Pharma, Inc., Chairman
of TheraCoat Ltd., a director of SonaCare Medical Inc., each privately-held life sciences companies. From September 2009 to November
2013, Dr. Belldegrun served as a director of Nile Therapeutics, Inc., a publicly-held biopharmaceutical company. Dr. Belldegrun
was the founder and founding Chairman of Agensys, Inc. and the co-founder and founding Vice Chairman of the Board and Chairman
of the Scientific Advisory Board of Cougar Biotechnology (which was acquired by Johnson & Johnson in 2009). Dr. Belldegrun
has also held the positions of Chairman of the Molecular and Biological Technology Committee of the American Urological Association
and member of its Technology Assessment Council; member of the Governor’s Council on Bioscience for the State of California;
biotechnology group leader of the Mayor of Los Angeles’ Economy and Jobs Committee; and is the author of over 450 scientific
publications. Dr. Belldegrun received his medical degree at the Hebrew University Hadassah Medical School and conducted his post-doctoral
studies at the Weizmann Institute of Science in Israel. He completed his urologic surgery residency at Harvard Medical School
and his fellowship at the National Cancer Institute/National Institutes of Health.
Glenn R. Mattes
was appointed to serve as Arno’s President, Chief Executive Officer, and director in April 2011. He has over 25 years of
commercialization and general management experience across a wide range of businesses. From 2002 to 2011, Mr. Mattes served as
the President of Tibotec Therapeutics, a Johnson & Johnson operating company focused on oncology and virology therapeutics,
where he led the organization responsible for the development, marketing and sales of novel antiretroviral compounds in North
America. Under Mr. Mattes’ leadership, Tibotec successfully launched the first two Johnson & Johnson products in the
United States’ HIV/AIDS market. In 2008, Mr. Mattes was appointed to the President’s Advisory Council on HIV/AIDS
(PACHA) by the U.S. Secretary of Health and Human Services to counsel White House administrations on both domestic and global
health and treatment issues. Prior to Tibotec, from 1998 to 2002 Mr. Mattes served as the Vice President of Worldwide Commercial
Operations at Centocor, where he played a critical role in defining Centocor’s overall business direction, as well as developing
and implementing the organization’s sales and marketing strategy leading to the introduction of Remicade®. Prior to
joining Centocor, Mr. Mattes gained a wealth of pharmaceutical experience at Rhone Poulenc Rorer (RPR) (now Aventis), where he
held positions of increasing responsibility, including President of RPR Canada, and Vice President of Advanced Therapeutics and
Oncology, North America, where he was largely responsible for the successful launch of both Taxotere® and Lovenox®. Mr.
Mattes received a BS degree from the City University of New York.
Lawrence A. Kenyon
,
was appointed to serve as Arno’s Chief Financial Officer in February 2014. Mr. Kenyon was most recently Interim President
& Chief Executive Officer, Chief Financial Officer and Secretary of Tamir Biotechnology, Inc., a publicly-held company engaged
in the development of oncology and anti-infective therapeutics, from December 2011 to March 2013. Prior to that, from December
2008 to July 2010, Mr. Kenyon was Executive Vice President, Finance and, commencing in March 2009, the Chief Financial Officer
of Par Pharmaceutical Companies, Inc., a publicly-held generic and branded specialty pharmaceuticals company. Prior to joining
Par, Mr. Kenyon was Chief Financial Officer and Secretary of Alfacell Corporation from January 2007 until February 2009; he also
served at various times during this period as Alfacell’s Executive Vice President, Chief Operating Officer, and President,
and was a member of Alfacell’s board of directors from November 2007 to April 2009. Prior to joining Alfacell, Mr. Kenyon
served as Executive Vice President, Chief Financial Officer and Corporate Secretary at NeoPharm, Inc., a publicly traded
biopharmaceutical company, from 2000 until 2006. Mr. Kenyon holds a bachelor’s degree in accounting from the University
of Wisconsin-Whitewater and is a Certified Public Accountant.
Alexander Zukiwski, M.D.
,
was appointed to serve as Arno’s Vice President and Chief Medical Officer in June 2011. Dr. Zukiwski has more than 15 years
of experience in global oncology drug development and was most recently Executive Vice President, Clinical Research, and Chief
Medical Officer at MedImmune, Inc. where he served until March 2011, leading the organization that was responsible for developing
and implementing MedImmune's clinical research, medical affairs and safety strategies. From 2002 until he joined MedImmune in
2007, Dr. Zukiwski held medical affairs and clinical development positions of increasing responsibility at Johnson & Johnson
Pharmaceutical Research & Development, LLC (“JJPRD”), Centocor and Ortho Biotech, all Johnson & Johnson companies,
including serving as therapeutic area head for oncology and acting head of oncology research and development. As Vice President,
Head of Clinical Oncology, he was responsible for strategic oversight and portfolio management of therapeutic oncology, hematology
and supportive care clinical development programs for JJPRD and Centocor's oncology development group. Before joining Johnson
& Johnson, Dr. Zukiwski held clinical oncology positions at Hoffmann-LaRoche, Glaxo Wellcome and Rhone- Poulenc Rorer. Dr.
Zukiwski received a bachelor’s degree in pharmacy from the University of Alberta and a Doctor of Medicine degree from the
University of Calgary. He conducted his post-graduate training at St. Thomas Hospital Medical Center in Akron, Ohio and the University
of Texas, M.D. Anderson Cancer Center.
David M. Tanen
is a co-founder of Arno and has served as a director and its secretary since its inception. Mr. Tanen also served as Arno’s
President from June 2009 until April 2011. Mr. Tanen also serves as an Officer and Director of Riverbank Capital Securities, Inc.,
a broker dealer registered with FINRA (“Riverbank”), which engages in private placement activities for public and
private companies, primarily in the life science sector, and which performed placement agent services for Arno in 2008 and 2010.
Mr. Tanen also serves as an officer of the managing member of Two River Consulting, LLC, which provides management, operational
and other services for Arno. See “Transactions with Related Persons, Promoters and Certain Control Persons.” Prior
to founding Two River, from October 1996 to September 2004, Mr. Tanen was a Director of Paramount BioCapital Investments, LLC,
a biotechnology focused venture capital company. Mr. Tanen also served as a member of the General Partner of the Orion Biomedical
Fund, LP. Mr. Tanen received his B.A. from The George Washington University and his J.D. from Fordham University School of Law.
Stefan Proniuk, Ph.D.
has
over 15 years of experience in formulation and product development. Prior to joining Arno, he was the Sr. Manager of Pharmaceutical
Technologies at Neurocrine Biosciences where he was responsible for overseeing development programs from Phase I to III. His group
was also responsible for the preformulation of NCEs. Prior to his work at Neurocrine, Dr. Proniuk worked as a scientist at Cima
Labs on the development and scale-up of fast dissolving tablet formulations (OraSolv®, DuraSolv®). Throughout his career
he has worked on multiple regulatory submissions and marketed products. Dr. Proniuk holds a Ph.D. degree in Pharmaceutical Sciences
from the University of Arizona, an MBA with emphasis in Entrepreneurship from San Diego State University and a Diplom (FH) in
Chemical Engineering from the University of Applied Sciences Isny, Germany.
William F. Hamilton, Ph.D.
was appointed to Arno’s board of directors in October 2008. Dr. Hamilton has served on the University of Pennsylvania faculty
since 1967, and is the Landau Professor of Management and Technology, and Director of the Jerome Fisher Program in Management
and Technology at The Wharton School and the School of Engineering and Applied Science. Dr. Hamilton serves on the board of directors
of Ceptaris Therapeutics, Inc., a privately-held specialty pharmaceutical company that develops small molecule pharmaceuticals
licensed from academic laboratories. Dr. Hamilton received his B.S. and M.S. in chemical engineering and his MBA from the University
of Pennsylvania, and his Ph.D. in applied economics from the London School of Economics.
Tomer Kariv
a director of
Arno since September 2010, is the co-founder and Chief Executive Officer of Pontifax, a group of Israeli based life sciences venture
funds focusing on investments in development stage bio-pharmaceutical and med-tech technologies. Mr. Kariv serves as an active
board member of many of the funds' portfolio companies, assuming a special responsibility for strategic planning. Among others,
Mr. Kariv serves as the Chairman of Check-Cap Ltd and is a board member of Macrocure Ltd. During the 10 years prior to establishing
Pontifax in 2004, Mr. Kariv played a key role in investing, managing and nurturing technology driven companies and startups and
has held senior management positions at top Israeli financial institutions. Mr. Kariv practiced law with Sullivan & Cromwell,
a leading corporate law firm in New York, and holds a B.A. in Economics from Harvard University and a J.D. from Harvard Law School.
Yacov Reizman
, a director
of Arno since September 2010, has been the Chairman and Chief Executive Officer of FCC Ltd., a private investment company that
he founded in 1987. Over the past decade FCC has invested directly in over 50 publicly traded and privately held companies in
a diverse range of industries including: infrastructure; shipping; healthcare; and financial services. FCC also specializes in
corporate finance and structured investments. Mr. Reizman was also co-founder and co-CEO of Azimuth Ltd., which traded on the
TASE. Previously Mr. Reizman served in the Israeli Air Force (IAF) as a fighter pilot (Major) and led large-scale high-tech projects
for the IAF, including joint projects with Israeli and U.S. defense industries. Mr. Reizman holds a B.A. in economics and in psychology
from Tel Aviv University.
Steven Ruchefsky
, a director
of Arno since September 2010, is President of Commercial Street Capital LLC, a private investment company and significant stockholder
in Arno. For the last decade, Mr. Ruchefsky has been working as an investment manager for the founder and CEO of a multi-billion
dollar hedge fund. Mr. Ruchefsky began his career at a prominent New York City law firm where he became a partner, member of management
and chair of a specialized litigation group. Upon leaving his law firm and prior to his current employment, Mr. Ruchefsky was
a principal of an early stage venture capital operation. In addition to Arno, Mr. Ruchefsky currently sits on the boards of several
public and private companies, including Itamar Medical (TASE: ITMR), Kite Pharma, Inc., and MD Solar Sciences, Inc. Mr. Ruchefsky
is a graduate of The George Washington University Law School.
Randy Thurman
has
been a director of Arno since January 2013, and Vice Chairman of the board of directors since March 2014. Mr. Thurman currently
serves as an operating executive and senior advisor in private equity and has worked with firms such as New Mountain Capital LLC
and firm AEA Investors LP. Prior to that, he was a Founder, Chairman and CEO of VIASYS Healthcare Inc., a global leader in respiratory
and neurological diagnostics, critical care, medical/surgical technologies and orthopedic product development and manufacturing,
from 2001 to 2007. Prior to founding VIASYS Healthcare Inc., he was Founder and CEO of Strategic Reserves LLC, which provided
advisory services to bio-pharmaceutical, genomic and medical device companies. He previously served as Executive Chairman of Enzon
Inc., a publicly traded biopharmaceutical company, and as Chairman & CEO of Corning Life Sciences, Inc., Corning Incorporated’s
health care division and the predecessor to Quest Diagnostics Incorporated and Covance Inc. Earlier in his career, Mr. Thurman
was with Rorer Pharmaceuticals Inc., where he led its successful acquisition of Revlon Healthcare and subsequent merger with Rhône-Poulenc.
He served as President of Rorer Pharmaceuticals Inc. and Rhone-Poulenc Rorer Pharmaceuticals Inc. Mr. Thurman has extensive board
of director experience and currently serves as Executive Chairman of Presbia Inc., and is also a director of Allscripts Inc. Mr.
Thurman completed Wharton’s Corporate Governance program. Mr. Thurman served as a U.S. Air Force fighter pilot in Vietnam
and graduated from the U.S. Air Force Air Command & Staff College. Mr. Thurman received a B.S. in economics from Virginia
Polytechnic Institute and an M.A. in management from Webster University.
Experience, Qualifications, Attributes and Skills of Directors
We look to our directors to lead us
through our continued growth as an early-stage public biopharmaceutical company. We believe our directors bring their leadership
experience from a variety of life science companies and professional backgrounds which we require to continue to grow and bring
value to our stockholders. Messrs. Kariv, Reizman, Ruchefsky, Tanen, and Thurman have venture capital or investment banking backgrounds
and offer expertise in financing and growing small companies, particularly small biopharmaceutical and life science companies.
Each of Drs. Belldegrun and Hamilton and Mr. Tanen have significant experience with early stage private and public companies and
bring depth of knowledge in building stockholder value, growing a company from inception and navigating significant corporate
transactions and the public company process. Dr. Belldegrun’s medical background and experience serving as an investigator
in clinical trials of oncology drug candidates allows him to contribute significant medical and scientific expertise. Mr. Mattes’
extensive commercialization and general management experience and his current position as our President and Chief Executive Officer
allow him to provide a unique insight into our development and growth. As a result of his academic experience and his prior service
on the audit committees of several publicly-traded life sciences companies, Dr. Hamilton also brings extensive finance, accounting
and risk management knowledge to us. Mr. Thurman’s extensive experience in the health care industry allows him to contribute
a wealth of operational, financial, and business development expertise to Arno.
Independence of the Board of Directors
In determining whether the members of our
board of directors and its committees are independent, we have elected to use the definition of “independence” set
forth in the listing standards of the NASDAQ Stock Market. After considering all relevant relationships and transactions, our
board of directors, in consultation with legal counsel, has determined that Messrs. Kariv, Reizman, Ruchefsky, Thurman and Dr.
Hamilton are “independent” within the meaning of the applicable listing standard of the NASDAQ Stock Market. Messrs.
Mattes, Tanen and Dr. Belldegrun are not independent, as defined by applicable NASDAQ listing standards.
Executive Compensation
The following table sets forth all of the
compensation for the 2013 and 2012 fiscal years awarded to, earned by or paid to (i) our principal executive officer during the
fiscal year ended December 31, 2013; and (ii) two other individuals that served as an executive officer at the conclusion of the
fiscal year ended December 31, 2013 and who received in excess of $100,000 in total compensation during such fiscal year. We refer
to these individuals as our named executives.
Summary Compensation
Table
Name and Principal
Position
|
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards (1)
($)
|
|
|
All
Other
Compensation (2)
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn R. Mattes
|
|
|
2013
|
|
|
|
378,560
|
|
|
|
151,424
|
|
|
|
805,280
|
|
|
|
18,000
|
|
|
|
1,353,264
|
|
President and CEO
|
|
|
2012
|
|
|
|
364,000
|
|
|
|
182,000
|
|
|
|
-
|
|
|
|
18,000
|
|
|
|
564,000
|
|
Alexander Zukiwski, M.D.
|
|
|
2013
|
|
|
|
408,000
|
|
|
|
183,600
|
|
|
|
694,492
|
|
|
|
12,000
|
|
|
|
1,298,092
|
|
VP and Chief Medical Officer
|
|
|
2012
|
|
|
|
394,000
|
|
|
|
197,000
|
|
|
|
-
|
|
|
|
12,000
|
|
|
|
603,000
|
|
Stefan Proniuk, Ph.D.
|
|
|
2013
|
|
|
|
215,000
|
|
|
|
96,750
|
|
|
|
150,828
|
|
|
|
-
|
|
|
|
462,578
|
|
VP of Product Development
|
|
|
2012
|
|
|
|
208,000
|
|
|
|
68,640
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276,640
|
|
|
(1)
|
Except as otherwise noted, amounts reflect
the grant date fair value of stock awards and option awards granted under the Company’s 2005 Stock Option Plan, computed
pursuant to Financial Accounting Standards Board’s Accounting Standards Codification 718
“Compensation –
Stock Compensation”.
|
|
(2)
|
Amounts represent automobile allowances.
|
Employment Agreements, Termination of Employment and Change-in-Control
Arrangements
Glenn Mattes
President and Chief Executive Officer
Mr. Mattes’ employment with us
is governed by an employment agreement dated April 25, 2011. The term of the agreement expires on April 25, 2015, subject to automatic
renewal for successive one-year periods until either party provides the other party with at least 90 days’ prior written
notice of nonrenewal. Pursuant to the employment agreement, Mr. Mattes will receive an initial annualized base salary of $100,000
for a period of one year, after which his base salary will be increased to $350,000 per year, subject to further increases on
an annual basis in accordance with the consumer price index plus 1%. Accordingly, Mr. Mattes’ base salary was increased
to $378,560 on January 1, 2013 and to $393,700 on January 1, 2014. The employment agreement further provides that, subject to
the successful achievement of specific performance objectives to be established by the Board, Mr. Mattes will be eligible to receive
an annual performance bonus of up to 50% of his annualized base salary; provided, however, that Mr. Mattes will be eligible to
receive a performance bonus of up to $175,000 during the first year of the term. For 2011, our Board of Directors awarded Mr.
Mattes a performance bonus of $120,342, representing 100% of his target bonus prorated for his service during the year. For 2012,
our Board awarded Mr. Mattes a performance bonus of $182,000, representing 100% of his target bonus. For 2013, our Board awarded
Mr. Mattes a performance bonus of $151,424, representing 80% of his target bonus. In the event of a “Change of Control”
(as defined in the Company’s 2005 Stock Option Plan), Mr. Mattes shall receive a cash bonus in an amount equal to the greater
of (a) $100,000, and (b) 0.15% of the amount by which the aggregate consideration to be received by Arno and/or our stockholders
in connection with such Change of Control exceeds $100,000,000.
Pursuant to the employment agreement, on
the date of the agreement, Mr. Mattes was granted 10-year options to purchase a total of 294,297 shares of our common stock at
an exercise price equal to $8.00 per share. Options relating to 60% of such shares are designated as “Employment Options”
and options relating to the remaining 40% of the shares are designated as “Performance Options.” The right to purchase
25% of the shares subject to the Employment Options will vest and become exercisable on April 25, 2012, and thereafter the remaining
shares subject to the Employment Options will vest and become exercisable in 24 equal monthly installments. The right to purchase
the shares subject to the Performance Options shall vest and become exercisable, if at all, with respect to one-third of the shares
in each calendar year, or a pro-rata portion thereof for a period less than a full year, subject to the successful achievement
of specific performance objectives to be established by the Board. On January 17, 2012, the Board determined that, for the pro-rated
period ended December 31, 2011, Mr. Mattes’ Performance Options would vest in the maximum potential amount of 26,984 shares.
In addition, Mr. Mattes was granted 31,250 shares of our common stock (the “Restricted Shares”) on the date of the
employment agreement. The Restricted Shares shall vest in 12 equal monthly installments beginning on May 25, 2011. On January
14, 2013, the Board determined that, for the calendar year ended December 31, 2012, Mr. Mattes’ Performance Options would
vest in the maximum potential amount of 39,239 shares.
On January 14, 2013, Mr. Mattes was granted
10-year options to purchase a total of 64,500 shares of our common stock at an exercise price equal to $2.40 per share. Options
relating to 60% of such shares are designated as “Employment Options” and options relating to the remaining 40% of
the shares are designated as “Performance Options.” The right to purchase one-third of the shares subject to the Employment
Options vested immediately and the remaining shares subject to the Employment Options will vest and become exercisable in 24 equal
monthly installments commencing January 31, 2013. The right to purchase one-third of the shares subject to the Performance Options
vested immediately and, of the remaining shares, 50% shall vest and become exercisable, if at all, in each calendar year thereafter,
subject to the successful achievement of specific performance objectives to be established by the Board.
Also on January 14, 2013, the Board determined
that the exercise price applicable to all stock options previously granted to Mr. Mattes would be reduced from $8.00 to $2.40,
the conversion price of the Debentures issued in our 2012 offering of debentures and warrants.
On October 7, 2013, our board of directors
authorized a grant of a 10-year stock option under the 2005 Plan to Mr. Mattes to purchase a number of shares of our common stock
equal to 5.5% of the total number of shares issuable by us upon the conversion of our outstanding Debentures issued 2012. Accordingly,
after all of the Debentures were converted on October 29, 2013, our board granted to Mr. Mattes a 10-year stock option to purchase
386,697 shares, which option vests in 36 equal monthly installments commencing on the first month anniversary of the date of grant
and continuing each month thereafter until fully vested, provided that such vesting shall accelerate upon a “change of control”
of the Company, as such term is defined under the 2005 Plan (but excluding any transaction conducted primarily for purposes of
raising capital). The exercise price of such option is $2.40 per share, which amount reflects our board of directors’ determination
of fair market value on the date of grant.
The employment agreement provides that
if Arno terminates Mr. Mattes without “Cause,” or if he resigns for “Good Reason” (each as defined in
the agreement), then he shall be entitled to: (i) any earned but unpaid performance bonus; (ii) continued payment of his then
current annualized base salary for a period of 12 months; (iii) an acceleration in the vesting of the Employment Options and Restricted
Shares such that all unvested Employment Options and Restricted Shares shall be deemed vested as if Mr. Mattes had remained continuously
employed with Arno for one year following his termination date; and (iv) the vesting of all earned but unvested Performance Options.
In addition to the foregoing, in the event that Mr. Mattes’ employment is terminated in connection with a Change in Control,
then Mr. Mattes shall also be entitled to the immediate vesting of all unvested Employment Options, Performance Options, and Restricted
Shares.
Alexander Zukiwski, M.D.
Vice President and Chief Medical Officer
Dr. Zukiwski’s employment with
us is governed by an employment agreement dated June 22, 2011. The term of the agreement expires on June 22, 2015, subject to
automatic renewal for successive one-year periods until either party provides the other party with at least 90 days’ prior
written notice of nonrenewal. Pursuant to the employment agreement, Dr. Zukiwski was entitled to an initial annualized base salary
of $375,000, which was subsequently increased to $394,000 for 2012, to $408,000 for 2013, and to $424,320 for 2014. The employment
agreement further provides that, subject to the successful achievement of specific performance objectives to be established by
the Board, Dr. Zukiwski will be eligible to receive an annual performance bonus of up to 50% of his annualized base salary. For
2011, our Board awarded Dr. Zukiwski a performance bonus of $100,000, representing approximately 100% of his target bonus, prorated
for his service during the year. For 2012, our Board awarded Dr. Zukiwski a performance bonus of $197,000, representing 100% of
his target bonus. For 2013, our Board awarded Dr. Zukiwski a performance bonus of $183,600, representing 90% of his target bonus.
Pursuant to the employment agreement, we have also agreed to reimburse Dr. Zukiwski in an amount up to $200,000 for expenses incurred
in connection with the relocation of Dr. Zukiwski’s primary residence to the northern New Jersey area, which amounts are
subject to repayment as described in the employment agreement in the event of Dr. Zukiwski’s voluntary termination of his
employment (other than for “Good Reason,” as defined in the employment agreement) or Arno’s termination of his
employment for “Cause” (as defined in the employment agreement).
Pursuant to the employment agreement, on
the date of the agreement, Dr. Zukiwski was granted 10-year options to purchase a total of 218,750 shares of our common stock
at an exercise price equal to $8.00 per share. Options relating to 50% of such shares are designated as “Employment Options”
and options relating to the remaining 50% of the shares are designated as “Performance Options.” The right to purchase
25% of the shares subject to the Employment Options will vest and become exercisable on June 22, 2012, and thereafter the remaining
shares subject to the Employment Options will vest and become exercisable in 24 equal monthly installments. The right to purchase
the shares subject to the Performance Options shall vest and become exercisable, if at all, with respect to one-third of the shares
in each calendar year, or a pro-rata portion thereof for a period less than a full year, subject to the successful achievement
of specific performance objectives to be established by the Board. On January 17, 2012, the Board determined that, for the pro-rated
period ended December 31, 2011, Dr. Zukiwski’s Performance Options would vest in the maximum potential amount of 19,278
shares. On January 14, 2013, the Board determined that, for the calendar year ended December 31, 2012, Dr. Zukiwski’s Performance
Options would vest in the maximum potential amount of 36,458 shares.
On January 14, 2013, Dr. Zukiwski was granted
10-year options to purchase a total of 73,125 shares of our common stock at an exercise price equal to $2.40 per share. Options
relating to 50% of such shares are designated as “Employment Options” and options relating to the remaining 50% of
the shares are designated as “Performance Options.” The right to purchase one-third of the shares subject to the Employment
Options vested immediately and the remaining shares subject to the Employment Options will vest and become exercisable in 24 equal
monthly installments commencing January 31, 2013. The right to purchase one-third of the shares subject to the Performance Options
vested immediately and, of the remaining shares, 50% shall vest and become exercisable, if at all, in each calendar year thereafter,
subject to the successful achievement of specific performance objectives to be established by the Board.
Also on January 14, 2013, the Board determined
that the exercise price applicable to all stock options previously granted to Dr. Zukiwski would be reduced from $8.00 to $2.40,
the conversion price of the Debentures issued in our 2012 offering of debentures and warrants.
On October 7, 2013, our board of directors
authorized a grant of a 10-year stock option under the 2005 Plan to Dr. Zukiwski to purchase a number of shares of our common
stock equal to 4.5% of the total number of shares issuable by us upon the conversion of our outstanding Debentures issued 2012.
Accordingly, after all of the Debentures were converted on October 29, 2013, our board granted to Dr. Zukiwski a 10-year stock
option to purchase 316,389 shares, which option vests in 36 equal monthly installments commencing on the first month anniversary
of the date of grant and continuing each month thereafter until fully vested, provided that such vesting shall accelerate upon
a “change of control” of the Company, as such term is defined under the 2005 Plan (but excluding any transaction conducted
primarily for purposes of raising capital). The exercise price of such option is $2.40 per share.
The employment agreement provides that
if Arno terminates Dr. Zukiwski without “Cause,” or if he resigns for “Good Reason” (each as defined in
agreement), then he shall be entitled to: (i) any earned but unpaid performance bonus; (ii) continued payment of his then current
annualized base salary for a period of 12 months; and (iii) the acceleration of the vesting of the Employment Options such that
all unvested Employment Options shall be deemed vested as of the termination date. In addition to the foregoing, in the event
that Dr. Zukiwski’s employment is terminated 60 days prior to or within 12 months following a “Change in Control”
(as defined in the employment agreement), Dr. Zukiwski shall also be entitled to the immediate vesting of all unvested Performance
Options.
Stefan Proniuk, Ph.D.
Vice President of Product Development
Dr. Proniuk’s employment with
us is governed by a letter agreement dated January 31, 2008, as amended on August 22, 2010. The letter agreement provides for
Dr. Proniuk’s employment as our Director of Product Development on an at-will basis. Dr. Proniuk was subsequently promoted
to Vice President of Product Development in January 2012. Under the letter agreement, Dr. Proniuk is entitled to an annual base
salary of $150,000, which base salary was subsequently increased to $165,000 on November 16, 2008, to $167,000 on January 1, 2009,
to $174,800 on January 1, 2011, to $187,800 on June 20, 2011, to $208,000 on January 1, 2012, to $215,000 on January 1, 2013,
and to $223,600 on January 1, 2014. In addition, the letter agreement provides that Dr. Proniuk is eligible to receive an annual
performance bonus of up to 15% of his base salary upon the successful completion of annual corporate and individual milestones,
which target percentage was subsequently increased to 25% on January 1, 2010, and to 33% on January 1, 2012, and, solely with
respect to the 2013 fiscal year, has been increased to 50%. For 2011, our Board awarded Dr. Proniuk a performance bonus of $47,000,
representing approximately 103% of his target bonus. For 2012, our Board awarded Dr. Proniuk a performance bonus of $68,640, representing
100% of his target bonus. For 2013, our Board awarded Dr. Proniuk a performance bonus of $96,750, representing 90% of his target
bonus.
Pursuant to the letter agreement, on the
date of the agreement, Dr. Proniuk was granted 10-year options to purchase 9,968 shares of our common stock at an exercise price
of $19.36, with one-fourth vesting after one year and the remainder vesting in 36 equal monthly installments thereafter. In addition,
on June 20, 2011, Dr. Proniuk was granted 10-year options to purchase a total of 31,250 shares of our common stock at an exercise
price equal to $8.00 per share. Options relating to 55% of such shares were designated as “Employment Options” and
options relating to the remaining 45% of the shares were designated as “Performance Options.” The right to purchase
3,125 of the shares subject to the Employment Options vested immediately and, of the remaining shares, 25% vested on the first
anniversary of the grant date, with the remainder vesting in 24 equal monthly installments thereafter. The right to purchase the
shares subject to the Performance Options shall vest and become exercisable, if at all, with respect to one-third of the shares
in each calendar year, or a pro-rata portion thereof for a period less than a full year, subject to the successful achievement
of specific performance objectives to be established by the Board. On January 17, 2012, the Board determined that, for the pro-rated
period ended December 31, 2011, Proniuk’s Performance Options would vest in the maximum potential amount of 2,504 shares.
On January 14, 2013, the Board determined that, for the calendar year ended December 31, 2012, Dr. Proniuk’s Performance
Options would vest in the maximum potential amount of 4,687 shares.
On September 19, 2011, in consideration
for cancelling the 10-year options to purchase 9,968 shares of our common stock that were issued to Dr. Proniuk on January 31,
2008, Dr. Proniuk was granted 10-year options to purchase 10,000 shares of our common stock at an exercise price of $8.00, with
one-half immediately vested and the remainder vesting in 24 equal monthly installments commencing October 19, 2011.
On January 14, 2013, Dr. Proniuk was granted
10-year options to purchase a total of 13,750 shares of our common stock at an exercise price equal to $2.40 per share. Options
relating to 50% of such shares are designated as “Employment Options” and options relating to the remaining 50% of
the shares are designated as “Performance Options.” The right to purchase one-third of the shares subject to the Employment
Options vested immediately and the remaining shares subject to the Employment Options will vest and become exercisable in 24 equal
monthly installments commencing January 31, 2013. The right to purchase one-third of the shares subject to the Performance Options
vested immediately and, of the remaining shares, 50% shall vest and become exercisable, if at all, in each calendar year thereafter,
subject to the successful achievement of specific performance objectives to be established by the Board.
Also on January 14, 2013, the Board determined
that the exercise price applicable to all stock options previously granted to Dr. Proniuk would be reduced from $8.00 to $2.40,
the conversion price of the Debentures issued in our 2012 offering of debentures and warrants.
On October 7, 2013, our board of directors
authorized a grant of a 10-year stock option under the 2005 Plan to Dr. Proniuk to purchase a number of shares of our common stock
equal to 0.65% of the total number of shares issuable by us upon the conversion of our outstanding Debentures issued 2012. Accordingly,
after all of the Debentures were converted on October 29, 2013, our board granted to Dr. Proniuk a 10-year stock option to purchase
45,701 shares, which option vests in 36 equal monthly installments commencing on the first month anniversary of the date of grant
and continuing each month thereafter until fully vested, provided that such vesting shall accelerate upon a “change of control”
of the Company, as such term is defined under the 2005 Plan (but excluding any transaction conducted primarily for purposes of
raising capital). The exercise price of such option is $2.40 per share.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information
concerning stock options held by the named executive officers at December 31, 2013:
Name
|
|
Number of
Securities
Underlying
Unexercised Options
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised Options
Unexercisable
|
|
|
Option Exercise
Price ($)
|
|
|
Option
Expiration Date
|
|
Mr. Mattes
|
|
|
66,224
|
|
|
|
51,495
|
|
|
|
2.40
|
|
|
4/25/21
|
(1)
|
|
|
|
154,506
|
|
|
|
22,072
|
|
|
|
2.40
|
|
|
4/25/21
|
(2)
|
|
|
|
25,800
|
|
|
|
12,900
|
|
|
|
2.40
|
|
|
1/14/23
|
(3)
|
|
|
|
8,600
|
|
|
|
17,200
|
|
|
|
2.40
|
|
|
1/14/23
|
(4)
|
|
|
|
10,741
|
|
|
|
375,956
|
|
|
|
2.40
|
|
|
11/4/23
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Zukiwski
|
|
|
55,736
|
|
|
|
53,639
|
|
|
|
2.40
|
|
|
6/22/21
|
(6)
|
|
|
|
88,867
|
|
|
|
20,508
|
|
|
|
2.40
|
|
|
6/22/21
|
(7)
|
|
|
|
24,375
|
|
|
|
12,188
|
|
|
|
2.40
|
|
|
1/14/23
|
(8)
|
|
|
|
12,188
|
|
|
|
24,375
|
|
|
|
2.40
|
|
|
1/14/23
|
(9)
|
|
|
|
8,788
|
|
|
|
307,601
|
|
|
|
2.40
|
|
|
11/4/23
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Proniuk
|
|
|
7,192
|
|
|
|
6,870
|
|
|
|
2.40
|
|
|
6/20/21
|
(11)
|
|
|
|
14,551
|
|
|
|
2,637
|
|
|
|
2.40
|
|
|
6/20/21
|
(12)
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
2.40
|
|
|
9/19/21
|
(13)
|
|
|
|
4,583
|
|
|
|
2,292
|
|
|
|
2.40
|
|
|
1/14/23
|
(14)
|
|
|
|
2,292
|
|
|
|
4,583
|
|
|
|
2.40
|
|
|
1/14/23
|
(15)
|
|
|
|
1,269
|
|
|
|
44,432
|
|
|
|
2.40
|
|
|
11/4/23
|
(16)
|
___________________________________
(1)
|
Option granted April 25, 2011 relating to an
aggregate of 117,719 shares and vesting up to one-third in each calendar year, or a pro-rata portion thereof for a period
less than a full year, at the discretion of the Board of Directors.
|
(2)
|
Option granted April 25, 2011 relating to an aggregate of 176,578
shares, of which 25% vested on the first anniversary of the grant date and the remainder vest in 24 equal monthly installments
thereafter.
|
(3)
|
Option granted January 14, 2013 relating to an aggregate of 38,700
shares, of which one-third vested immediately and the remainder vest in 24 equal monthly installments thereafter, commencing
January 31, 2013.
|
(4)
|
Option granted January 14, 2013 relating to an aggregate of 25,800
shares, of which one-third vested immediately and up to one-half of the remainder vest annually based on the achievement of
performance milestones as determined by the Board of Directors.
|
(5)
|
Option granted November 4, 2013 relating to an aggregate of 386,697
shares and vesting in 36 equal monthly installments commencing December 4, 2013.
|
(6)
|
Option granted June 22, 2011 relating to an aggregate of 109,375
shares and vesting up to one-third in each calendar year, or a pro-rata portion thereof for a period less than a full year,
at the discretion of the Board of Directors.
|
(7)
|
Option granted June 22, 2011 relating to an aggregate of 109,375
shares, of which 25% vested on the first anniversary of the grant date and the remainder vest in 24 equal monthly installments
thereafter.
|
(8)
|
Option granted January 14, 2013 relating to an aggregate of 36,562
shares, of which one-third vested immediately and the remainder vest in 24 equal monthly installments thereafter, commencing
January 31, 2013.
|
(9)
|
Option granted January 14, 2013 relating to an aggregate of 36,562
shares, of which one-third vested immediately and up to one-half of the remainder vest annually based on the achievement of
performance milestones as determined by the Board of Directors.
|
(10)
|
Option granted November 4, 2013 relating to an aggregate of 316,389
shares and vesting in 36 equal monthly installments commencing December 4, 2013.
|
(11)
|
Option granted June 20, 2011 relating to an aggregate of 14,062
shares and vesting up to one-third in each calendar year, or a pro-rata portion thereof for a period less than a full year,
at the discretion of the Board of Directors.
|
(12)
|
Option granted June 20, 2011 relating to an aggregate of 17,187
shares, of which 3,125 shares vested immediately and, of the remaining shares, 25% vested on the first anniversary of the
grant date, with the remainder vesting in 24 equal monthly installments thereafter.
|
(13)
|
Option granted September 19, 2011 relating to an aggregate of 10,000
shares, of which 50% vested immediately and the remainder vest in 24 equal monthly installments commencing October 19, 2011.
|
(14)
|
Option granted January 14, 2013 relating to an aggregate of 6,875
shares, of which one-third vested immediately and the remainder vest in 24 equal monthly installments thereafter, commencing
January 31, 2013.
|
(15)
|
Option granted January 14, 2013 relating to an aggregate of 6,875
shares, of which one-third vested immediately and up to one-half of the remainder vest annually based on the achievement of
performance milestones as determined by the Board of Directors.
|
(16)
|
Option granted November 4, 2013 relating to an aggregate of 45,701
shares and vesting in 36 equal monthly installments commencing December 4, 2013.
|
Director Compensation
Prior to October 7, 2013, our non-employee
directors were entitled to receive the following in consideration for their service on the Board: (1) an annual retainer of $25,000;
(2) a stock option grant of 3,750 shares of the Company’s common stock upon their initial appointment or election to the
Board; and (3) an annual stock option grant of 1,250 shares of the Company’s common stock. In addition, any non-employee
director designated as chairman of the Board was entitled to an annual retainer of $10,000, the chair of the Board’s audit
committee was entitled to an additional annual retainer of $8,000, and the chairs of the Board’s compensation and nominating
& corporate governance committees were entitled to annual retainers of $4,000. In addition, as our chairman, Dr. Belldegrun
received an annual retainer equal to $150,000. Stock options awarded to our non-employee directors have a 10-year term, vest in
three equal annual installments commencing on the first anniversary of the grant date, and have an exercise price equal to the
fair market value of the Company’s common stock on the grant date.
Effective October 7, 2013, our board of
directors adopted a new non-employee director compensation plan which provides the following compensation to our non-employee
directors for their service on our Board: (1) an annual cash retainer of $50,000; (2) a 10-year stock option under the 2005 Plan
to purchase a number of shares of our common stock equal to 0.10% of our then outstanding shares of common stock upon his or her
initial appointment or election to the Board, which vests in 36 equal monthly installments commencing on the first month anniversary
of the grant date; and (3) an annual 10-year stock option under the 2005 Plan to purchase a number of shares of our common stock
equal to 0.05% of our then outstanding shares of common stock, which option vests in its entirety on the first anniversary of
the grant date. In addition, any non-employee director designated as chairman of the Board is entitled to an annual retainer of
$150,000, the chairs of the Board’s audit and finance committees are entitled to additional annual retainers of $10,000,
and the chairs of the Board’s compensation and nominating & corporate governance committees are entitled to additional
annual retainers of $5,000. The Chairman of the Board shall also be entitled to receive a stock option to purchase a number of
shares of our common stock equal to 0.20% of our then outstanding shares of common stock upon his or her initial appointment or
election to the Board and an annual stock option to purchase a number of shares equal to 0.10% of our then outstanding shares
of common stock. Stock options awarded to our non-employee directors have a 10-year term, have an exercise price equal to the
fair market value of our common stock on the grant date, and vest in their entirety upon a “change of control” of
the Company, as such term is defined in the plan pursuant to which such options are granted.
In addition to the stock options issuable
pursuant to the non-employee director compensation plan adopted on October 7, 2013, on November 4, 2013, the Board approved grants
under the 2005 Plan of 10-year stock options to Dr. Belldegrun and Mr. Ruchefsky to purchase 3,422,300 and 136,896 shares of our
common stock, respectively, which amounts represent 5.0% and 0.20%, respectively, of our fully-diluted outstanding shares of common
stock on such grant date. Such additional stock option grants are subject to the same terms and conditions as the initial option
grants issuable to our non-employee directors, as described above. Further, our board of directors authorized additional 10-year
stock options to Mr. Ruchefsky to purchase a number of shares of our common stock equal to 0.20% and 0.10%, respectively, of the
then fully-diluted outstanding shares of our common stock. Each of the additional stock options to be granted to Mr. Ruchefsky
shall vest and become exercisable in 36 equal monthly installments commencing on the first month anniversary of the applicable
grant date, shall be exercisable at the then fair market value of the common stock (as determined in accordance with our stock
option pricing policy in effect on the date of grant), and shall vest and become exercisable upon a change of control, as described
in the 2005 Plan.
The following table sets forth the compensation
paid to our directors for their service in 2013.
Name
|
|
Fees earned or
paid in cash
|
|
|
Option
Awards (1)(2)
|
|
|
Total
|
|
Arie S. Belldegrun, M.D.
|
|
$
|
150,000
|
|
|
$
|
7,347,423
|
|
|
$
|
7,497,423
|
|
William F. Hamilton, Ph.D.
|
|
$
|
39,750
|
|
|
$
|
141,297
|
|
|
$
|
181,047
|
|
Tomer Kariv
|
|
$
|
32,250
|
|
|
$
|
141,297
|
|
|
$
|
173,547
|
|
Glenn Mattes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Yacov Reizman
|
|
$
|
32,750
|
|
|
$
|
141,297
|
|
|
$
|
174,047
|
|
Steven B. Ruchefsky
|
|
$
|
35,000
|
|
|
$
|
423,891
|
|
|
$
|
458,891
|
|
David M. Tanen
|
|
$
|
31,250
|
|
|
$
|
141,297
|
|
|
$
|
172,547
|
|
|
(1)
|
Except as otherwise noted, amounts reflect the
grant date fair value of option awards granted under the Company’s 2005 Stock Option Plan, computed pursuant to Financial
Accounting Standards Board’s Accounting Standards Codification 718
“Compensation – Stock Compensation.”
|
|
(2)
|
As of December 31, 2013, the aggregate number of option awards
outstanding for each director was as follows: Arie S. Belldegrun, M.D., options to purchase 3,624,218 shares; William F. Hamilton,
Ph.D., options to purchase 73,448 shares; Tomer Kariv, options to purchase 72,198 shares; Yacov Reizman, options to purchase
72,198 shares; Glenn Mattes, options to purchase 745,494 shares; Steven B. Ruchefsky, options to purchase 209,094 shares;
David M. Tanen, options to purchase 70,948 shares; and Randy H. Thurman, options to purchase 93,448 shares.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table summarizes certain
information regarding the beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of our common stock
as of March 31, 2014 by: (i) each of our current directors, (ii) each of our “named executive officers,” as defined
above under “Executive Compensation,” (iii) all of our current directors and executive officers as a group, and (iv)
each person known by us to be the beneficial owner of more than 5% of our common stock. Except as indicated in the footnotes below,
the security and stockholders listed below possess sole voting and investment power with respect to their shares. Except as otherwise
indicated, the address of each of our executive officers and directors identified below is 200 Route 31 North, Suite 104, Flemington,
New Jersey 08822.
Name of Beneficial Owner
|
|
No. Shares of
Common Stock
Beneficially Owned (1)
|
|
|
Percent of
Class (1)
|
|
Arie S. Belldegrun, M.D. (2)
|
|
|
3,734,000
|
|
|
|
16.2
|
|
Glenn Mattes (3)
|
|
|
508,551
|
|
|
|
2.4
|
|
Alexander Zukiwski (4)
|
|
|
621,499
|
|
|
|
3.0
|
|
David M. Tanen (5)
|
|
|
226,023
|
|
|
|
1.1
|
|
Stefan Proniuk, Ph.D. (6)
|
|
|
81,553
|
|
|
|
*
|
|
William F. Hamilton, Ph.D. (7)
|
|
|
91,559
|
|
|
|
*
|
|
Tomer Kariv (8)
|
|
|
3,436,625
|
|
|
|
15.3
|
|
Yacov Reizman (9)
|
|
|
118,886
|
|
|
|
*
|
|
Steven B. Ruchefsky (10)
|
|
|
4,528,167
|
|
|
|
19.4
|
|
Randy Thurman (11)
|
|
|
40,730
|
|
|
|
*
|
|
All current executive officers and directors as a group (12
persons)
|
|
|
13,432,724
|
|
|
|
45.7
|
|
|
|
|
|
|
|
|
|
|
Pontifax (8)
|
|
|
3,410,061
|
|
|
|
15.2
|
|
14 Shenkar St.
|
|
|
|
|
|
|
|
|
Herzeliya 46140
|
|
|
|
|
|
|
|
|
Israel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Street Capital, LLC (10)
|
|
|
4,475,660
|
|
|
|
19.3
|
|
800 Westchester Ave.
|
|
|
|
|
|
|
|
|
Rye Brook, NY 10573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auriga Investors (12)(13)
|
|
|
1,285,137
|
|
|
|
9.9
|
|
5-Rue Jean Monnet
|
|
|
|
|
|
|
|
|
L-2180 Luxembourg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonderman Family LP (12)(14)
|
|
|
3,750,000
|
|
|
|
9.9
|
|
301 Commerce Street
|
|
|
|
|
|
|
|
|
Suite 3000
|
|
|
|
|
|
|
|
|
Fort Worth, TX 76102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frost Gamma Investments Trust (15)
|
|
|
2,062,500
|
|
|
|
9.5
|
|
4400 Biscayne Blvd.
|
|
|
|
|
|
|
|
|
Miami, FL 33137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Green Fields Offshore Inc. (12)(16)
|
|
|
2,582,115
|
|
|
|
9.9
|
|
Four Seasons Residences, Spring
19D
|
|
|
|
|
|
|
|
|
Jl. Setiabudi Tengah
|
|
|
|
|
|
|
|
|
Jakarta, 12910
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPKO Health, Inc. (12)(17)
|
|
|
2,499,999
|
|
|
|
9.9
|
|
4400 Biscayne Blvd.
|
|
|
|
|
|
|
|
|
Miami, FL 33137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perceptive Life Sciences Master Fund, Ltd. (12)(18)
|
|
|
11,110,083
|
|
|
|
9.9
|
|
c/o Perceptive Advisors LLC
|
|
|
|
|
|
|
|
|
499 Park Ave, 25
th
Floor
|
|
|
|
|
|
|
|
|
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantum Partners LP (12)(19)
|
|
|
12,770,676
|
|
|
|
9.9
|
|
c/o Soros Fund Management LLC
|
|
|
|
|
|
|
|
|
888 Seventh Avenue
|
|
|
|
|
|
|
|
|
New York, NY 10106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sabby Management, LLC (12)(20)
|
|
|
4,250,124
|
|
|
|
9.9
|
|
10 Mountainview Road, Suite 205
|
|
|
|
|
|
|
|
|
Upper Saddle River, NJ 07458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talpion Equity Partners Master Fund LP (12) (21)
|
|
|
1,250,001
|
|
|
|
5.9
|
|
65 East 55
th
Street
|
|
|
|
|
|
|
|
|
34
th
Floor
|
|
|
|
|
|
|
|
|
New York, NY 10022
|
|
|
|
|
|
|
|
|
_____________________________
* represents less than 1%.
|
(1)
|
Based upon 20,370,331 issued and outstanding shares of our common
stock as of March 31, 2014. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Act,
and includes any shares as to which the security or stockholder has sole or shared voting power or investment power, and also
any shares which the security or stockholder has the right to acquire within 60 days of the date hereof, whether through the
exercise or conversion of any stock option, convertible security, warrant or other right. The indication herein that
shares are beneficially owned is not an admission on the part of the security or stockholder that he, she or it is a direct
or indirect beneficial owner of those shares.
|
|
(2)
|
Beneficial ownership includes: (i) 3,115 shares of our common
stock and 582,083 shares issuable upon the exercise of stock options held by Dr. Belldegrun; (ii) 379,294 shares of our common
stock and 770,450 shares issuable upon the exercise of warrants held by Arie and Rebecka Belldegrun as Trustees of the Belldegrun
Family Trust dated February 18, 1994; (iii) 100,481 shares of our common stock and 222,221 shares issuable upon the exercise
of warrants held by the Arie S. Belldegrun M.D. Inc. Profit Sharing Plan; (iv) 143,809 shares of our common stock and 221,457shares
issuable upon the exercise of warrants held by Leumi Overseas Trust Corporation Limited (“Leumi”) as Trustee of
the BTL Trust; (v) 254,887 shares of our common stock and 541,665 shares issuable upon the exercise of warrants held by Leumi
as Trustee of the Tampere Trust; and (vi) 174,644 shares of our common stock and 339,894 shares issuable upon the exercise
of warrants held by MDRB Partnership, L.P. (“MDRB”). Dr. Belldegrun is a beneficiary of each of the BTL Trust
and the Tampere Trust and is the managing partner of MDRB. Dr. Belldegrun holds voting and/or dispositive power
over the shares held by MDRB and the Arie S. Belldegrun M.D. Inc. Profit Sharing Plan. Richard J. Guillaume and Christopher
R.P. Lees, directors of Leumi, hold voting and/or dispositive power over the shares held by Leumi as trustee of each of the
BTL Trust and the Tampere Trust.
|
|
(3)
|
Beneficial ownership includes 77,203 shares of our common stock,
97,220 shares issuable upon exercise of warrants, and 334,128 shares issuable upon the exercise of options.
|
|
(4)
|
Beneficial ownership includes 117,026 shares of our common stock,
249,998 shares issuable upon exercise of warrants, and 254,475 shares issuable upon the exercise of options.
|
|
(5)
|
Beneficial ownership includes 171,712 shares of our common stock,
18,691 shares held by Mr. Tanen’s minor children, 10,306 shares issuable upon exercise of warrants and 25,314 shares
issuable upon the exercise of options held by Mr. Tanen.
|
|
(6)
|
Beneficial ownership includes 10,047 shares of our common stock,
22,221 shares issuable upon exercise of warrants, and 49,285shares issuable upon the exercise of options.
|
|
(7)
|
Beneficial ownership includes 22,079 shares of our common stock,
41,666 shares issuable upon the exercise of warrants and 27,814 shares issuable upon the exercise of stock options.
|
|
(8)
|
Beneficial ownership includes: (i) 26,564 shares issuable upon
the exercise of stock options held by Mr. Kariv; and (ii) 1,308,121 shares of our common stock and 2,101,940 shares issuable
upon the exercise of warrants held by affiliates of Pontifax, of which Mr. Kariv is chief executive officer. Mr. Kariv and
Ran Nussbaum hold voting and/or dispositive power over the shares held by Pontifax.
|
|
(9)
|
Beneficial ownership includes: (i) 26,564 shares issuable upon
the exercise of stock options held by Mr. Reizman; and (ii) 38,285 shares of our common stock and 54,037 shares issuable upon
the exercise of warrants held by FCC Ltd., of which Mr. Reizman is chairman and chief executive officer.
|
|
(10)
|
Beneficial ownership includes: (i) 3,125 shares issuable upon
the exercise of warrants and 49,382 shares issuable upon the exercise of stock options held by Mr. Ruchefsky; and (ii) 1,596,272
shares of our common stock and 2,879,388 shares issuable upon the exercise of warrants held by Commercial Street Capital,
LLC, of which Mr. Ruchefsky is president. Mr. Ruchefsky holds voting and/or dispositive power over the shares held by Commercial
Street Capital, LLC.
|
|
(11)
|
Beneficial ownership includes 1,250 shares of our common stock
and 39,480 shares issuable upon the exercise of options.
|
|
(12)
|
Notwithstanding the number of shares of our common stock shown
as beneficially owned by the security holder in the table above, the Series A Warrants, Series B Warrants, or 2013 Warrants
held by the security holder provide that the security holder may not exercise such Series A Warrants, Series B Warrants, or
2013 Warrants to the extent that the security holder would beneficially own in excess of 9.99% of our outstanding common stock
immediately after giving effect to such exercise.
|
|
(13)
|
Beneficial ownership includes (i) 25,000 shares
of our common stock and 50,000 shares issuable upon the exercise of warrants held by Auriga Global Investors SV, SA and (ii)
376,804 shares of our common stock, 520,833 shares issuable upon the exercise of Series A Warrants, and 312,500 shares issuable
upon the exercise of Series B Warrants, all held by Auriga Investors – Montserrat Global Fund. Dr. Raj Mehra holds voting
and/or dispositive power over the shares held by Auriga Investors – Montserrat Global Fund and Auriga Global Investors
SV, SA.
|
|
(14)
|
Beneficial ownership includes 2,500,000 shares issuable upon the
exercise of warrants. Leonard Potter holds voting and/or dispositive power over the shares held by Bonderman Family LP.
|
|
(15)
|
Beneficial ownership includes 1,375,000 shares issuable upon the
exercise of warrants. Phillip Frost holds voting and/or dispositive power over the shares held by Frost Gamma Investments
Trust.
|
|
(16)
|
Beneficial ownership includes 100,480 shares of our common stock
and 2,481,635 shares issuable upon the exercise of warrants. Anton Linderum holds voting and/or dispositive power over the
shares held by Green Fields Offshore Inc.
|
|
(17)
|
Beneficial ownership includes 1,666,666 shares issuable upon the
exercise of warrants.
|
|
(18)
|
Beneficial ownership includes 2,034,721 shares of our common stock
and 9,075,362 shares issuable upon the exercise of warrants. Joseph Edelman holds voting and/or dispositive power over the
shares held by Perceptive Life Sciences Master Fund, Ltd.
|
|
(19)
|
Beneficial ownership includes 10,768,689 shares issuable upon the
exercise of warrants. Soros Fund Management LLC (“SFM”) serves as principal investment manager to Quantum Partners
LP. As such, SFM has been granted investment discretion over portfolio investments, including the shares reported in the table
above, held for the account of Quantum Partners LP. George Soros serves as Chairman of SFM and Robert Soros serves as President
and Deputy Chairman of SFM.
|
|
(20)
|
Beneficial ownership includes: (i) with respect to Sabby Healthcare
Volatility Master Fund, Ltd., 807,634 shares of our common stock and 2,013,888 shares issuable upon the exercise of warrants;
and (ii) with respect to Sabby Volatility Warrant Master Fund, Ltd., 386,937 shares of our common stock and 1,041,665 shares
issuable upon the exercise of warrants. Each of Sabby Healthcare Volatility Master Fund, Ltd. and Sabby Volatility Warrant
Master Fund, Ltd. (collectively, the “Sabby Funds”) has indicated to us that Hal Mintz has voting and investment
power over the shares held by it. Each of the Sabby Funds has also indicated to us that Sabby Management, LLC serves as its
investment manager, that Hal Mintz is the manager of Sabby Management, LLC and that each of Sabby Management, LLC and Hal
Mintz disclaim beneficial ownership over these shares except to the extent of any pecuniary interest therein.
|
|
(21)
|
Beneficial ownership includes 833,334 shares issuable upon the
exercise of warrants. Henry Swieca holds voting and/or dispositive power over the shares held by Talpion Equity Partners Master
Fund LP.
|
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS
AND CERTAIN CONTROL PERSONS
Dr. Belldegrun and Mr. Tanen, each a
current director and substantial stockholder of Arno, and Mr. Joshua A. Kazam, a director until September 2010, control Two River
Consulting, LLC, or TRC. From 2010 to 2013, certain employees of TRC, including Mr. Tanen, our former President, and Mr. Scott
L. Navins, our former Treasurer, performed substantial services for us, including without limitation operational, managerial,
financial, clinical and regulatory activities for which we paid TRC a monthly consulting fee of $55,000 pursuant to a services
agreement. While the term of the services agreement expired on April 1, 2011, we continued to utilize the services of TRC on an
as needed basis until December 2013. Other than the payments to TRC, we did not pay any salary or other compensation to Messrs.
Tanen and Navins for their services to us through December 2013. From January 1, 2014 to March 15, 2014, we directly employed
Mr. Navins as our VP of Finance and Treasurer, for which he was paid a salary.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require us
to file information with the SEC concerning our business and operations. Accordingly, we file annual, quarterly, and special
reports, proxy statements and other information with the SEC. You can inspect and copy this information at the Public Reference
Facility maintained by the SEC at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549. You can receive additional
information about the operation of the SEC’s Public Reference Facilities by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information
regarding companies that, like us, file information electronically with the SEC.
VALIDITY OF COMMON STOCK
Legal matters in connection with the
validity of the shares offered by this prospectus will be passed upon by Fredrikson & Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The financial statements as of
December 31, 2013 and 2012, and for the years then ended, and for the period from August 1, 2005 (inception) through December
31, 2013, included in this prospectus, have been so included in reliance on the report of Crowe Horwath LLP, independent registered
public accounting firm, given on the authority of that firm as experts in accounting and auditing.
TRANSFER AGENT
The transfer agent for our common
stock is American Stock Transfer & Trust Company, and its address is 40 Wall Street, New York, New York, 10005.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the
foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is therefore unenforceable.
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-2
|
Balance Sheets
|
|
F-3
|
Statements of Operations
|
|
F-4
|
Statement of Stockholders’ (Deficit) Equity
|
|
F-5
|
Statements of Cash Flows
|
|
F-6
|
Notes to Financial Statements
|
|
F-7
|
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and stockholders
Arno Therapeutics, Inc.
Flemington, New Jersey
We have audited the accompanying balance sheets of Arno
Therapeutics, Inc. (a development stage company) as of December 31, 2013 and 2012, and the related statements of operations, stockholders'
(deficit) equity, and cash flows for the years then ended and the period from August 1, 2005 (inception) through December 31,
2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results
of its operations and its cash flows for each of the years then ended and the period from August 1, 2005 (inception) through December
31, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ Crowe Horwath LLP
New York, New York
March 31, 2014
ARNO THERAPEUTICS,
INC.
(A DEVELOPMENT
STAGE COMPANY)
BALANCE SHEETS
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,774,203
|
|
|
$
|
10,943,437
|
|
Prepaid expenses and other current assets
|
|
|
86,266
|
|
|
|
203,516
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
26,860,469
|
|
|
|
11,146,953
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,720
|
|
|
|
24,837
|
|
Deferred financing fees, net
|
|
|
-
|
|
|
|
1,709,530
|
|
Security deposit
|
|
|
10,455
|
|
|
|
10,455
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
26,882,644
|
|
|
$
|
12,891,775
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,941,998
|
|
|
$
|
1,553,154
|
|
Accrued expenses and other current liabilities
|
|
|
925,255
|
|
|
|
1,652,159
|
|
Due to related party
|
|
|
26,039
|
|
|
|
28,268
|
|
Deferred rent
|
|
|
7,797
|
|
|
|
12,711
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,901,089
|
|
|
|
3,246,292
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures, net
|
|
|
-
|
|
|
|
491,039
|
|
Derivative liabilities
|
|
|
35,864,881
|
|
|
|
21,420,276
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
39,765,970
|
|
|
|
25,157,607
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 35,000,000 shares authorized, none
issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value, 500,000,000 shares
authorized, 20,370,331 and 4,545,618 shares issued and outstanding
|
|
|
5,465
|
|
|
|
3,611
|
|
Additional paid-in capital
|
|
|
76,668,966
|
|
|
|
37,631,339
|
|
Deficit accumulated during the development stage
|
|
|
(89,557,757
|
)
|
|
|
(49,900,782
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' (deficit) equity
|
|
|
(12,883,326
|
)
|
|
|
(12,265,832
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' (deficit)
equity
|
|
$
|
26,882,644
|
|
|
$
|
12,891,775
|
|
See accompanying notes to financial
statements
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Year ended December 31,
|
|
|
August 1, 2005
(inception) to
|
|
|
|
2013
|
|
|
2012
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
13,476,369
|
|
|
$
|
8,537,130
|
|
|
$
|
50,321,577
|
|
General and administrative
|
|
|
3,464,180
|
|
|
|
2,298,671
|
|
|
|
12,806,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
16,940,549
|
|
|
|
10,835,801
|
|
|
|
63,128,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16,940,549
|
)
|
|
|
(10,835,801
|
)
|
|
|
(63,128,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
17,737
|
|
|
|
7,849
|
|
|
|
431,857
|
|
Interest expense
|
|
|
(18,569,157
|
)
|
|
|
(6,361,029
|
)
|
|
|
(26,190,285
|
)
|
Other (expense) income
|
|
|
(4,165,006
|
)
|
|
|
2,801,199
|
|
|
|
(670,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(22,716,426
|
)
|
|
|
(3,551,981
|
)
|
|
|
(26,429,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,656,975
|
)
|
|
$
|
(14,387,782
|
)
|
|
$
|
(89,557,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(5.28
|
)
|
|
$
|
(3.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
-basic and diluted
|
|
|
7,516,223
|
|
|
|
4,540,321
|
|
|
|
|
|
See accompanying notes to financial
statements
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ (DEFICIT)
EQUITY
PERIOD FROM AUGUST 1, 2005 (INCEPTION)
TO DECEMBER 31, 2013
|
|
PREFERRED STOCK
|
|
|
COMMON STOCK
|
|
|
ADDITIONAL PAID-
|
|
|
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
|
|
|
TOTAL
STOCKHOLDERS'
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
IN CAPITAL
|
|
|
STAGE
|
|
|
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares
to founders at $0.0001 per share
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,246,100
|
|
|
$
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
1,246,100
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
1,246,100
|
|
|
|
997
|
|
|
|
102,003
|
|
|
|
(3,730,590
|
)
|
|
|
(3,627,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sold in private placement,
net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issuance costs of $141,646
|
|
|
-
|
|
|
|
-
|
|
|
|
920,086
|
|
|
|
736
|
|
|
|
17,689,301
|
|
|
|
-
|
|
|
|
17,690,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable upon closing
of private placement
|
|
|
-
|
|
|
|
-
|
|
|
|
245,292
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
137,525
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
2,549,003
|
|
|
|
2,039
|
|
|
|
24,504,525
|
|
|
|
(16,644,156
|
)
|
|
|
7,862,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
647,448
|
|
|
|
-
|
|
|
|
647,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500
|
|
|
|
2
|
|
|
|
2,598
|
|
|
|
-
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,936,705
|
)
|
|
|
(6,936,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
2,551,503
|
|
|
|
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
|
|
|
1,909,250
|
|
|
|
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
|
|
|
1,909,250
|
|
|
|
1,527
|
|
|
|
2,551,503
|
|
|
|
2,041
|
|
|
|
36,036,139
|
|
|
|
(27,603,887
|
)
|
|
|
8,435,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
707,284
|
|
|
|
-
|
|
|
|
707,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock conversion
|
|
|
(1,909,250
|
)
|
|
|
(1,527
|
)
|
|
|
1,909,250
|
|
|
|
1,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock dividend in connection
with conversion of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
39,884
|
|
|
|
32
|
|
|
|
(32
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of restricted shares
|
|
|
-
|
|
|
|
-
|
|
|
|
31,250
|
|
|
|
-
|
|
|
|
115,168
|
|
|
|
-
|
|
|
|
115,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
6,231
|
|
|
|
5
|
|
|
|
6,475
|
|
|
|
-
|
|
|
|
6,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year ended
December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,909,113
|
)
|
|
|
(7,909,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
4,538,118
|
|
|
|
3,605
|
|
|
|
36,865,034
|
|
|
|
(35,513,000
|
)
|
|
|
1,355,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
722,811
|
|
|
|
-
|
|
|
|
722,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares pursuant to
placement agent agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
|
|
6
|
|
|
|
43,494
|
|
|
|
-
|
|
|
|
43,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year ended
December 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,387,782
|
)
|
|
|
(14,387,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
4,545,618
|
|
|
|
3,611
|
|
|
|
37,631,339
|
|
|
|
(49,900,782
|
)
|
|
|
(12,265,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,456,776
|
|
|
|
-
|
|
|
|
1,456,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in lieu of
liquidated damages
|
|
|
-
|
|
|
|
-
|
|
|
|
380,606
|
|
|
|
305
|
|
|
|
913,205
|
|
|
|
-
|
|
|
|
913,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares upon debenture
conversions and in satisfaction of accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
7,030,753
|
|
|
|
708
|
|
|
|
22,276,390
|
|
|
|
-
|
|
|
|
22,277,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sold in private placement,
net of issuance costs of $766,803
|
|
|
-
|
|
|
|
-
|
|
|
|
8,413,354
|
|
|
|
841
|
|
|
|
9,157,412
|
|
|
|
-
|
|
|
|
9,158,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,233,844
|
|
|
|
-
|
|
|
|
5,233,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, year months ended December
31, 2013
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,656,975
|
)
|
|
|
(39,656,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2013
|
|
|
-
|
|
|
$
|
-
|
|
|
|
20,370,331
|
|
|
$
|
5,465
|
|
|
$
|
76,668,966
|
|
|
$
|
(89,557,757
|
)
|
|
$
|
(12,883,326
|
)
|
See accompanying notes to financial
statements
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Year ended December 31,
|
|
|
August 1, 2005
(inception) to
|
|
|
|
2013
|
|
|
2012
|
|
|
December 31, 2013
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(39,656,975
|
)
|
|
$
|
(14,387,782
|
)
|
|
$
|
(89,557,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to reconcile net loss to net cash
used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,117
|
|
|
|
13,836
|
|
|
|
128,097
|
|
Stock-based compensation
|
|
|
1,456,776
|
|
|
|
722,811
|
|
|
|
5,127,991
|
|
Change in fair value of derivative liability
|
|
|
4,166,454
|
|
|
|
(2,806,750
|
)
|
|
|
1,724,755
|
|
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
|
|
|
(4,914
|
)
|
|
|
5,360
|
|
|
|
7,797
|
|
Loss on disposal of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
5,357
|
|
Noncash interest expense
|
|
|
18,996,553
|
|
|
|
6,255,996
|
|
|
|
25,564,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
117,250
|
|
|
|
93,432
|
|
|
|
(86,266
|
)
|
Security deposit
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,455
|
)
|
Accounts payable
|
|
|
1,388,844
|
|
|
|
869,993
|
|
|
|
2,941,998
|
|
Accrued expenses
|
|
|
(717,452
|
)
|
|
|
(130,170
|
)
|
|
|
340,419
|
|
Due to related party
|
|
|
(2,229
|
)
|
|
|
(56,488
|
)
|
|
|
26,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(14,242,576
|
)
|
|
|
(9,419,762
|
)
|
|
|
(52,399,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(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
|
|
|
-
|
|
|
|
-
|
|
|
|
(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 units in private placement,
net
|
|
|
19,425,340
|
|
|
|
-
|
|
|
|
37,115,377
|
|
Deferred financing fees paid
|
|
|
-
|
|
|
|
(1,172,345
|
)
|
|
|
(1,217,345
|
)
|
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 issuance of convertible debentures
payable
|
|
|
-
|
|
|
|
14,857,200
|
|
|
|
14,857,200
|
|
Proceeds from issuance of warrants
|
|
|
10,648,002
|
|
|
|
-
|
|
|
|
10,648,002
|
|
Proceeds from exercise
of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
9,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
30,073,342
|
|
|
|
13,684,855
|
|
|
|
79,358,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
15,830,766
|
|
|
|
4,265,093
|
|
|
|
26,774,203
|
|
Cash and cash equivalents
at beginning of period
|
|
|
10,943,437
|
|
|
|
6,678,344
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
at end of period
|
|
$
|
26,774,203
|
|
|
$
|
10,943,437
|
|
|
$
|
26,774,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flows information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
157,284
|
|
|
$
|
105,034
|
|
|
$
|
342,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing
and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debentures
into common stock
|
|
$
|
14,293
|
|
|
$
|
-
|
|
|
$
|
14,293
|
|
Conversion of notes payable
and interest to common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,278,518
|
|
Common shares of Laurier
issued in reverse merger transaction
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
110
|
|
Issuance of common shares
in lieu of liquidated damages
|
|
$
|
913,510
|
|
|
$
|
-
|
|
|
$
|
913,510
|
|
Issuance of common shares
in lieu of accrued and additional interest
|
|
$
|
2,016,804
|
|
|
$
|
-
|
|
|
$
|
2,016,804
|
|
Issuance of warrants in
connection with private placement of convertible preferred units
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,340,421
|
|
Issuance of warrants in
connection with private placement of convertible debentures
|
|
$
|
-
|
|
|
$
|
12,973,055
|
|
|
$
|
12,973,055
|
|
Issuance of common stock pursuant
to placement agent agreement
|
|
$
|
-
|
|
|
$
|
43,500
|
|
|
$
|
43,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
settled in common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
319,074
|
|
See accompanying notes to financial
statements
ARNO THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2013 and 2012
and the period
from August 1, 2005 (inception) to December
31, 2013
1. DESCRIPTION OF BUSINESS
Arno Therapeutics, Inc. (“Arno”
or the “Company”) develops innovative drug candidates intended to treat patients with cancer. 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. LIQUIDITY AND CAPITAL RESOURCES
Cash resources as of December 31, 2013
were approximately $26.8 million, compared to approximately $10.9 million as of December 31, 2012. Based on its resources at December
31, 2013, 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 the first quarter of 2015. 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 depends 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.
The long-term 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 capital either by selling
shares of its stock or other securities, issuing additional indebtedness or by licensing the rights to one or more of its product
candidates 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 first quarter
of 2015, management can provide no assurances that the Company will be successful in raising 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 will experience dilution, which may be significant. 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. Any or all of the foregoing may have a material
adverse effect on the Company’s business and financial performance.
3. THE MERGER AND BASIS OF PRESENTATION
The accompanying audited financial
statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
and the instructions to Form 10-K promulgated by the Securities and Exchange Commission (“SEC”).
(a) Description of the Merger and Private Placement Offering
The Company completed the Merger on June
3, 2008. In accordance with the terms of the Merger, each share of common stock of Old Arno that was outstanding
immediately prior to the Merger was exchanged for 1.99377 shares of the Company’s common stock. In addition,
all securities convertible into or exercisable for shares of Old Arno common stock outstanding immediately prior to the Merger
were cancelled, and the holders thereof received similar securities convertible into or exercisable for the purchase of an aggregate
of 1,611,760 shares of the Company’s common stock. In consideration for their shares of the Company’s pre-merger common
stock, the Company’s shareholders received an aggregate of 19,291,824 shares of Laurier common stock. Immediately
prior to the effective time of the Merger, 1,100,200 shares of Laurier’s common stock were issued and outstanding. Upon
completion of the Merger, the Old Arno shareholders owned approximately 95% of the Company’s issued and outstanding common
stock, assuming the exercise of all of the issued and outstanding common stock options and warrants.
Following the Merger, the business conducted
by the Company is the business conducted by Old Arno prior to the Merger. In addition, the directors and officers of Laurier were
replaced by the directors and officers of Old Arno.
3. THE MERGER AND BASIS OF PRESENTATION
(Continued)
As a condition and immediately prior
to the closing of the Merger, on June 2, 2008, Old Arno completed a private placement of its equity securities whereby it received
gross proceeds of approximately $17,732,000 through the sale of approximately 3,691,900 shares of Old Arno Common Stock to selected
accredited investors, which shares were exchanged for approximately 7,360,700 shares of Company Common Stock after giving effect
to the Merger. Contemporaneously with the June 2008 private placement, the Old Arno’s outstanding 6% Notes converted into
984,246 shares of Old Arno’s common stock and the holders of the Notes received warrants to purchase an aggregate of 98,409
shares of Old Arno common stock at an exercise price equal to $4.83 per share. The shares issued upon conversion were exchanged
for an aggregate of approximately 1,962,338 shares of the Company’s Common Stock and the warrants were exchanged for
five-year warrants to purchase an aggregate of approximately 196,189 shares of the Company’s Common Stock at an exercise
price equal to $2.42 per share.
All references to share and per share
amounts in these financial statements have been restated to retroactively reflect the number of common shares of Arno common stock
issued pursuant to the Merger.
(b) Accounting Treatment of the Merger; Financial Statement
Presentation
The Merger was accounted for as a reverse
acquisition pursuant to Accounting Standards Codification (“ASC”) 805-40-25, which provides that the “merger
of a private operating company into a non-operating public shell corporation with nominal net assets typically results in the
owners and management of the private company having actual or effective operating control of the combined company after the transaction,
with the shareholders of the former public shell continuing only as passive investors. These transactions are considered by the
Securities and Exchange Commission to be capital transactions in substance, rather than business combinations. That is, the transaction
is equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation, accompanied
by a recapitalization.” Accordingly, the Merger has been accounted for as a recapitalization, and, for accounting purposes,
Old Arno is considered the acquirer in a reverse acquisition.
Laurier’s historical
accumulated deficit for periods prior to June 3, 2008, in the amount of $120,538, was eliminated against additional-paid-in-capital,
and the accompanying financial statements present the previously issued shares of Laurier common stock as having been issued pursuant
to the Merger on June 3, 2008. The shares of common stock of the Company issued to the Old Arno stockholders in the Merger are
presented as having been outstanding since August 2005 (the month when Old Arno first sold its equity securities).
Because the Merger was accounted for
as a reverse acquisition under GAAP, the financial statements for periods prior to June 3, 2008 reflect only the operations of
Old Arno.
(c) Reverse Stock Split
Effective as of the close of business
on October 29, 2013, the Company amended its Amended and Restated Certificate of Incorporation to effect a combination (“Reverse
Stock Split”) of the Common Stock at a ratio of one-for-eight. All historical share and per share amounts have
been adjusted to reflect the Reverse Stock Split.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements
in conformity with GAAP 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, directors
and consultants, valuation of derivatives and estimates of the probability and potential magnitude of contingent liabilities.
Actual results could differ from those estimates.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
(b) Cash and Cash Equivalents
The Company considers all highly liquid
investments with a remaining maturity of three months or less at the time of acquisition to be cash equivalents.
(c) Deferred Financing Fees
Finance costs relating to debt issued
are recorded as a deferred charge and amortized to interest expense over the expected term of the debt using the effective interest
method.
(d) Prepaid Expenses
Prepaid expenses consist of payments
made in advance to vendors relating to service contracts for clinical trial development, insurance policies and license fees.
These advanced payments are amortized to expense either as services are performed or over the relevant service period using the
straight line method.
(e) Property and Equipment
Property and equipment consist primarily
of furnishings, fixtures, leasehold improvements and computer equipment and are recorded at cost. Repairs and maintenance costs
are expensed in the period incurred. Depreciation of property and equipment is provided for by the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the remaining
lease term or the life of the asset, whichever is shorter.
Description
|
|
Estimated Useful Life
|
|
|
|
Office equipment and furniture
|
|
5 to 7 years
|
Leasehold improvements
|
|
3 years
|
Computer equipment
|
|
3 years
|
(f) Fair Value of Financial Instruments
The Company measures fair value in accordance
with generally accepted accounting principles. Fair value measurements are applied under other accounting pronouncements that
require or permit fair value measurements. Financial instruments included in the Company’s balance sheets consist of cash
and cash equivalents, accounts payable, accrued expenses, due to related parties, and derivative liability. The carrying amounts
of these instruments reasonably approximate their fair values due to their short-term maturities.
(g) Convertible Debentures and Warrant Liability
The Company accounts for the convertible
debentures and warrants issued in connection with the 2013, 2012 and 2010 Purchase Agreements (see Note 10) in accordance with
the guidance on Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which provides
that the Company classify 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.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
(h) Concentration of Credit Risk
Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company deposits cash
and cash equivalents with high credit quality financial institutions and is insured to the maximum limitations. Balances in these
accounts may exceed federally insured limits at times, which expose the Company to institutional risk.
(i) 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 executive, human resources and facilities expenses.
The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial and the invoices
received from its external service providers. As actual costs become known, the Company adjusts its accruals in the period when
actual costs become known. Costs related to the acquisition of technology rights and patents for which development work is still
in process are charged to operations as incurred and considered a component of research and development expense.
(j) Stock-Based Compensation
Stock-based compensation cost is measured
at the grant date based on the value of the award and is recognized as expense over the required service period, which is generally
equal to the vesting period. Share-based compensation is recognized only for those awards that are ultimately expected to vest.
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. The fair value of any options issued to non-employees is recorded
as expense over the applicable service periods.
(k) Loss per Common Share
Basic loss per share is computed
by dividing the loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss
per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares
were dilutive.
For all periods presented, potentially
dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
As of December 31, 2013, potentially
dilutive securities include:
|
|
December 31, 2013
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
34,181,166
|
|
Options to purchase common stock
|
|
|
5,594,151
|
|
Total potentially dilutive securities
|
|
|
39,775,318
|
|
There were no potentially dilutive securities
as of December 31, 2012.
For the year ended December 31, 2013
and 2012, 13,966,897 and 20,726,257 options, warrants and convertible debentures 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 December
31, 2013 and 2012, respectively.
(l) Comprehensive Loss
The Company has no components of other
comprehensive loss other than its net loss, and accordingly, comprehensive loss is equal to net loss for all periods presented.
(m) Income Taxes
The Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Company provides
a valuation allowance when it appears more likely than not that some or all of the net deferred tax assets will not be realized.
The Company has not performed an Internal Revenue Section 382 limitation study. Depending on the outcome of such study, the gross
amount of net operating losses recognized in future tax periods could be limited.
A tax position is recognized as a benefit
only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company’s policy is to include
interest and penalties related to unrecognized tax benefits within the Company’s provision for (benefit from) income taxes.
The Company recognized no amounts for interest and penalties related to unrecognized tax benefits in 2013 and 2012 respectively.
In addition, the Company had no amounts accrued for interest and penalties as of December 31, 2013 and 2012, respectively.
(n) Recently Issued Accounting Pronouncements
Management does not believe that any
other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on
the Company’s financial statements.
5. PROPERTY AND EQUIPMENT
Property and equipment as of December 31,
2013 and 2012 consist of the following:
|
|
2013
|
|
|
2012
|
|
Computer equipment and software
|
|
$
|
17,721
|
|
|
$
|
17,721
|
|
Office furniture and equipment
|
|
|
52,242
|
|
|
|
52,242
|
|
Leasehold improvements
|
|
|
8,449
|
|
|
|
8,449
|
|
Total property and equipment
|
|
|
78,412
|
|
|
|
78,412
|
|
Accumulated depreciation
|
|
|
(66,692
|
)
|
|
|
(53,575
|
)
|
Total property and equipment,
net
|
|
$
|
11,720
|
|
|
$
|
24,837
|
|
Depreciation expense for the years ended
December 31, 2013 and 2012, and the period from August 1, 2005 (inception) through December 31, 2013, was $13,117, $13,836 and
$83,096, respectively.
6. 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 develop and commercialize 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 first milestone was due upon the dosing of the first patient in a pharmacokinetic study
and was achieved during August 2013 and the Company made a $150,000 payment to Invivis during October 2013. The Company made its
next milestone payment to Invivis upon the dosing of the first subject in the first Company-sponsored Phase I clinical trial of
onapristone. The first patient was dosed in January 2014. 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 which expired
in February 2014, Invivis provided 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 of approximately $70,833. The
Company is currently in discussions with Invivis to renew this services agreement.
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.
6. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
(Continued)
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.
In 2008, 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 expected to occur in 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 was not required to make any milestone payments
during 2013 and does not expect to be required to make any milestone payments under these license agreements during 2014.
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
In January 2012, the Company received
a notice from the University of Pittsburgh, (“Pitt”) claiming that the Company was in default under its license agreement
relating to AR-67 for failure to pay a $250,000 annual license fee under the terms of that agreement and providing 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 Company agreed with Pitt to terminate the license agreement. In February 2013, Pitt commenced
an action in the Court of Common Pleas of Allegheny County, Pennsylvania, seeking damages of $250,000, plus interest and costs,
based on its claim that the Company breached the license agreement by failing to pay the annual license fee. On March 28, 2013,
the Company entered into a settlement agreement with Pitt pursuant to which the Company agreed to pay $235,000 in full satisfaction
of all remaining obligations under the license agreement, which payment was made on April 2, 2013.
7. ACCRUED LIABILITIES
Accrued liabilities as of December 31,
2013 and 2012 consist of the following:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Accrued compensation and related benefits
|
|
$
|
439,156
|
|
|
$
|
304,772
|
|
Accrued research and development expense
|
|
|
316,099
|
|
|
|
713,099
|
|
Accrued liquidated damages
|
|
|
-
|
|
|
|
594,288
|
|
Accrued other expense
|
|
|
170,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
925,255
|
|
|
$
|
1,652,159
|
|
8. CONVERTIBLE DEBENTURES
On November 26, 2012, the Company entered
into a Securities Purchase Agreement, with a number of institutional and accredited investors (as amended, the “2012 Purchase
Agreement”) pursuant to which the Company sold in a private placement an aggregate principal amount of $14,857,200 of three-year
8% Senior Convertible Debentures(“the Debentures”). In accordance with the 2012 Purchase Agreement, the Company also
issued five-year Series A warrants to purchase an aggregate of 6,190,500 shares of common stock at an initial exercise price of
$4.00 per share (the “Series A Warrants”) and 18-month Series B warrants to purchase an aggregate of 6,190,500 shares
of common stock at an initial exercise price of $2.40 per share (the “Series B Warrants” and together with the Series
A Warrants, the “2012 Warrants”). The sale of the Debentures and 2012 Warrants, which occurred in two closings on
November 26, 2012 and December 18, 2012, resulted in aggregate gross proceeds of approximately $14.9 million, before deducting
placement agent fees and other transaction-related expenses of approximately $1.2 million. The 2012 Warrants were valued at $12,430,524
on issuance and recorded as a debt discount.
The conversion price of the Debentures
was subject to a “full-ratchet” anti-dilution provision, such that in the event the Company makes an issuance of common
stock (subject to customary exceptions) at a price per share less than the applicable exercise price of the Debentures, the applicable
conversion price will be reduced to the price per share applicable to such new issuance. However, after such time as the Company
has raised at least $12 million in subsequent equity financings, the conversion price of the Debentures will be subject to a customary
weighted-average price adjustment with respect to new issuances. This conversion feature of the Debentures is considered an embedded
derivative and was accounted for separately from the Debentures and was valued at $7,548,500 on issuance and recorded as a debt
discount.
The following table reflects the debt
discount for the 2012 Warrants and the embedded conversion feature of the Debentures at their fair values on issuance:
|
|
Issuance
|
|
Debentures, principal
|
|
|
14,857,200
|
|
2012 Warrant liability
|
|
|
(12,430,524
|
)
|
Debenture conversion feature
|
|
|
(7,548,500
|
)
|
|
|
|
(5,121,824
|
)
|
The excess fair value over proceeds
on the date of issuance of approximately $5.1 million was recorded in interest expense on the statement of operations on the issuance.
As of December 31, 2013 and December 31, 2012, the Company recorded amortization on the debt discount of approximately $14.9 million
and $0.5 million, respectively, to interest expense. As a result of the Conversion Agreement, as discussed below, the Company
accelerated the amortization of the remaining balance of debt discount of approximately $10.6 million on October 29, 2013 as the
underlying debentures converted into common shares.
On October 29, 2013, the Company also
entered into a Conversion Agreement (the “Conversion Agreement”) with the holders (the “Holders”) of its
Debentures.
Pursuant to the Conversion Agreement,
the Holders agreed to convert the entire outstanding principal amount of their Debentures, together with accrued and unpaid interest
through October 29, 2013, into shares of the Company’s common stock at a conversion price of $2.40 per share for a total
of approximately 6,530,154 shares, of which 345,606 shares were issued for the accrued and unpaid interest. As a result of such
conversion, all of the Company’s obligations under the Debentures are fully satisfied.
As additional consideration for their
agreement to convert the Debentures, the Company provided each Holder with one year of additional accrued interest at 8% per annum
at conversion and extended the term of the Series B Warrants issued to the Holders in connection with their initial purchase of
the Debentures to October 31, 2014. The additional year of accrued interest was satisfied by the issuance of shares of common
stock at a price of $2.40 per share for a total additional issuance of approximately 494,764 shares of common stock. The Company
recorded the inducement to convert the debentures as additional interest expense in the amount of approximately $1,187,433.
8. CONVERTIBLE DEBENTURES
(Continued)
Pursuant to the terms of a Registration
Rights Agreement entered into on November 26, 2012 in connection with the 2012 Purchase Agreement, the Company agreed to file
a registration statement under the Securities Act of 1933, as amended, covering the resale of: (i) 100% of the shares of common
stock issuable as payment of accrued interest under the Debentures and upon exercise of the Series A Warrants; and (ii) 150% of
the shares of common stock issuable upon conversion of the Debentures and upon exercise of the Series B Warrants (collectively,
the “Registrable Securities”). The Company further agreed to cause such registration statement to be filed within
30 days following the date of the Registration Rights Agreement, or by December 26, 2012, and to cause such registration statement
to be declared effective within 60 days following the date of the Registration Rights Agreement, or by January 25, 2013, or, if
the registration statement was subject to review by the SEC, to cause such registration statement to be declared effective within
120 days following the date of the Registration Rights Agreement, or by March 26, 2013. If such registration statement, covering
100% of the Registrable Securities, was not declared effective by the SEC by the applicable date, the Company agreed to pay liquidated
damages to the investors in the amount of 2% of each investor’s aggregate investment amount per month until the registration
statement is declared effective or until such earlier time as the Registrable Securities may be traded pursuant to Rule 144.
On December 26, 2012, the Company filed
a registration statement seeking to register 100% of the Registrable Securities. However, the SEC determined that the number of
shares the Company was seeking to register exceeded the limitations imposed by the SEC under Rule 415, and the Company was thus
unable to register a significant amount of the Registrable Securities. As a result of the SEC’s determination, the Company
amended the registration statement to reduce the number of Registrable Securities covered thereby by including only the shares
issuable upon exercise of the Series B Warrants. As amended, the registration statement was declared effective by the SEC on April
18, 2013. Accordingly, because a registration statement covering 100% of the Registrable Securities was not declared effective
by March 26, 2013, the investors each became entitled to liquidated damages in the amount of 2% of their investment amount per
month, payable on March 27, 2013 and on each monthly anniversary thereafter until the Registrable Securities may be traded pursuant
to Rule 144. Because the Registrable Securities could be resold by their holders under Rule 144 six months after the applicable
closing date under the 2012 Purchase Agreement, the Company was required to pay the investors approximately three months’
of liquidated damages, or approximately $0.9 million in the aggregate.
On March 25, 2013, the Company and holders
of approximately 80% of the principal amount of Debentures entered into an amendment to the Registration Rights Agreement, permitting
the Company, in its sole discretion, to elect to pay liquidated damages resulting from the Company’s failure to successfully
cause the registration statement covering the resale of 100% of the Registrable Securities to be declared effective by the SEC
by March 26, 2013, by issuing shares of common stock in lieu of cash. If electing to issue shares in lieu of paying cash, the
Company agreed to issue to each investor a number of shares of common stock equal to (a) the aggregate amount of liquidated damages
that the Company is electing to pay to such investor in the form of shares, divided by (b) $2.40. Pursuant to the terms of the
Registration Rights Agreement, because holders of over two-thirds of the Debentures consented in writing to the March 25, 2013
amendment, such amendment is binding on all holders of Registrable Securities. On March 27, 2013, in accordance with the amendment
to the Registration Rights Agreement, the Company issued shares of common stock to the investors in lieu of an aggregate cash
payment of $297,148, representing the first installment of liquidated damages under the Registration Rights Agreement, as amended.
On April 29, 2013, in accordance with the amendment to the Registration Rights Agreement, the Company issued additional shares
of common stock to the investors in lieu of an aggregate cash payment of $327,688, representing the second installment of liquidated
damages under the Registration Rights Agreement, as amended.
In May 2013, the Company determined
that investors were entitled to additional liquidated damages arising from the 2012 Purchase Agreement in the amount of $288,674.
The Company assessed that this amount should have been accrued in 2012 as part of the issuance. The Company determined that the
impact of not reflecting this in 2012 was not material to the 2012 financial statements and has reflected this as interest
expense in the first quarter of 2013. This expense resulted in the issuance of additional shares and a non-cash charge in
2013. On May 27, 2013, the Company issued shares of common stock to the investors in lieu of an aggregate cash payment of $288,674,
representing the third and final installment of liquidated damages under the Registration Rights Agreement, as amended. The aggregate
number of shares issued in lieu of cash payments for liquidated damages under the Debentures was 380,606 shares of common stock.
8. CONVERTIBLE DEBENTURES
(Continued)
In March 2013, the Company sought the
agreement of the Debenture holders to amend their respective Debentures to provide for the accrual of all interest payments under
such Debentures until the applicable maturity date in November or December of 2015, with such interest accruing at the rate of
8% per annum, compounding quarterly. As of October 29, 2013, the date of the Conversion Agreement, the Company had entered into
such amendments with the holders of Debentures in the aggregate principal amount of $12,230,000. In connection with the Conversion
Agreement, all of the accrued interest on the Debentures were converted into 345,606 shares of common stock.
The following table illustrates the components
of total interest expense for 2013 and 2012 incurred under the Debentures.
|
|
Year Ended
December 31,
|
|
Interest Expense
|
|
2013
|
|
|
2012
|
|
Note conversion discount
|
|
$
|
14,366,161
|
|
|
$
|
5,612,863
|
|
Interest expense on 2012 debentures
|
|
|
2,174,244
|
|
|
|
105,034
|
|
Amortized deferred financing fees
|
|
|
1,709,531
|
|
|
|
48,844
|
|
Liquidated damages on 2012 debentures
|
|
|
319,221
|
|
|
|
594,288
|
|
Total Interest Expense
|
|
$
|
18,569,157
|
|
|
$
|
6,361,029
|
|
9. 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 December 31, 2013.
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.
|
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
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 December 31, 2013:
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
December 31, 2013
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability - 2010 Series
B
|
|
$
|
362,452
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
362,452
|
|
Warrant liability - 2012 placement agent
|
|
|
362,633
|
|
|
|
-
|
|
|
|
-
|
|
|
|
362,633
|
|
Warrant liability - 2012 Series A&B
|
|
|
16,703,984
|
|
|
|
|
|
|
|
|
|
|
|
16,703,984
|
|
Warrant liability - 2013 placement agent
|
|
|
98,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,080
|
|
Warrant liability - 2013
Series D&E
|
|
|
18,337,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,337,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,864,881
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35,864,881
|
|
The following table presents the Company’s
fair value hierarchy for these assets measured at fair value on a recurring basis as of December 31, 2012:
|
|
|
|
|
Quoted Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Fair Value
|
|
|
Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
December 31, 2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability - 2010 Series
B
|
|
$
|
898,722
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
898,722
|
|
Debenture conversion feature - 2012
|
|
|
7,548,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,548,500
|
|
Warrant liability - 2012 placement agent
|
|
|
542,530
|
|
|
|
-
|
|
|
|
-
|
|
|
|
542,530
|
|
Warrant liability - 2012
Series A&B
|
|
|
12,430,524
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,430,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,420,276
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,420,276
|
|
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
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 depreciation that relate to those liabilities held at December 31, 2013:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrant
Liability
|
|
|
2013 Series
D&E and
Placement
Agent
|
|
|
2012 Series
A&B and
Placement
Agent
|
|
|
2010 Series B
|
|
|
Debenture
Conversion
Feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012
|
|
$
|
3,705,472
|
|
|
|
|
|
|
|
|
|
|
$
|
3,705,472
|
|
|
|
|
|
Purchase, sales and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and other derivatives issued
|
|
|
20,521,554
|
|
|
|
|
|
|
|
12,973,054
|
|
|
|
|
|
|
|
7,548,500
|
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation
|
|
|
(2,806,750
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,806,750
|
)
|
|
|
|
|
Balance at January 1, 2013
|
|
$
|
21,420,276
|
|
|
$
|
-
|
|
|
$
|
12,973,054
|
|
|
$
|
898,722
|
|
|
$
|
7,548,500
|
|
Purchase, sales and settlements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and other derivatives issued
|
|
|
15,681,151
|
|
|
|
15,681,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivatives
|
|
|
(5,403,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,403,000
|
)
|
Total gains or losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation
|
|
|
4,166,454
|
|
|
|
2,754,662
|
|
|
|
4,093,562
|
|
|
|
(536,270
|
)
|
|
|
(2,145,500
|
)
|
Balance at December 31, 2013
|
|
$
|
35,864,881
|
|
|
$
|
18,435,813
|
|
|
$
|
17,066,616
|
|
|
$
|
362,452
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value per Warrant
|
|
$
|
0.75
|
|
|
$
|
0.61
|
|
|
$
|
1.02
|
|
|
$
|
0.39
|
|
|
|
|
|
Significant assumptions used at December
31, 2013 and 2012 for the warrants and embedded conversion discount derivative liability of the Debentures are as follows:
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
108
|
%
|
|
|
200
|
%
|
Risk-free interest rate
|
|
|
2.08
|
%
|
|
|
1.05
|
%
|
10. STOCKHOLDERS’ EQUITY
Common Stock
The Company amended its Amended &
Restated Certificate of Incorporation, effective as of October 29, 2013, to effect a combination of its common stock at a ratio
of 1-for-8 (the “Reverse Split”). The Reverse Split was effective immediately prior to the entry into the Purchase
Agreement. The Reverse Split was authorized by the stockholders of the Company on November 10, 2010.
As a result of the Reverse Split, all
references to common stock, stock options and warrants and other securities convertible into common stock, and per share amounts
for all prior periods presented have been retroactively restated to reflect the 1-for-8 reverse stock split of common stock.
On November 21, 2012, the Company amended
its Amended & Restated Certificate of Incorporation to increase the number of shares of common stock that the Company is authorized
to issue from 80,000,000 shares to 500,000,000 shares.
On March 27, 2013, in accordance with
the amendment to the Registration Rights Agreement, the Company issued an aggregate of approximately 123,809 shares of common
stock to the investors in lieu of an aggregate cash payment of $297,144, representing the first installment of liquidated damages
under the Registration Rights Agreement, as amended.
10. STOCKHOLDERS’ EQUITY (
Continued
)
On April 29, 2013, in accordance with
the amendment to the Registration Rights Agreement, the Company issued an aggregate of approximately 136,536 shares of common
stock to the investors in lieu of an aggregate cash payment of $327,688, representing the second installment of liquidated damages
under the Registration Rights Agreement, as amended.
On May 27, 2013, in accordance with
the amendment to the Registration Rights Agreement, the Company issued an aggregate of approximately 120,280 shares of common
stock to the investors in lieu of an aggregate cash payment of $288,674, representing the third and final installment of liquidated
damages under the Registration Rights Agreement, as amended.
As of December 31, 2013, the Company
had 20,370,331 shares of common stock issued and outstanding and approximately 53,742,215 shares of common stock reserved for
issuance upon the exercise of outstanding options and warrants.
On October 29, 2013, the Company entered
into a Securities Purchase Agreement (the “2013 Purchase Agreement”) with certain purchasers identified therein (the
“Purchasers”) pursuant to which the Company sold and the Purchasers purchased, an aggregate of 12,868,585 units of
the Company’s securities (the “Units”), with each Unit consisting of the following:
|
(i)
|
either (a) one share of common stock (each a “Share,”
and collectively, the “Shares”), or (b) a five-year common stock warrant
to purchase one share of common stock (collectively, the “Series C Warrant Shares”)
at an exercise price of $0.01 per share (collectively, the “Series C Warrants”);
|
|
(ii)
|
a five-year warrant to purchase one share of common stock
(collectively, the “Series D Warrant Shares”) at an exercise price of $4.00
per share (collectively, the “Series D Warrants”); and
|
|
(iii)
|
a warrant, expiring on October 31, 2014, to purchase one
share of common stock (collectively, the “Series E Warrant Shares,” and together
with the Series C Warrant Shares and the Series D Warrant Shares, the “Warrant
Shares”) at an exercise price of $2.40 per share (collectively, the “Series
E Warrants,” and together with the Series C Warrants and the Series D Warrants,
the “2013 Warrants”).
|
The Company sold and issued 8,413,354 Units consisting of
Shares, Series D Warrants and Series E Warrants at a purchase price of $2.40 per Unit, and 4,455,231 Units consisting of Series
C Warrants, Series D Warrants and Series E Warrants at a purchase price of $2.39 per Unit, for total gross proceeds to the Company
of $30.84 million, before deducting fees and other transaction related expenses of approximately $760,000. A closing of the sale
of 12,826,752 Units was completed on October 29, 2013, and the sale of the remaining 41,833 Units was completed on October 30,
2013.
The Purchase Agreement contains customary
representations, warranties and covenants by each of the Company and the Purchasers. In addition, the Purchase Agreement provides
that each Purchaser has a right, subject to certain exceptions described in the agreement, to participate in future issuances
of equity and debt securities by the Company for a period of 18 months following the effective date of the Registration Statement
(defined below).
Contemporaneously with the entry into
the Purchase Agreement, and as contemplated thereby, the Company entered into a Registration Rights Agreement with the Purchasers.
Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file, on or before December 30, 2013 (the “Filing
Date”), a registration statement under the Securities Act covering the resale of the Shares and Warrant Shares (the “Registration
Statement”), and to cause such Registration Statement to be declared effective by the Commission as soon as practicable
thereafter, but not later than 120 days following the date of the Registration Rights Agreement (the “Effectiveness Date”).
The Registration Statement was declared effective on January 27, 2014. The Company is required to maintain the effectiveness of
the Registration Statement until all of the shares covered thereby are sold or may be sold pursuant to Rule 144 under the Securities
Act without volume or manner of- sale restrictions and without the requirement that the Company be in compliance with the current
public information requirements of Rule 144.
10. STOCKHOLDERS’ EQUITY
(Continued)
Warrants
In accordance with the 2010 sale and
issuance of Series A preferred stock, the Company issued two-and-one-half-year “Class A” warrants to purchase an aggregate
of 152,740 shares of Series A Preferred Stock at an initial exercise price of $8.00 per share (the “2010 Class A Warrants”)
and five-year Class B warrants to purchase an aggregate of 801,885 shares of Series A Preferred Stock at an initial exercise price
of $9.20 per share the “2010 Class B Warrants,” and together with the 2010 Class A Warrants, the “2010 Warrants”).
Upon the automatic conversion of the Series A Preferred Stock in January 2011, the 2010 Warrants automatically converted to the
right to purchase an equal number of shares of common stock. 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 2010 Warrants,
the exercise price will be decreased pursuant to a customary “weighted-average” formula. In accordance with this provision
and as a result of the issuances made pursuant to the 2012 Purchase Agreement and 2013 Purchase Agreement, the exercise price
of the 2010 Class B warrants has been adjusted to $3.55 per share. 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 $0.4 million and approximately $0.9 million at December
31, 2013 and December 31, 2012, 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 income (expense) on the statement of operations. The 2010 Class A
warrants, representing the right to purchase an aggregate of 152,704 shares of common stock, expired during the year ended December
31, 2013 unexercised.
Pursuant to the 2012 Purchase Agreement,
the Company issued five-year Series A warrants to purchase an aggregate of approximately 6,190,500 shares of common stock at an
initial exercise price of $4.00 per share and 18-month Series B warrants to purchase an aggregate of approximately 6,190,500 shares
of common stock at an initial exercise price of $2.40 per share. The terms of the 2012 Warrants contain a “full-ratchet”
anti-dilutive price adjustment provision. In accordance with such full-ratchet anti-dilution provision, in the event that the
Company sells or issues additional shares of common stock, including securities convertible or exchangeable for common stock (subject
to customary exceptions), at a per share price less than the applicable 2012 Warrant exercise price, such warrant exercise price
will be reduced to an amount equal to the issuance price of such subsequently issued shares; after such time as the Company has
raised at least $12 million in additional equity financing, the 2012 Warrants are subject to further anti-dilution protection
based on a weighted-average formula. Further, the anti-dilution provisions of the 2012 Warrants provide that, in addition to a
reduction in the applicable exercise price, the number of shares purchasable thereunder is increased such that the aggregate exercise
price of the warrants (exercise price per share multiplied by total number of shares underlying the warrants) remained unchanged.
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 $16.7 million and $12.4 million at December 31, 2013 and December 31, 2012, respectively.
In connection with the 2012 offering
of the Debentures and 2012 Warrants, the Company engaged Maxim Group LLC, or Maxim Group, to serve as placement agent. In consideration
for its services, the Company paid Maxim Group a placement fee of $1,035,000. In addition, the Company issued to Maxim Partners
LLC, or Maxim Partners, an affiliate of Maxim Group, 7,500 shares of common stock and five-year warrants to purchase an additional
283,750 shares of common stock at an initial exercise price of $2.64 per share. The warrants issued to Maxim Partners are in substantially
the same form as the Warrants issued to the investors, except that they do not include certain anti-dilution provisions contained
in the Warrants. However, the placement warrants do contain a provision that could require the Company to repurchase the warrants
from the holder under certain conditions. 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 $0.4 million and $0.5 million at December 31, 2013 and
December 31, 2012, respectively.
Under the terms of the 2013 Purchase
Agreement, each Purchaser had the option to elect to receive a Series C Warrant in lieu of a Share in connection with each Unit
it purchased. The Series C Warrants have a five-year term and are exercisable at an initial exercise price of $0.01 per share.
The Series D Warrants have a five-year term and are exercisable at an initial exercise price of $4.00 per share, subject to adjustment
for stock splits, combinations, recapitalization events and certain dilutive issuances (as described below). The Series E Warrants
are exercisable until October 31, 2014 at an initial exercise price of $2.40 per share, subject to adjustment for stock splits,
combinations, recapitalization events and certain dilutive issuances (as described below). The applicable exercise price of the
Series D Warrants and Series E Warrants (but not the Series C Warrants) is subject to a weighted-average price adjustment in the
event the Company makes future issuances of common stock or rights to acquire common stock (subject to certain exceptions) at
a per share price less than the applicable warrant exercise 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 for the Series D and Series E Warrants to be approximately $15.7 million upon
issuance at October 29, 2013 and $18.3 million at December 31, 2013.
10. STOCKHOLDERS’ EQUITY
(Continued)
The 2013 Warrants are required to be
exercised for cash, provided that if during the term of the Warrants there is not an effective registration statement under the
Securities Act covering the resale of the shares issuable upon exercise of the Warrants, then the Warrants may be exercised on
a cashless (net exercise) basis.
Below is a table
that summarizes all outstanding warrants to purchase shares of the Company’s common stock as of December 31, 2013.
Grant Date
|
|
Warrants Issued
|
|
|
Exercise
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Expiration
Date
|
|
Exercised
|
|
|
Warrants
Outstanding
|
|
09/03/2010
|
|
|
801,885
|
|
|
$
|
3.55
|
|
|
$
|
2.82
|
|
|
09/03/2015
|
|
|
-
|
|
|
|
801,885
|
|
09/03/2010
|
|
|
132,116
|
|
|
$
|
8.80
|
|
|
$
|
8.80
|
|
|
09/03/2015
|
|
|
-
|
|
|
|
132,116
|
|
11/26/2012
|
|
|
5,293,738
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
10/31/2014
|
|
|
-
|
|
|
|
5,293,738
|
|
12/18/2012
|
|
|
896,748
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
10/31/2014
|
|
|
-
|
|
|
|
896,748
|
|
11/26/2012
|
|
|
8,822,887
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
11/26/2017
|
|
|
-
|
|
|
|
8,822,887
|
|
11/26/2012
|
|
|
261,250
|
|
|
$
|
2.64
|
|
|
$
|
2.40
|
|
|
11/26/2017
|
|
|
-
|
|
|
|
261,250
|
|
12/18/2012
|
|
|
1,494,577
|
|
|
$
|
2.40
|
|
|
$
|
4.00
|
|
|
12/18/2017
|
|
|
-
|
|
|
|
1,494,577
|
|
12/18/2012
|
|
|
22,500
|
|
|
$
|
2.64
|
|
|
$
|
2.64
|
|
|
12/18/2017
|
|
|
-
|
|
|
|
22,500
|
|
10/29/2013
|
|
|
4,455,231
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
10/29/2018
|
|
|
-
|
|
|
|
4,455,231
|
|
10/29/2013
|
|
|
12,868,585
|
|
|
$
|
2.40
|
|
|
$
|
2.40
|
|
|
10/31/2014
|
|
|
-
|
|
|
|
12,868,585
|
|
10/29/2013
|
|
|
12,868,585
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
10/29/2018
|
|
|
-
|
|
|
|
12,868,585
|
|
10/29/2013
|
|
|
65,650
|
|
|
$
|
2.64
|
|
|
$
|
2.64
|
|
|
10/29/2018
|
|
|
-
|
|
|
|
65,650
|
|
|
|
|
47,983,752
|
|
|
|
|
|
|
$
|
2.68
|
|
|
|
|
|
-
|
|
|
|
47,983,752
|
|
11. 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 373,831 shares
of the Company’s common stock reserved for issuance under the Plan. On April 25, 2011, the Company’s Board of Directors
(the “Board”) approved an amendment to the Plan to increase the number of shares of common stock issuable under the
Plan to 875,000 shares. On January 14, 2013, 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 945,276 shares. On October 7, 2013, the
Company’s
Board
of Directors
adopted an amendment to the Company’s 2005 Plan,
as amended that increased the number of shares of common stock
authorized for issuance thereunder
from 945,276 to 11,155,295. 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,
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 December 31, 2013, there are 5,396,822
shares available for future grants and awards under the Plan, which covers stock options, warrants and restricted awards.
On October 7, 2013, the Board approved
a plan to grant 10-year stock options under the 2005 Plan to each of Glenn Mattes, the Company’s President and Chief Executive
Officer, Alexander Zukiwski, M.D., the Company’s Chief Medical Officer, and Stefan Proniuk, Ph.D., the Company’s Vice
President, Product Development, to purchase 5.5%, 4.5% and 0.65%, respectively, of the number of shares issued by the Company
upon the conversion of the Debentures (the “Management Options”). The effective grant date of the Management Options
was November 4, 2013, following the complete conversion of the Debentures pursuant to the Conversion Agreement, and the exercise
price was fixed at $2.40 per share, reflecting the fair market value of the common stock. The total number of shares subject to
the Management Options granted to Mr. Mattes, Dr. Zukiwski and Dr. Proniuk was 386,697, 316,389 and 45,701 shares, respectively.
The right to purchase the shares subject to the Management Options will vest in 36 equal monthly installments commencing on the
first month anniversary of the date of grant and continuing each month thereafter until fully vested, provided that such vesting
shall accelerate upon a “change of control” of the Company, as such term is defined under the 2005 Plan (but excluding
any transaction conducted primarily for purposes of raising capital).
11. STOCK OPTION PLAN (
Continued
)
On October 7, 2013, the Board also adopted
a standard compensation plan applicable to its non-employee directors (the “Director Compensation Plan”), pursuant
to which the Company’s non-employee directors are entitled to cash and equity-based compensation for their services as directors
of the Company. Further, on November 4, 2013, and in accordance with the Director Compensation Plan, the Board granted to each
non-employee director, 10-year stock options under the 2005 Plan to purchase, at an exercise price of $2.40 per share, a number
of shares of Common Stock equal to 0.10% of the then outstanding shares of Common Stock determined on a fully-diluted basis (i.e.,
assuming the issuance of all shares issuable upon the exercise or conversion of the Company’s outstanding options, warrants
or other rights to acquire Common Stock, but excluding all shares reserved for issuance under the 2005 Plan (“Fully-Diluted
Basis”)); provided, that the Company’s Chairman of the Board shall instead be granted a stock option to purchase 0.20%
of the outstanding shares of Common Stock determined on a Fully-Diluted Basis (collectively the “Director Options”).
In addition to the Director Options,
on November 4, 2013, the Board made one-time grants of 10-year stock options to Arie Belldegrun, M.D., the Company’s Chairman
of the Board, and Steven Ruchefsky, to purchase a number of shares of Common Stock equal to 5.0% and 0.2%, respectively, of the
shares of Common Stock outstanding on the effective date of such grant, determined on a Fully-Diluted Basis. Such options are
subject to the same terms and conditions applicable to the Director Options.
There were no options granted during
the year ended December 31, 2012. During the year ended December 31, 2013, the Company issued 5,038,605 stock options. The Company
estimated the fair value of each option award granted using the Black-Scholes option-pricing model. The following assumptions
were used for the year ended December 31, 2013:
|
|
Year Ended
|
|
|
|
December 31, 2013
|
|
Expected volatility
|
|
|
89 - 96
%%
|
|
Expected term
|
|
|
4 - 6 years
|
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
0.77 – 1.35
|
%
|
Stock price
|
|
$
|
2.40
|
|
Forfeiture rate
|
|
|
0.0
|
%
|
A summary of the status of the options
issued under the Plan at December 31, 2013, and information with respect to the changes in options outstanding is as follows:
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Outstanding
|
|
|
Weighted-
|
|
|
Aggregate
|
|
|
|
Available for
|
|
|
Stock
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Grant
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Value
|
|
Balance at January 1, 2013
|
|
|
112,661
|
|
|
|
722,358
|
|
|
$
|
8.88
|
|
|
|
|
|
Shares authorized for issuance
|
|
|
10,320,276
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options granted under the Plan
|
|
|
(5,038,605
|
)
|
|
|
5,038,605
|
|
|
$
|
2.40
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Options forfeited
|
|
|
2,500
|
|
|
|
(2,500
|
)
|
|
$
|
-
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
5,396,832
|
|
|
|
5,758,463
|
|
|
$
|
2.66
|
|
|
$
|
2,237,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2013
|
|
|
|
|
|
|
789,905
|
|
|
$
|
4.28
|
|
|
$
|
250,238
|
|
11. STOCK OPTION PLAN
(Continued)
The following table summarizes information about stock options
outstanding at December 31, 2013:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
Shares
|
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Shares
|
|
|
Weighted-
Average Exercise
Price
|
|
$
|
2.40
|
|
|
|
5,594,152
|
|
|
|
9.30
|
|
|
$
|
2.40
|
|
|
|
625,594
|
|
|
$
|
2.40
|
|
$
|
8.00
|
|
|
|
117,969
|
|
|
|
0.08
|
|
|
$
|
8.00
|
|
|
|
117,969
|
|
|
$
|
8.00
|
|
$
|
19.36
|
|
|
|
37,383
|
|
|
|
0.03
|
|
|
$
|
19.36
|
|
|
|
37,383
|
|
|
$
|
19.36
|
|
$
|
24.00
|
|
|
|
8,959
|
|
|
|
0.00
|
|
|
$
|
24.00
|
|
|
|
8,959
|
|
|
$
|
24.00
|
|
Total
|
|
|
|
5,758,463
|
|
|
|
9.41
|
|
|
$
|
2.66
|
|
|
|
789,905
|
|
|
$
|
4.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation costs under
the Plan for the year ended December 31, 2013 and 2012 and for the cumulative period from August 1, 2005 (inception) through December
31, 2013 are as follows:
|
|
Year ended December 31,
|
|
|
Period from
August 1, 2005 (inception)
|
|
|
|
2013
|
|
|
2012
|
|
|
through December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
572,741
|
|
|
$
|
441,983
|
|
|
$
|
2,559,351
|
|
General and administrative
|
|
|
884,035
|
|
|
|
280,828
|
|
|
|
2,568,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,456,776
|
|
|
$
|
722,811
|
|
|
$
|
5,127,991
|
|
The fair value of options vested under
the Plan was approximately $1,507,982 and $863,892 for the years ended December 31, 2013 and 2012, respectively and approximately
$4,723,545 for the period from August 1, 2005 (inception) through December 31, 2013.
At December 31, 2013, total unrecognized
estimated compensation cost related to stock options granted prior to that date was approximately $10,236,586 which is expected
to be recognized over a weighted-average vesting period of 2.8 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.
12. 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, a director
and Secretary of the Company and at the time also its President, Arie S. Belldegrun, M.D., 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 from that point until December 31, 2013, TRC billed the Company for actual hours worked on a monthly basis. For
the years ended December 31, 2013 and 2012, TRC billed the Company $309,330 and $273,171, respectively. For the period from inception
to December 31, 2013, TRC has billed the Company a total of $2,052,571. As of January 1, 2014, the Company is no longer receiving
services from TRC.
12. RELATED PARTIES (
Continued
)
On occasion, some of the Company’s
expenses were paid by TRC. No interest was charged by TRC on any outstanding balance owed by the Company. For the year ended December
31, 2013 and 2012 and for the period from August 1, 2005 (inception) through December 31, 2013 services and reimbursed expenses
totaled $347,927, $327,452, and $2,479,144, respectively. As of December 31, 2013, the Company had a payable to TRC of $26,039,
which was paid in full during February 2014. As of December 31, 2012, the Company’s payable to TRC was $28,868 and was paid
in full during the first two months of 2013.
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.
13. INCOME TAXES
The Company accounts for income taxes
using the liability method, which requires the determination of deferred tax assets and liabilities, based on the differences
between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse. The net deferred tax asset is adjusted by a valuation allowance, if, based on the weight
of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.
The income tax returns of the Company are subject to examination by federal and state taxing authorities. Such examination could
result in adjustments to net income or loss, which changes could affect the income tax liabilities of the Company. The Company’s
tax returns are open for inspection for all tax years from 2009 to present.
The Company’s policy is to include
interest and penalties related to unrecognized tax benefits within the Company’s provision for (benefit from) income taxes.
The Company recognized no amounts for interest and penalties related to unrecognized tax benefits in 2012, 2011 and the period
from August 1, 2005 (inception) through December 31, 2013 and as of December 31, 2013 and 2012, had no amounts accrued for
interest and penalties.
At December 31, 2013, the Company had
no Federal income tax expense or benefit but did have Federal tax net operating loss carry-forwards of approximately $56.3 million.
The federal net operating loss carry-forwards will begin to expire in 2026, unless previously utilized.
Deferred income taxes reflect the net
effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets at December 31, 2013
and 2012 are shown below.
|
|
For Years Ended December
31,
|
|
|
|
2013
|
|
|
2012
|
|
Non-current deferred tax assets
|
|
|
|
|
|
|
|
|
Research tax credit
|
|
$
|
2,873,000
|
|
|
$
|
2,005,000
|
|
Net operating loss carry forwards
|
|
|
22,489,800
|
|
|
|
15,700,000
|
|
Stock based compensation
|
|
|
437,000
|
|
|
|
446,000
|
|
Total deferred tax assets
|
|
|
25,799,800
|
|
|
|
18,151,000
|
|
Non-current deferred tax liability
|
|
|
|
|
|
|
|
|
Bonus Section 401 Adjustment
|
|
|
(91,000
|
)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
(5,000
|
)
|
|
|
(10,000
|
)
|
Total net deferred tax assets
|
|
|
25,703,800
|
|
|
|
18,141,000
|
|
Valuation allowance
|
|
|
(25,703,800
|
)
|
|
|
(18,141,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company records a valuation allowance
for temporary differences for which it is more likely than not that the Company will not receive future tax benefits. At December 31,
2013 and 2012 the Company recorded valuation allowances of $25.7 million and $18.1 million, respectively, representing
a change in the valuation allowance of $7.6 million for the previous fiscal year-ends, due to the uncertainty regarding the
realization of such deferred tax assets, to offset the benefits of net operating losses generated during those years.
13. INCOME TAXES
(Continued)
A reconciliation of the statutory tax
rates and the effective tax rates for the years ended December 31, 2013 and 2012 are as follows:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Federal tax
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State tax
|
|
|
5.9
|
%
|
|
|
5.9
|
%
|
R&D Credit
|
|
|
2.7
|
%
|
|
|
2.7
|
%
|
Incentive stock options
|
|
|
3.6
|
%
|
|
|
4.7
|
%
|
Valuation allowance
|
|
|
(46.2
|
)%
|
|
|
(47.3
|
)%
|
Net
|
|
|
-
|
|
|
|
-
|
|
There was no income tax benefit recorded for the years ended
December 31, 2013 and 2012.
14. COMMITMENTS AND CONTINGENCIES
On August 4, 2011, the Company entered
into a lease for office space of approximately 4,168 square feet in Flemington, New Jersey (the “Flemington Lease”).
The lease commencement date was November 17, 2011, with lease payments beginning in February 2012. The lease expiration
date is three years from the rent commencement date. The Company provided a cash security deposit of $10,455, or two months’
base rent. The Company is also responsible for payment of its share of common area maintenance costs and taxes. The aggregate
remaining minimum future payments under the Flemington Lease at December 31, 2013 are approximately $80,550 including common area
maintenance charges and taxes. The Flemington Lease contains a three-month free rent period and annual escalations, as such, the
Company accounts for rent expense on a straight-line basis. The Company recognized $81,081 and $85,362 in rent expense for the
Flemington Lease for the years ended December 31, 2013 and 2012, respectively.
Future minimum lease payments under
operating leases as of December 31, 2013 are as follows:
2014
|
|
$
|
71,816
|
|
2015
|
|
|
8,734
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
80,550
|
|
On October 29, 2013, in connection with
the entry into the 2013 Purchase Agreement, the Company entered into an agreement (the “OPKO Agreement”) with OPKO
Health, Inc. (“OPKO”) and Frost Group, LLC (“Frost Group”). Under the terms of the OPKO Agreement, as
in inducement to the participation by OPKO and Frost Group (or its affiliates and associates) in the purchase and sale of the
Units under the Purchase Agreement, the Company granted OPKO with the following rights, so long as OPKO continues to hold at least
3% of the total number of outstanding shares of the Company’s common stock, determined on a fully-diluted basis (i.e., assuming
the issuance of all shares underlying outstanding options, warrants and other rights to acquire common stock): (1) OPKO shall
have the right to appoint a non-voting observer to attend all meetings of the Company’s Board of Directors, provided that
such appointee enters into a confidentiality agreement with the Company and shall be subject to all applicable Company policies;
and (2) OPKO shall have a right of first negotiation that provides it with exclusive rights to negotiate with the company for
a 45-day period regarding any potential strategic transactions that the Company’s Board of Directors elects to pursue.
The Company has entered into various
contracts with third parties in connection with the development of the licensed technology described in Note 6.
The aggregate minimum commitment under
these contracts as of December 31, 2013 is approximately $13.0 million, all expected to be due during 2014 and 2016.
14. COMMITMENTS AND CONTINGENCIES
(Continued)
In the normal course of business, the
Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service
providers. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request
in such capacities. The Company’s maximum exposure under these arrangements is unknown as of December 31, 2013. The Company
does not anticipate recognizing any significant losses relating to these arrangements.
15. SUBSEQUENT EVENTS
On January 6, 2014, the Company entered
into a Master Development and Commercialization Agreement, effective as of December 23, 2013 (the “Co-Development Agreement”),
with Leica Biosystems Newcastle Ltd. (“Leica”), pursuant to which the Company and Leica will collaborate on the development
of a companion diagnostic to be used in the clinical development of onapristone, the Company’s lead product candidate being
developed for the treatment of breast endometrial and prostate cancers. Under the terms of the Co-Development Agreement, the Company
will sponsor and conduct clinical trials for onapristone, and Leica will develop and validate a companion diagnostic to be used
to identify patients with activated progestin receptors, who the Company believes are most likely to respond to treatment with
onapristone. The Co-Development Agreement contemplates that the parties will enter into separate project agreements from time
to time that will specify the details of each party’s responsibilities, including services to be performed, deliverables
and compensation, with respect to various phases of the planned development of the companion diagnostic. On March 21, 2014, the
Company and Leica entered into the first project agreement under the Co-Development Agreement relating to services to be performed
in support of the Company’s ongoing Phase I clinical trials and planned Phase II clinical trial of onapristone.
On January 8, 2014, the Company and
Leica also entered into a License Agreement, effective as of December 23, 2013, pursuant to which each party granted to the other
a license to their respective intellectual property to enable each other to carry out their respective obligations in the co-development
of the companion diagnostic, including their rights under the Co-Development Agreement. Pursuant to the terms of this license
agreement, Leica agreed to pay to the Company certain milestone payments and a single-digit royalty on commercial net sales of
the companion diagnostic product to be developed. Further, during the period of the co-development of the companion diagnostic,
and for a period of three years following the first commercial sale, Leica agrees not to commercially practice the rights licensed
by the Company in connection with, or support the registration or commercialization of, any third party therapeutic agent or product
having the same or substantially similar mechanism of action as onapristone; provided, that such period may be extended through
the expiration of the last Company patent containing a companion diagnostic claim at the Company’s option by the payment
of extension fees specified in the license agreement.
On February 24, 2014, the Company appointed
Lawrence A. Kenyon to serve as its Chief Financial Officer, effective immediately. The terms of Mr. Kenyon’s employment
with the Company are set forth in an Employment Agreement (the “Employment Agreement”). The Employment Agreement provides
for a term of three years (the “Term”), subject to automatic renewal for successive one-year periods unless either
party provides the other party with at least 90 days’ notice of nonrenewal. Pursuant to the Employment Agreement, Mr. Kenyon
will receive an initial annualized base salary of $275,000. The Employment Agreement further provides that, subject to the successful
achievement of specific performance objectives to be established by Mr. Kenyon and the Chief Executive Officer and approved by
the Board, Mr. Kenyon will be eligible to receive an annual performance bonus of up to 30% of his annualized base salary. The
Company has also agreed to pay to Mr. Kenyon $100,000 following his relocation to an area near the Company’s headquarters,
which amount is subject to repayment as described in the Employment Agreement in the event of Mr. Kenyon’s voluntary termination
of his employment (other than for “Good Reason,” as defined in the Employment Agreement) or the Company’s termination
of his employment for “Cause” (as defined in the Employment Agreement).
Pursuant to the Employment Agreement,
Mr. Kenyon was granted a 10-year option to purchase a total of 223,445 shares of the Company’s common stock at an exercise
price equal to $2.23 per share. The right to purchase 25% of the shares will vest and become exercisable on February 24, 2015,
and thereafter the remaining shares will vest and become exercisable in 24 equal monthly installments. Effective as of the close
of business on October 31, 2014 and subject to Mr. Kenyon’s continued employment with the Company, Mr. Kenyon will also
be granted a ten-year option to purchase an additional number of shares of the Company’s common stock equal to 0.90% of
the number of shares of common stock issued by the Company, if any, upon the exercise of the Company’s outstanding 2012
Series B and 2013 Series E Common Stock Purchase Warrants expiring on October 31, 2014. Such option will be granted at an exercise
price equal to the fair market value of the Company’s common stock on October 31, 2014, and will vest and become exercisable
as to 25% of the shares on October 31, 2015 and as to the remaining shares in 24 equal monthly installments thereafter.
15. SUBSEQUENT EVENTS
(Continued)
On February 26, 2014, the Company entered
into an Exclusive Patent License Agreement (the “License Agreement”) with the Regents of the University of Minnesota
(the “University”), pursuant to which the Company was granted an exclusive, worldwide, royalty-bearing license for
the rights to develop and commercialize technology embodied by certain patent applications relating to a gene expression signature
derived from archived breast cancer tissue samples. The Company plans to develop and commercialize this technology as a tool to
identify progesterone-stimulated pathway activation, which in turn may identify patients who would most likely benefit from treatment
with the Company’s lead compound, onapristone, an anti-progestin therapeutic aimed at treatment of men’s and women’s
cancers.
The License Agreement requires the Company
to use its commercially reasonable efforts to commercialize the licensed technology as soon as practicable, and includes several
performance milestones relating to the development and commercialization of the technology to be achieved by the Company at specified
dates beginning in the second quarter of 2014 and continuing during the term of the License Agreement. Under the terms of the
License Agreement, the Company is required to make a small one-time cash payment to the University within five business days of
the License Agreement and to reimburse the University for past patent expenses it has incurred. The License Agreement also provides
that the Company will pay royalties to the University on net sales of “Licensed Products” (as defined in the License
Agreement) at a rate in the low-single digits, which royalty obligation terminates on a licensed product-by-licensed product and
country-by-country basis upon the first date when there is no longer a valid claim under a licensed patent or patent application
covering such licensed product in the country where the licensed product is made or sold.
The term of the License Agreement continues
until the last date on which there is any active licensed patent or pending patent application. The University may terminate the
License Agreement earlier upon a breach by the Company of one or more of its obligations that remains uncured for a period specified
in the License Agreement. The University may also terminate the License Agreement if the Company voluntarily files for bankruptcy
or similar proceeding, or if a petition for an involuntary bankruptcy proceeding is filed and is not released for 60 days. The
University may terminate the Licensed Agreement immediately upon notice if the Company commences or maintains a proceeding in
which it asserts the licensed patents are invalid or unenforceable. The Company may terminate the Licensed Agreement at any time
and for any reason upon 90 days’ written notice.
The License Agreement further provides
that the Company will indemnify and hold the University and its affiliates harmless from any and all suits, actions, claims, liabilities,
demands, damages, losses or expenses relating to the Company’s exercise of its rights under the License Agreement, including
its right to commercialize the licensed technology. The University is required to indemnify the Company with respect to claims
relating to or resulting from its breach of the License Agreement.
44,861,891 Shares
Common Stock
PROSPECTUS
May
14, 2014
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