UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number: 000-52153
ARNO THERAPEUTICS, INC.
(Exact Name Of Registrant As Specified In
Its Charter)
Delaware |
52-2286452 |
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
200 Route 31 North, Suite 104, Flemington,
New Jersey 08822
(Address of principal executive offices)(Zip
Code)
(862) 703-7170
(Registrant’s telephone number, including
area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer |
¨ |
Accelerated filer |
¨ |
|
|
|
|
Non-accelerated filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
x |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 11, 2015, there were 20,408,616 shares
of common stock, par value $0.0001 per share, of Arno Therapeutics, Inc. issued and outstanding.
Index
References to “the Company,” “we”,
“us” or “our” in this Quarterly Report on Form 10-Q refer to Arno Therapeutics, Inc., a Delaware corporation,
unless the context indicates otherwise.
Forward-Looking Statements
This Quarterly Report contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements are only
predictions and provide our current expectations or forecasts of future events and financial performance and may be identified
by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,”
“expects,” “plans,” “intends,” “may,” “will” or “should”
or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily
mean that a statement is not forward-looking. Forward-looking statements include all matters that are not historical facts and
include, without limitation, statements concerning our business strategy, outlook, objectives, future milestones, plans, intentions,
goals, future financial conditions, our research and development programs and planning for and timing of any clinical trials, the
possibility, timing and outcome of submitting regulatory filings for our product candidates under development, research and development
of particular drug products, the development of financial, clinical, manufacturing and marketing plans related to the potential
approval and commercialization of our drug products, and the period of time for which our existing resources will enable us to
fund our operations.
Forward-looking statements are subject to many
risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by
the forward-looking statements. Examples of the risks and uncertainties include, but are not limited to:
| · | the risk that recurring losses, negative cash flows and the inability to raise additional capital could threaten our ability
to continue as a going concern; |
| · | the risk that we may not successfully develop and market our product candidates, and even if we do, we may not become profitable; |
| · | risks relating to the progress of our research and development; |
| · | risks relating to significant, time-consuming and costly research and development efforts, including pre-clinical studies,
clinical trials and testing, and the risk that clinical trials of our product candidates may be delayed, halted or fail; |
| · | risks relating to the rigorous regulatory approval process required for any products that we may develop independently, with
our development partners or in connection with any collaboration arrangements; |
| · | the risk that changes in the national or international political and regulatory environment may make it more difficult to gain
FDA or other regulatory approval of our drug product candidates; |
| · | risks that the FDA or other regulatory authorities may not accept any applications we file; |
| · | risks that the FDA or other regulatory authorities may withhold or delay consideration of any applications that we file or
limit such applications to particular indications or apply other label limitations; |
| · | risks that, after acceptance and review of applications that we file, the FDA or other regulatory authorities will not approve
the marketing and sale of our drug product candidates; |
| · | risks relating to our drug manufacturing operations, including those of our third-party suppliers and contract manufacturers; |
| · | risks relating to the ability of our development partners and third-party suppliers of materials, drug substance and related
components to provide us with adequate supplies and expertise to support manufacture of drug product for initiation and completion
of our clinical studies; and |
| · | risks relating to the transfer of our manufacturing technology to third-party contract manufacturers. |
Other risks that may affect forward-looking
statements contained in this report are described under Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2014. These risks, including those described above, could cause our actual results to differ materially from those described in
the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document. The risks discussed in this report should be considered in
evaluating our prospects and future performance.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
ARNO THERAPEUTICS, INC.
CONDENSED BALANCE SHEETS
| |
March 31, 2015
(unaudited) | | |
December 31, 2014 | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 4,934,530 | | |
$ | 7,948,436 | |
Prepaid expenses and other current assets | |
| 170,523 | | |
| 258,046 | |
| |
| | | |
| | |
Total current assets | |
| 5,105,053 | | |
| 8,206,482 | |
| |
| | | |
| | |
Property and equipment, net | |
| 28,500 | | |
| 30,730 | |
Security deposit | |
| 10,455 | | |
| 10,455 | |
| |
| | | |
| | |
Total assets | |
$ | 5,144,008 | | |
$ | 8,247,667 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 571,538 | | |
$ | 742,448 | |
Accrued expenses and other current liabilities | |
| 1,343,978 | | |
| 1,410,293 | |
Capital lease obligation- short term | |
| 3,447 | | |
| 3,322 | |
Deferred rent | |
| 347 | | |
| 1,048 | |
| |
| | | |
| | |
Total current liabilities | |
| 1,919,310 | | |
| 2,157,111 | |
| |
| | | |
| | |
Capital lease obligation- long term | |
| 7,013 | | |
| 7,923 | |
Derivative liabilities | |
| 6,229,359 | | |
| 6,671,524 | |
| |
| | | |
| | |
Total liabilities | |
| 8,155,682 | | |
| 8,836,558 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' DEFICIT | |
| | | |
| | |
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, 20,408,616 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively | |
| 5,469 | | |
| 5,469 | |
Additional paid-in capital | |
| 82,158,638 | | |
| 81,192,630 | |
Accumulated deficit | |
| (85,175,781 | ) | |
| (81,786,990 | ) |
| |
| | | |
| | |
Total stockholders' deficit | |
| (3,011,674 | ) | |
| (588,891 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 5,144,008 | | |
$ | 8,247,667 | |
See accompanying notes to the unaudited condensed
financial statements.
ARNO THERAPEUTICS, INC.
CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
| |
Three Months Ended March 31, | |
| |
| | |
| |
| |
2015 | | |
2014 | |
| |
| | |
| |
Operating expenses: | |
| | | |
| | |
Research and development | |
$ | 2,474,869 | | |
$ | 4,434,716 | |
General and administrative | |
| 1,387,615 | | |
| 1,729,052 | |
| |
| | | |
| | |
Total operating expenses | |
| 3,862,484 | | |
| 6,163,768 | |
| |
| | | |
| | |
Loss from operations | |
| (3,862,484 | ) | |
| (6,163,768 | ) |
| |
| | | |
| | |
Other income/(expense): | |
| | | |
| | |
Interest income | |
| 4,522 | | |
| 11,516 | |
Interest expense | |
| (410 | ) | |
| - | |
Other income | |
| 469,581 | | |
| 5,705,811 | |
| |
| | | |
| | |
Total other income/(expense) | |
| 473,693 | | |
| 5,717,327 | |
| |
| | | |
| | |
Net loss | |
$ | (3,388,791 | ) | |
$ | (446,441 | ) |
| |
| | | |
| | |
Net loss per share - basic and diluted | |
$ | (0.17 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | |
Weighted-average shares outstanding- basic and diluted | |
| 20,408,616 | | |
| 20,370,331 | |
See accompanying notes to the unaudited condensed
financial statements.
ARNO THERAPEUTICS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ DEFICIT
(unaudited)
| |
| | |
| | |
| | |
| | |
ADDITIONAL | | |
| | |
TOTAL | |
| |
PREFERRED
STOCK | | |
COMMON
STOCK | | |
PAID-IN | | |
ACCUMULATED | | |
STOCKHOLDERS' | |
| |
SHARES | | |
AMOUNT | | |
SHARES | | |
AMOUNT | | |
CAPITAL | | |
DEFICIT | | |
DEFICIT | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at January 1, 2015 | |
| - | | |
| - | | |
| 20,408,616 | | |
$ | 5,469 | | |
$ | 81,192,630 | | |
$ | (81,786,990 | ) | |
$ | (588,891 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,388,791 | ) | |
| (3,388,791 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock based compensation for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 966,008 | | |
| - | | |
| 966,008 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2015 | |
| - | | |
| - | | |
| 20,408,616 | | |
$ | 5,469 | | |
$ | 82,158,638 | | |
$ | (85,175,781 | ) | |
$ | (3,011,674 | ) |
See accompanying notes to the unaudited condensed
financial statements.
ARNO THERAPEUTICS, INC.
CONDENSED STATEMENTS
OF CASH FLOWS
(unaudited)
| |
Three Months Ended March 31, | |
| |
| | |
| |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (3,388,791 | ) | |
$ | (446,441 | ) |
| |
| | | |
| | |
Adjustment to reconcile net loss to net cash and cash equivalents used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 2,231 | | |
| 3,236 | |
Stock-based compensation | |
| 966,008 | | |
| 1,165,056 | |
Change in fair value of derivative liability | |
| (442,165 | ) | |
| (5,707,470 | ) |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 62,522 | | |
| 19,618 | |
Other receivables | |
| 25,000 | | |
| (52,610 | ) |
Accounts payable | |
| (170,910 | ) | |
| (224,994 | ) |
Accrued expenses | |
| (66,315 | ) | |
| (136,145 | ) |
Deferred rent | |
| (701 | ) | |
| (1,687 | ) |
Due to related party | |
| - | | |
| (22,225 | ) |
Net cash used in operating activities | |
| (3,013,121 | ) | |
| (5,403,662 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| - | | |
| (20,097 | ) |
Payment of capital lease obligation | |
| (785 | ) | |
| - | |
Net cash used in investing activities | |
| (785 | ) | |
| (20,097 | ) |
| |
| | | |
| | |
Net cash provided by financing activities | |
| - | | |
| - | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (3,013,906 | ) | |
| (5,423,759 | ) |
Cash and cash equivalents at beginning of period | |
| 7,948,436 | | |
| 26,774,203 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 4,934,530 | | |
$ | 21,350,444 | |
| |
| | | |
| | |
Supplemental schedule of cash flows information: | |
| | | |
| | |
| |
| | | |
| | |
Cash paid for interest | |
$ | 410 | | |
$ | - | |
See accompanying notes to the unaudited condensed
financial statements.
ARNO THERAPEUTICS, INC.
NOTES TO CONDENSED
FINANCIAL STATEMENTS
March 31, 2015
(unaudited)
1. DESCRIPTION OF BUSINESS
Arno Therapeutics, Inc. (“Arno”
or the “Company”) is developing innovative drug candidates intended to treat patients with cancer and other life threatening
diseases. The Company was incorporated in Delaware in March 2000, at which time its name was Laurier International, Inc. (“Laurier”).
Pursuant to an Agreement and Plan of Merger dated March 6, 2008 (as amended, the “Merger Agreement”), by and among
the Company, Arno Therapeutics, Inc., a Delaware corporation formed on August 1, 2005 (“Old Arno”), and Laurier Acquisition,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Laurier Acquisition”), on June 3, 2008, Laurier
Acquisition merged with and into Old Arno, with Old Arno remaining as the surviving corporation and a wholly-owned subsidiary of
Laurier. Immediately following this merger, Old Arno merged with and into Laurier and Laurier’s name was changed to Arno
Therapeutics, Inc. These two merger transactions are hereinafter collectively referred to as the “Merger.” Immediately
following the Merger, the former stockholders of Old Arno collectively held 95% of the outstanding common stock of Laurier, assuming
the issuance of all shares issuable upon the exercise of outstanding options and warrants, and all of the officers and directors
of Old Arno in office immediately prior to the Merger were appointed as the officers and directors of Laurier immediately following
the Merger. Further, Laurier was a non-operating shell company prior to the Merger. The merger of a private operating company into
a non-operating public shell corporation with nominal net assets is considered to be a capital transaction in substance, rather
than a business combination, for accounting purposes. Accordingly, the Company treated this transaction as a capital transaction
without recording goodwill or adjusting any of its other assets or liabilities. All costs incurred in connection with the Merger
have been expensed. Upon completion of the Merger, the Company adopted Old Arno’s business plan.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company has not yet generated any revenue
from the sale of products and, through March 31, 2015, its efforts have been principally devoted to developing its licensed technologies
and raising capital. The Company has experienced negative cash flows from operating activities since its inception and has an accumulated
deficit of approximately $85.2 million at March 31, 2015. The Company expects to incur substantial and increasing losses and to
have negative net cash flows from operating activities as it expands its technology portfolio and engages in further research and
development activities, particularly from conducting clinical trials, manufacturing activities and pre-clinical studies.
The accompanying unaudited Condensed Financial
Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q adopted under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. In the opinion of Arno’s management, the accompanying Condensed Financial Statements contain all adjustments
(consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations
and cash flows of the Company at the dates and for the periods indicated. The interim results for the periods ended March 31, 2015
are not necessarily indicative of results for the full 2015 fiscal year or any other future interim periods.
These unaudited Condensed Financial Statements
have been prepared by management and should be read in conjunction with the financial statements and notes thereto included in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange
Commission.
The preparation of financial statements in conformity
with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. Estimates and assumptions principally relate to services
performed by third parties but not yet invoiced, estimates of the fair value and forfeiture rates of stock options issued to employees
and consultants, and estimates of the probability in the fair value of derivative liabilities. Actual results could differ
from those estimates.
Research and Development
Research and development costs are charged to
expense as incurred. Research and development includes employee costs, fees associated with operational consultants, contract clinical
research organizations, contract manufacturing organizations, clinical site fees, contract laboratory research organizations, contract
central testing laboratories, licensing activities, and allocated office, insurance, depreciation, and facilities expenses. The
Company accrues for costs incurred as the services are being provided by monitoring the status of the study and the invoices received
from its external service providers. The Company adjusts its accruals when actual costs become known. Costs related to the acquisition
of technology rights for which development work is still in process are charged to operations as incurred and considered a component
of research and development expense.
Warrant Liability
The Company accounts for the warrants issued
in connection with the 2013, 2012 and 2010 Purchase Agreements (see Note 7) in accordance with the guidance on Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity, which provides that the Company 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.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial
Statements-Going Concern (Topic 205-40)”. Under the standard, management is required to evaluate for each annual
and interim reporting period whether it is probable that the entity will not be able to meet its obligations as they become
due within one year after the date that financial statements are issued, or are available to be issued,
where applicable. ASU 2014-15 is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2016, and early adoption is permitted. Accordingly, the standard is effective for the Company on January 1,
2017. The Company will be evaluating the impact, if any, that the standard will have on its financial condition, results of
operations, and disclosures in the near future.
3. LIQUIDITY AND CAPITAL RESOURCES
Cash resources as of March 31, 2015 were approximately
$4.9 million, compared to approximately $7.9 million as of December 31, 2014. Based on its resources at March 31, 2015 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 third 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’s
continued operations will depend on its ability to raise additional funds through various potential sources, such as equity and
debt financing, or to license its product candidates to another pharmaceutical or biotechnology 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 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 the Company’s
stock or other securities, issuing debt or by licensing one or more of the Company’s products to finance the continued operating
and capital requirements of the Company. Amounts raised will be used to further develop the Company’s product candidates,
acquire rights to additional product candidates and for other working capital purposes. While the Company will extend its best
efforts to raise additional capital to fund all operations through the third quarter of 2015 and beyond, 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The
Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not
include any adjustments that might result from the inability of the Company to continue as a going concern.
4. BASIC AND DILUTED INCOME/(LOSS) PER SHARE
Basic net income/(loss) per share is calculated
based on the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated
based on the weighted-average number of shares of common stock and other dilutive securities outstanding during the period. The
potential dilutive shares of common stock resulting from the assumed exercise of stock options and warrants are determined under
the treasury stock method.
The following table is a reconciliation of the
numerator and denominator used in the calculation of basic and diluted net income/(loss) per share.
| |
Three Months Ended March 31, | |
| |
| | |
| |
| |
2015 | | |
2014 | |
| |
| | |
| |
Numerator: | |
| | | |
| | |
Net loss | |
$ | (3,388,791 | ) | |
$ | (446,441 | ) |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Weighted-average shares of common stock outstanding used in the calculation of basic net loss per share | |
| 20,408,616 | | |
| 20,370,331 | |
| |
| | | |
| | |
Effect of dilutive securities: | |
| | | |
| | |
| |
| | | |
| | |
Warrants to purchase common stock | |
| - | | |
| - | |
| |
| | | |
| | |
Weighted-average shares of common stock outstanding used in the calculation of diluted net loss per share | |
| 20,408,616 | | |
| 20,370,331 | |
For all periods presented, potentially dilutive
securities are excluded from the computation of fully diluted net income/(loss) per share if their effect is anti-dilutive. The
aggregate number of common equivalent shares (related to options, warrants and convertible debentures) that have been excluded
from the computations of diluted net income/(loss) per common share at March 31, 2015 and 2014 were 31,740,566 and 51,473,941,
respectively, as their exercise prices are greater than the fair market price per common share as of March 31, 2015 and 2014, respectively.
5. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
License Agreements
Onapristone License Agreement
The Company’s rights to onapristone are
governed by a license agreement with Invivis Pharmaceuticals, Inc. (“Invivis”), dated February 13, 2012. Under this
agreement, the Company holds an exclusive, royalty-bearing license for the rights to commercialize onapristone for all therapeutic
uses. The license agreement provides the Company with worldwide rights to develop and commercialize onapristone with the exception
of the commercialization rights in France; provided, 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 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 of $100,000 to Invivis upon the dosing of the first subject in the first Company-sponsored Phase I clinical
trial of onapristone 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 April 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. Effective April 1, 2014, the
Company renewed the services agreement for a period of one year for a monthly cash payment of $50,000 and certain other performance
based milestones.
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, or 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.
University of Minnesota License
In February 2014, the Company entered into
an Exclusive Patent License Agreement with the Regents of the University of Minnesota (the “University”), pursuant
to which Arno 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 part of the onapristone companion diagnostic development program.
The license agreement requires the Company
to use 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 specified dates. Under the terms
of the agreement, Arno made a small one-time cash payment and reimbursed the University for past patent expenses it has incurred.
The agreement also provides for royalties to be paid to the University 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. The University may terminate the
agreement earlier upon certain Arno breaches that remain uncured for a period specified in the agreement. The University may also
terminate the agreement if Arno 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 agreement may be immediately terminated upon notice to Arno if the Company
commences or maintains a proceeding in which it asserts that the licensed patents are invalid or unenforceable. Arno may terminate
the 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 Arno’s exercise of its rights under the agreement, including the right to
commercialize the licensed technology. The University is required to indemnify Arno with respect to claims relating to or resulting
from its breach of the agreement.
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 2015. 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 does not expect to be required to make any milestone payments under these license
agreements during 2015.
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.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines fair value as the amount
at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties,
that is, other than in a forced or liquidation sale. The fair value estimates presented in the table below are based on information
available to the Company as of March 31, 2015.
The accounting standard regarding fair value
measurements discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present
value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).
The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those three levels:
| • | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| • | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These
include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active. |
| • | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
The Company has determined the fair value of
certain liabilities using the market approach. The following table presents the Company’s fair value hierarchy for these
assets measured at fair value on a recurring basis as of March 31, 2015:
| |
| | |
Quoted Market | | |
| | |
| |
| |
| | |
Prices in Active | | |
Significant Other | | |
Significant Other | |
| |
Fair Value | | |
Markets | | |
Observable Inputs | | |
Unobservable Inputs | |
| |
March 31, 2015 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
| | |
| | |
| | |
| |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Warrant liability - 2010 Series B | |
$ | 8,821 | | |
$ | - | | |
$ | - | | |
$ | 8,821 | |
Warrant liability - 2012 Series A | |
| 3,415,081 | | |
| - | | |
| - | | |
| 3,415,081 | |
Warrant liability - 2012 placement agent | |
| 49,086 | | |
| - | | |
| - | | |
| 49,086 | |
Warrant liability - 2013 Series D | |
| 2,741,009 | | |
| - | | |
| - | | |
| 2,741,009 | |
Warrant liability - 2013
placement agent | |
| 15,362 | | |
| - | | |
| - | | |
| 15,362 | |
Total | |
$ | 6,229,359 | | |
$ | - | | |
$ | - | | |
$ | 6,229,359 | |
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, 2014:
| |
| | |
Quoted Market | | |
| | |
| |
| |
| | |
Prices in Active | | |
Significant Other | | |
Significant Other | |
| |
Fair Value | | |
Markets | | |
Observable Inputs | | |
Unobservable Inputs | |
| |
Dec 31, 2014 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
| | |
| | |
| | |
| |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Warrant liability - 2010 Series B | |
$ | 28,066 | | |
$ | - | | |
$ | - | | |
$ | 28,066 | |
Warrant liability - 2012 Series A&B | |
| 3,520,319 | | |
| - | | |
| - | | |
| 3,520,319 | |
Warrant liability - 2012 placement agent | |
| 67,246 | | |
| - | | |
| - | | |
| 67,246 | |
Warrant liability - 2013 Series D&E | |
| 3,036,986 | | |
| - | | |
| - | | |
| 3,036,986 | |
Warrant liability - 2013
placement agent | |
| 18,907 | | |
| - | | |
| - | | |
| 18,907 | |
Total | |
$ | 6,671,524 | | |
$ | - | | |
$ | - | | |
$ | 6,671,524 | |
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 March 31, 2015:
Fair Value Measurement Using Significant Unobservable Inputs (Level 3) |
| |
Total | | |
| | |
| | |
2013 | | |
| | |
| | |
2012 | | |
| |
| |
Warrant | | |
2013 | | |
2013 | | |
Placement | | |
2012 | | |
2012 | | |
Placement | | |
2010 | |
| |
Liability | | |
Series E | | |
Series D | | |
Agent | | |
Series B | | |
Series A | | |
Agent | | |
Series B | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at January 1, 2014 | |
$ | 35,864,881 | | |
$ | 5,855,206 | | |
$ | 12,482,527 | | |
$ | 98,080 | | |
$ | 2,816,676 | | |
$ | 13,887,307 | | |
$ | 362,633 | | |
$ | 362,452 | |
Total gains or losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Unrealized depreciation | |
| (29,193,357 | ) | |
| (5,829,469 | ) | |
| (9,471,278 | ) | |
| (79,173 | ) | |
| (2,804,295 | ) | |
| (10,379,369 | ) | |
| (295,387 | ) | |
| (334,386 | ) |
Balance at January 1, 2015 | |
$ | 6,671,524 | | |
$ | 25,737 | | |
$ | 3,011,249 | | |
$ | 18,907 | | |
$ | 12,381 | | |
$ | 3,507,938 | | |
$ | 67,246 | | |
$ | 28,066 | |
Total gains or losses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Unrealized depreciation | |
| (442,165 | ) | |
| (25,737 | ) | |
| (270,240 | ) | |
| (3,545 | ) | |
| (12,381 | ) | |
| (92,857 | ) | |
| (18,160 | ) | |
| (19,245 | ) |
Balance at March 31, 2015 | |
$ | 6,229,359 | | |
$ | - | | |
$ | 2,741,009 | | |
$ | 15,362 | | |
$ | - | | |
$ | 3,415,081 | | |
$ | 49,086 | | |
$ | 8,821 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Value per Warrant | |
$ | 0.256 | | |
$ | - | | |
$ | 0.213 | | |
$ | 0.234 | | |
$ | - | | |
$ | 0.331 | | |
$ | 0.173 | | |
$ | 0.011 | |
7. STOCKHOLDERS’ EQUITY
Common Stock
As of March 31, 2015, the Company had 20,408,616
shares of common stock issued and outstanding and approximately 36,195,797 shares of common stock reserved for issuance upon the
exercise of outstanding options and warrants.
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 $0.0 million and approximately $0.0 million at March 31, 2015 and
December 31, 2014, 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 152,740 shares of common stock, expired unexercised during the year ended December 31, 2013.
Pursuant to the 2012 Purchase
Agreement for the sale and issuance of 8% Senior Convertible Debentures, 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 (together with the Series A warrant, the “2012 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. In
accordance with the terms of this anti-dilution provision and as a result of the Company’s issuances under the 2013
Purchase Agreement, the exercise price of the Series A warrants was reduced to $2.40 per share and the aggregate number of
shares underlying such warrants was increased to 10,317,464 shares. The 2012 Warrants also contain a provision that may
require the Company to repurchase such warrants from their holders in connection with a sale of the Company or similar
transactions. As a result of such anti-dilution and repurchase provisions, the Company is required to record the fair value
of the 2012 Warrants as a liability on the accompanying balance sheet. Because of this anti-dilution provision and the
inherent uncertainty as to the probability of future common share issuances, the Black-Scholes option pricing model the
Company uses for valuing stock options could not be used. Management used a Monte Carlo simulation model and, in
doing so, utilized a third-party valuation report to determine the warrant liability to be approximately $3.4 million and
$3.5 million at March 31, 2015 and December 31, 2014, respectively. The Debentures were converted to common stock in 2013. At
the time of the conversion of the Debentures, the expiration date of the 2012 Series B Warrants was extended to October 31,
2014, and was thereafter further extended to January 31, 2015. The 2012 Series B warrants, representing the right to
purchase an aggregate of approximately 6,190,500 shares of common stock, expired unexercised on January 31, 2015.
In connection with the sale of the Debentures
and 2012 Warrants, the Company engaged Maxim Group LLC, or Maxim, to serve as placement agent. In consideration for its services,
the Company paid Maxim a placement fee of $1,035,000. In addition, the Company issued to an affiliate of Maxim 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 are in substantially the same form as the 2012 Warrants issued to the investors, except
that they do not include certain anti-dilution provisions contained in the investors’ 2012 Warrants. However, the placement
warrants do contain a provision that could require the Company to repurchase the warrants from the holder in connection with a
sale of the Company or similar transaction. As a result of such repurchase provision, the Company is required to record the fair
value of such warrants as a liability on the accompanying balance sheet. 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 $0.1 million and $0.1
million at March 31, 2015 and December 31, 2014, respectively.
Under the terms of the 2013 Purchase
Agreement for the issuance and sale of common stock, each Purchaser received Series D and Series E Warrants and 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 were initially exercisable until October 31, 2014, which exercise date was subsequently extended by the Company
to January 31, 2015. The initial exercise price of the Series E Warrants was $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. The 2013 Warrants also contain a
provision that may require the Company to repurchase such warrants from their holders in connection with a sale of the
Company or similar transactions. As a result of such anti-dilution and repurchase provisions, the Company is required to
record the fair value of the 2013 Warrants as a liability on the accompanying balance sheet. 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 $2.7 million and $3.0 million at March 31, 2015 and December 31, 2014,
respectively. The 2013 Series E warrants, representing the right to purchase an aggregate of 12,868,585 shares of common
stock, expired unexercised on January 31, 2015.
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 March 31, 2015.
Grant Date | |
Warrants Issued | | |
Exercise Price | | |
Weighted Average Exercise Price | | |
Expiration Date | |
Exercised | | |
Warrants Outstanding | |
09/03/2010 | |
| 801,885 | | |
$ | 3.55 | | |
$ | 3.55 | | |
09/03/2015 | |
| - | | |
| 801,885 | |
09/03/2010 | |
| 132,116 | | |
$ | 8.80 | | |
$ | 8.80 | | |
09/03/2015 | |
| - | | |
| 132,116 | |
11/26/2012 | |
| 8,822,887 | | |
$ | 2.40 | | |
$ | 2.40 | | |
11/26/2017 | |
| - | | |
| 8,822,887 | |
11/26/2012 | |
| 261,250 | | |
$ | 2.64 | | |
$ | 2.64 | | |
11/26/2017 | |
| - | | |
| 261,250 | |
12/18/2012 | |
| 1,494,577 | | |
$ | 2.40 | | |
$ | 2.40 | | |
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 | | |
$ | 4.00 | | |
$ | 4.00 | | |
10/29/2018 | |
| - | | |
| 12,868,585 | |
10/29/2013 | |
| 65,650 | | |
$ | 2.64 | | |
$ | 2.64 | | |
10/29/2018 | |
| - | | |
| 65,650 | |
| |
| 28,924,681 | | |
| | | |
$ | 2.81 | | |
| |
| - | | |
| 28,924,681 | |
8. STOCK OPTION PLAN
The Company’s 2005 Stock Option Plan (the
“Plan”) was originally adopted by the Board of Directors of Old Arno in August 2005, and was assumed by the Company
on June 3, 2008 in connection with the Merger. After giving effect to the Merger, there were initially 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 Board 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 Board adopted an amendment to the 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 March 31, 2015, there are 3,844,199 shares
available for future grants and awards under the Plan, which covers stock options, warrants and restricted stock awards.
The Company issued the following stock options
during the three month periods ended March 31, 2015 and 2014, respectively:
| |
Three Months Ended March 31, | |
| |
| | |
| |
| |
2015 | | |
2014 | |
| |
| | | |
| | |
Options granted | |
| - | | |
| 2,186,957 | |
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 three
months ended March 31, 2014 as no options were granted in 2015:
| |
Three Months Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Expected volatility | |
| N/A | | |
| 92% | |
Expected term | |
| N/A | | |
| 6 years | |
Dividend yield | |
| N/A | | |
| 0.0% | |
Risk- free interest rate | |
| N/A | | |
| 1.57% - 1.58% | |
Stock price | |
| N/A | | |
| $2.23 - $2.90 | |
Forfeiture rate | |
| N/A | | |
| 0.0% | |
A summary of the status of the options issued
under the Plan at March 31, 2015, and information with respect to the changes in options outstanding, is as follows:
| |
Number of Shares | | |
Weighted- Average Exercise Price | | |
Aggregate Intrinsic Value | |
| |
| | |
| | |
| |
Options outstanding at December 31, 2014 | |
| 7,339,118 | | |
$ | 2.59 | | |
$ | - | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Cancelled | |
| (68,002 | ) | |
$ | 2.61 | | |
| - | |
Options outstanding at March 31, 2015 | |
| 7,271,116 | | |
$ | 2.59 | | |
$ | - | |
| |
| | | |
| | | |
| | |
Options vested and expected to vest at March 31, 2015 | |
| 7,271,116 | | |
$ | 2.59 | | |
$ | - | |
| |
| | | |
| | | |
| | |
Exercisable at March 31, 2015 | |
| 3,474,130 | | |
$ | 2.77 | | |
$ | - | |
| |
| | | |
| | | |
| | |
Shares available for grant under the 2005 Plan | |
| 3,844,199 | | |
| | | |
| | |
The following table summarizes information about
stock options outstanding at March 31, 2015:
| | |
Outstanding | | |
Exercisable | |
Exercise Price | | |
Number of Shares | | |
Weighted- Average Remaining Contractual Life (Years) | | |
Weighted- Average Exercise Price | | |
Number of Shares | | |
Weighted- Average Exercise Price | |
| | |
| | |
| | |
| | |
| | |
| |
$ | 0.85 | | |
| 136,785 | | |
| 9.60 | | |
$ | 0.85 | | |
| 15,198 | | |
$ | 0.85 | |
$ | 1.30 | | |
| 100,000 | | |
| 9.52 | | |
$ | 1.30 | | |
| - | | |
$ | 1.30 | |
$ | 2.23 | | |
| 223,445 | | |
| 8.90 | | |
$ | 2.23 | | |
| 62,844 | | |
$ | 2.23 | |
$ | 2.40 | | |
| 5,188,107 | | |
| 7.94 | | |
$ | 2.40 | | |
| 2,653,878 | | |
$ | 2.40 | |
$ | 2.90 | | |
| 1,520,396 | | |
| 8.82 | | |
$ | 2.90 | | |
| 639,827 | | |
$ | 2.90 | |
$ | 8.00 | | |
| 65,000 | | |
| 5.32 | | |
$ | 8.00 | | |
| 65,000 | | |
$ | 8.00 | |
$ | 19.38 | | |
| 37,383 | | |
| 3.03 | | |
$ | 19.38 | | |
| 37,383 | | |
$ | 19.38 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | | |
| 7,271,116 | | |
| 8.16 | | |
$ | 2.59 | | |
| 3,474,130 | | |
$ | 2.77 | |
Stock-based compensation costs under the Plan
for the three month periods ended March 31, 2015 and 2014 are as follows:
| |
Three Months Ended March
31, | |
| |
2014 | | |
2014 | |
| |
| | |
| |
Research and development | |
$ | 269,803 | | |
$ | 247,327 | |
General and administrative | |
| 696,205 | | |
| 917,729 | |
| |
| | | |
| | |
Total | |
$ | 966,008 | | |
$ | 1,165,056 | |
The fair value of options vested under the Plan
was approximately $1,680,837 and $1,060,090 for the three months ended March 31, 2015 and 2014, respectively.
At March 31, 2015, total unrecognized estimated
compensation cost related to stock options granted prior to that date was approximately $6,755,887 which is expected to be recognized
over a weighted-average vesting period of 2.6 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.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are focused on developing innovative products
for the treatment of cancer and other life threatening diseases. We currently have exclusive worldwide rights to three innovative
clinical stage compounds with unique mechanisms of action that have the potential to be first-in-class therapeutics.
The following is a summary of our product development
pipeline:
| · | Onapristone – We are currently developing onapristone, an oral 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 and inhibit tumor growth. In connection with the development of onapristone,
we have engaged Leica Biosystems to develop an immunohistochemistry based diagnostic test to identify tumors with the activated
form of the progesterone receptor (APR), which is intended to identify patients more likely to benefit from treatment with onapristone. |
In December 2014, we enrolled the first patient in the
expansion phase of our ongoing Phase I/II clinical trial evaluating onapristone in women with progesterone receptor expressing
tumors. The protocol was subsequently amended to include a formal Phase II study which will include up to 29 patients with recurrent
or metastatic endometrioid tumors that have been shown to express APR, and who have received no more than one prior chemotherapy
and no prior hormone therapy. All patients in the Phase II component of the study will receive 50mg of extended release onapristone
twice daily, the dose determined by an independent data review committee to be safely administered to patients based on the results
of the Phase I component of this study. The study protocol provides that if at least two of the first 10 patients have a confirmed
response by RECIST 1.1 criteria, an additional 19 patients will be enrolled, for a total of 29 patients. The study incorporates
a diagnostic test targeting women with tumors expressing APR, which is intended to select those patients more likely to respond
to onapristone treatment. At present, this study is being conducted at multiple sites in France and is expected to complete enrollment
in 2015.
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, with
two additional sites in the United Kingdom to be added in the first half of 2015. The randomized, open-label trial is designed
to evaluate the safety and anti-cancer activity of onapristone in the defined patient population. The study is evaluating onapristone
extended-release tablet formulations in 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. Once a recommended Phase II
dose has been determined, the Phase II cohort of patients will be enrolled to gain additional understanding of the onapristone
safety profile and potential anti-cancer activity in men with advanced CRPC after failure of abiraterone or enzalutamide. The protocol
has been amended to study the combination of onapristone plus abiraterone in a phase I setting with an expansion phase. In accordance
with the amended study protocol, we expect to enroll a total of 75 patients.
| · | 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.
AR-42 recently completed an investigator-initiated dose escalation clinical study with an expansion phase in adult subjects with
relapsed or refractory hematological malignancies (multiple myeloma, chronic lymphocytic leukemia (CLL), or lymphoma) and solid
tumors. The recommended Phase II dose, or RP2D, in patients with hematological malignancies has been determined and the expansion
phase of the program has been completed. The protocol has been amended to include a separate solid tumor dose escalation cohort
and expansion phase. The solid tumor component of the study has been completed. We also supported 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. The FDA has granted two orphan drug designations for AR-42 for the treatment of meningioma and the treatment of
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. Additionally, AR-42 has
been granted three orphan drug designations by the European Medicines Agency, 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. Additional investigator
sponsored clinical trials of AR-42 are currently being planned. |
| · | AR-12 – AR-12 was initially being developed as an orally available agent which was demonstrated to inhibit
multiple different kinase targets. We believe AR-12 may also cause malignant cell death through the induction of stress in the
endoplasmic reticulum and recent work has demonstrated that AR-12 inhibits the molecular protein chaperones GRP78, HSP70 and HSP90.
We have completed a Phase I clinical trial of AR-12 in adult patients with advanced or recurrent solid tumors or lymphoma using
the original formulation of AR-12. Subsequently, an improved formulation of AR-12 that has been shown to substantially increase
bioavailability in preclinical models has been developed. Based on additional pre-clinical research conducted on AR-12, we are
currently pursuing various opportunities with the potential for securing non-dilutive funding, via government and philanthropic
agency grants and contracts, for further research into the potential use of AR-12 as an anti-microbial agent. In April 2015, the
EMA granted two orphan drug designations for AR-12 for the treatment of cryptococcosis and tularaemia. |
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 (a compound we are no longer developing).
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 each of the three month periods ended March 31, 2015 and 2014 were approximately $1.4 million and $1.7
million, respectively. The decrease of approximately $0.3 million for the three months of 2015 over the same period in 2014 is
primarily the result of decreased non-cash compensation expense in 2015 of approximately $0.2 million and reduced spending on professional
fees of $0.1 million.
Research and Development Expenses.
R&D expenses for the three month periods ended March 31, 2015 and 2014 were approximately $2.5 million and $4.4 million,
respectively. The decrease of approximately $1.9 million compared to the same period in 2014 is primarily due to a decrease in
spending for our lead product candidate, onapristone. Total direct onapristone development costs for the quarter ended March 31,
2015 were approximately $1.6 million compared to approximately $3.6 million for the quarter ended March 31, 2014. This decrease
of approximately $2.0 million over the same period of 2014 is primarily due to decreased spending on pre-clinical and non-clinical
research activities.
The following table summarizes our R&D expenses
incurred for preclinical support, contract manufacturing of clinical supplies, clinical trial services provided by third parties
and milestone payments for in-licensed technology for each of our product candidates for the three months ended March 31, 2015
and 2014, as well as the cumulative amounts since we began development of each product candidate through March 31, 2015. The table
also summarizes unallocated costs, which consist of personnel, facilities and other costs not directly allocable to specific development
programs:
| |
Three Months Ended March 31, | | |
Cumulative | |
| |
| | |
| | |
amounts during | |
| |
2015 | | |
2014 | | |
development | |
| |
| | |
| | |
| |
Onapristone | |
$ | 1,602 | | |
$ | 3,620 | | |
$ | 27,581 | |
AR-42 | |
| 70 | | |
| 26 | | |
| 5,473 | |
AR-12 | |
| 174 | | |
| 0 | | |
| 11,357 | |
AR-67 | |
| 62 | | |
| 2 | | |
| 8,215 | |
Unallocated R&D | |
| 567 | | |
| 787 | | |
| 15,011 | |
Total | |
$ | 2,475 | | |
$ | 4,435 | | |
$ | 67,637 | |
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. For example, in fiscal year 2015, we plan to incur total external development costs of approximately $5.8
million, $0.1 million and $0.2 million on onapristone, AR-42 and AR-12, respectively, including amounts already incurred
through March 31, 2015. However, these planned expenditures are subject to many uncertainties, including the availability of
necessary capital, the results of clinical trials and whether we develop any of our drug candidates with a partner or independently.
As a result of such uncertainties, it is very difficult to accurately predict the duration and completion costs of our
research and development projects or whether, when and to what extent we will generate revenues from the commercialization
and sale of any of our product candidates. The duration and cost of clinical trials may vary significantly over the life of a
project as a result of unanticipated events arising during clinical development and a variety of factors, including:
| · | the number of trials and studies in a clinical program; |
| · | the number of patients who participate in the trials; |
| · | the number of sites included in the trials; |
| · | the rates of patient recruitment and enrollment; |
| · | the duration of patient treatment and follow-up; |
| · | the costs of manufacturing our drug candidates; and |
| · | the costs, requirements, timing of, and ability to secure regulatory approvals. |
Interest Income. Interest income for
the three months ended March 31, 2015 and 2014 was $4,522 and $11,516 respectively. The decrease in interest income compared to
the same period in 2014 is primarily due to lower average cash balances held during 2015 compared to the same period of 2014.
Other Income. Other income for the
three months ended March 31, 2015 was approximately $0.5 million compared to other income of approximately $5.7 million for
the three months ended March 31, 2014. The change in 2015 over 2014 is related to noncash adjustments to the warrant
liability primarily driven by our decreased stock price, the expiration of certain warrants and reduced amount of time until
the remaining warrants expire.
Liquidity and Capital Resources
The following table summarizes our liquidity
and capital resources as of March 31, 2015 and December 31, 2014 and our net changes in cash and cash equivalents for the three
months ended March 31, 2015 and 2014 (the amounts stated are expressed in thousands):
| |
March 31, | | |
December 31, | |
Liquidity and capital resources | |
2015 | | |
2014 | |
| |
| | |
| |
Cash and cash equivalents | |
$ | 4,935 | | |
$ | 7,948 | |
Working capital | |
| 3,186 | | |
| 6,049 | |
Stockholders' deficit | |
| (3,012 | ) | |
| (589 | ) |
| |
Three Months Ended March 31, | |
Cash flow data | |
2014 | | |
2013 | |
| |
| | |
| |
Cash used in: | |
| | | |
| | |
Operating activities | |
$ | (3,013 | ) | |
$ | (5,404 | ) |
Investing activities | |
| (1 | ) | |
| (20 | ) |
Financing activities | |
| - | | |
| - | |
Net decrease in cash and cash equivalents | |
$ | (3,014 | ) | |
$ | (5,424 | ) |
Our total cash resources as of March 31, 2015
were approximately $4.9 million compared to approximately $7.9 million as of December 31, 2014. As of March 31, 2015, we had approximately
$8.2 million in liabilities (of which approximately $6.2 million represented non-cash derivative liabilities), and approximately $3.2
million of net working capital. We realized net loss of approximately $3.4 million and had negative cash flow from operating activities
of $3.0 million for the three months ended March 31, 2015. As we continue to develop our product candidates, we expect 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 conduct of additional pre-clinical
studies and clinical trials.
From inception through March 31, 2015, 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, we
believe our existing cash resources are sufficient to fund our operations through approximately the third 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 of 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; |
| · | the cost involved in prosecuting and enforcing patent claims and other intellectual property rights; and |
| · | the cost and timing of regulatory approvals. |
We have based our estimates on assumptions that
may prove to be wrong. We may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate.
License Agreement Commitments
Onapristone License Agreement
Our rights to onapristone are governed by a
license agreement with Invivis 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 commercial 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. 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
provided us with certain clinical development support services through March 31, 2015, 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, or 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, or 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 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. 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 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 our 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 seven issued U.S. patent and three pending U.S. patent applications that relate to AR-12, AR-12
analogs, and particular uses of AR-12 according to our business plan. The issued patents include composition of matter claims.
The issued patents are 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 2034. In 2014, we filed a provisional patent application directed to methods
of using AR-12 that, if issued, would expire in 2035. In addition, Arno has exclusive rights to a pending US and international
patent application directed to AR-12 formulations which, if issued, would expire in 2034.
Under our license agreement for AR-42, we have
exclusive, worldwide rights to one issued and two pending U.S. patent applications that relate to AR-42 and particular uses of
AR-42 according to our business plan. If one of the pending patent applications issues, the issued patent or patents would be scheduled
to expire in 2024. If the other pending patent application issues, it would be scheduled to expire in 2034.
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 to the extent we fail to cure any such breach within
90 days after receiving notice of such breach or our bankruptcy. We may terminate either license upon 90 days prior written notice.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements
as of March 31, 2015.
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.
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.
Warrant Liability
We account for the warrants issued in connection
with the 2013 private placement, the 2012 private placement and 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 adjust 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.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15,
“Presentation of Financial Statements-Going Concern (Topic 205-40)”. Under the standard, management is required
to evaluate for each annual and interim reporting period whether it is probable that the entity will not be able to meet its
obligations as they become due within one year after the date that financial statements are issued, or are available to be issued,
where applicable. ASU 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December
15, 2016, and early adoption is permitted. Accordingly, the standard is effective for the Company on January 1, 2017. We will be
evaluating the impact, if any, that the standard will have on our financial condition, results of operations, and disclosures in
the near future.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls
and Procedures.
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and
that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Commission Rule 13a-15(b), we
carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the quarter covered by this report. Based on the foregoing, our Principal Executive Officer and Principal Financial
Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in our internal control
over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal
Proceedings.
We are not involved in any pending legal proceedings.
Item 1A. Risk
Factors.
Not applicable.
Item 2. Unregistered
Sales of Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults
Upon Senior Securities.
Not applicable.
Item 4. Mine
Safety Disclosures.
Not applicable.
Item 5. Other
Information.
Not applicable.
Item 6. Exhibits.
Exhibit No. |
|
Exhibit Description |
|
|
|
31.1 |
|
Certification of Principal Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101 |
|
The following financial information from Arno Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Balance Sheets as of March 31, 2015 and December 31, 2014, (ii) Condensed Statements of Operations for the three months ended March 31, 2015 and March 31, 2014 (iii) Condensed Statement of Stockholders’ Deficit for the period from January 1, 2015 through March 31, 2015, (iv) Condensed Statements of Cash Flows for the three months ended March 31, 2015 and March 31, 2014, and (v) Notes to Condensed Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ARNO THERAPEUTICS, INC. |
|
|
|
Date: May 15, 2015 |
By: |
/s/ Lawrence A. Kenyon |
|
|
Lawrence A. Kenyon |
|
|
Chief Operating Officer and Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
INDEX TO EXHIBITS FILED WITH THIS REPORT
Exhibit No. |
|
Exhibit Description |
|
|
|
31.1 |
|
Certification of Principal Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Principal Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101 |
|
The following financial information from Arno Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Balance Sheets as of March 31, 2015 and December 31, 2014, (ii) Condensed Statements of Operations for the three months ended March 31, 2015 and March 31, 2014 (iii) Condensed Statement of Stockholders’ Deficit for the period from January 1, 2015 through March 31, 2015, (iv) Condensed Statements of Cash Flows for the three months ended March 31, 2015 and March 31, 2014, and (v) Notes to Condensed Financial Statements. |
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Alexander Zukiwski, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Arno Therapeutics,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2015
/s/ Alexander Zukiwski |
|
Name: Alexander Zukiwski |
|
Title: Chief Executive Officer |
|
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Lawrence A. Kenyon, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Arno Therapeutics,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2015
/s/ Lawrence A. Kenyon |
|
Name: Lawrence A. Kenyon |
|
Title: Chief Operating Officer and Chief Financial Officer |
|
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created
by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Arno Therapeutics, Inc. (the “ Company
”) hereby certifies, to such officer’s knowledge, that:
(1) the accompanying Quarterly Report on Form
10-Q of the Company for the quarterly period March 31, 2015 (the “ Report ”) fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 15, 2015
/s/ Alexander Zukiwski |
|
Name: Alexander Zukiwski |
|
Title: Chief Executive Officer |
|
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created
by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Arno Therapeutics, Inc. (the “ Company
”) hereby certifies, to such officer’s knowledge, that:
(1) the accompanying Quarterly Report on Form
10-Q of the Company for the quarterly period ended March 31, 2015 (the “ Report ”) fully complies with the requirements
of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 15, 2015
/s/ Lawrence A. Kenyon |
|
Name: Lawrence A. Kenyon |
|
Title: Chief Operating Officer and Chief Financial Officer |
|
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