Common Stock, $0.001 par value, including
associated Series A Participating Cumulative Preferred Stock Purchase Rights
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o
Yes
þ
No
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o
Yes
þ
No
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
þ
Yes
o
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). Yes
þ
No
¨
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions
of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Securities Exchange Act of 1934. (Check one):
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
o
Yes
þ
No
As of June 30, 2015, the aggregate
market value of the voting stock held by non-affiliates of the registrant was approximately $12.2 million. Such aggregate
market value was computed by reference to the closing price of the Common Stock as quoted on the Over-the-Counter Bulletin Board,
or the OTC Bulletin Board, on June 30, 2015.
The number of shares outstanding
of the registrant’s common stock as of March 25, 2016 was 101,640,092.
PART I
This Annual
Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” contains forward-looking statements regarding us and our business, financial condition, results of
operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by the words “project,” “believe,” “anticipate,” “plan,” “expect,”
“estimate,” “intend,” “should,” “would,” “could,” “will,”
“may” or other similar expressions. In addition, any statements that refer to projections of our future financial performance
or capital resources, our clinical development programs and schedules, our anticipated growth and trends in our business, the clinical
and pharmaceutical applications of our products, our expectations about our competitive position in the marketplace, potential
business relationships and partnerships, and other characterizations of future events or circumstances are forward-looking statements.
We cannot guarantee that we will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements.
There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially
from those expressed or implied in the forward-looking statements we make, including those described under “Risk Factors”
set forth below. In addition, any forward-looking statements we make in this report speak only as of the date of this report, and
we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date.
Item 1. Business.
General
RegeneRx Biopharmaceuticals,
Inc. (“RegeneRx” or the “Company”) (OTCQB:RGRX) is a biopharmaceutical company focused on the development
of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have
formulated Tß4 into three distinct product candidates in clinical development:
• RGN-259,
a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;
• RGN-352,
an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical indications
that may be treated by systemic administration; and
• RGN-137,
a topical gel for dermal wounds and reduction of scar tissue.
We are continuing
strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical development of
all of our product candidates.
In addition
to our three pharmaceutical product candidates, we are also evaluating the commercial development of peptide fragments and derivatives
of Tß4 for potential cosmeceutical and other personal care uses. These fragments are select amino acid sequences, and variations
thereof, within the Tß4 molecule that have demonstrated activity in several
in vitro
preclinical research studies
that we have sponsored. We believe the biological activities of these fragments may be useful, for example, in developing novel
cosmeceutical products for the anti-aging market. Our strategy is to collaborate with another company to develop cosmeceutical
formulations based on these peptides.
Current Financial Circumstances
On April 6, 2016, RegeneRx Biopharmaceuticals,
Inc. (the "Company") received $250,000 pursuant to the signing of a term sheet with an affiliated entity. The parties
are negotiating an expansion of the licensed rights. Full details of the transaction will be provided after execution of the definitive
agreement targeted for the end of April 2016. The proceeds received of $250,000 will be used to fund operations into the third
quarter while awaiting clinical trial data and seeking additional capital. We will need to raise additional capital in the very
near future to fund our operating budget for 2016 and beyond. A sale of common stock and warrants, a convertible instrument or
partnering of additional licensed rights are possible sources of operating capital in the near future.
Current Clinical Status
On January
28, 2015, we announced that we had entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with GtreeBNT
Co., Ltd., a Korean pharma company (“GtreeBNT”) and shareholder of the Company. The Joint Venture Agreement provides
for the creation of an entity, ReGenTree, LLC (the “Joint Venture” or “ReGenTree”), jointly owned by us
and GtreeBNT, that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan indication in the
United States. GtreeBNT will be responsible for funding all product development and commercialization efforts, and holds a majority
interest of ReGenTree that varies depending on development milestones achieved and eventual commercialization path, if successful.
In conjunction with the Joint Venture Agreement, we also entered into a royalty-bearing license agreement (the “License Agreement”)
with ReGenTree pursuant to which we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United
States. We received a total of $1 million in two tranches under the terms of the License Agreement. The first tranche of $500,000
was received in March 2015 and a second in the amount of $500,000, was received in September 2015. We are also entitled to royalties
as a percentage of net sales ranging from the single digits to the low-double digits based on the medical indications approved
and whether the Joint Venture commercializes products directly or through a third party. RegeneRx possesses one of three board
seats and certain major decisions and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions,
require RegeneRx’s board designee’s consent. In March 2015, GtreeBNT received $7.28 million to expand international
development of the product candidate, RGN-259 (designated GBT-201 in Korea).
Our ownership
interest in ReGenTree is 49% and will be reduced to 42% upon funding, initiation and completion of the Phase 2b trial for Dry Eye
Syndrome. Based on when, and if, ReGenTree achieves certain additional development milestones in the U.S. with RGN-259, our equity
ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon FDA approval of an
NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between
single and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event the ReGenTree
entity is acquired, or there is a change of control that occurs following achievement of an NDA RegeneRx shall be entitled to
40% of all change of control proceeds paid or payable and will forgo any future royalties.
In September
2015, ReGenTree began a Phase 2b/3 clinical trial in patients with dry eye syndrome (“DES”) and a Phase 3 clinical
trial in patients with neurotrophic keratopathy (“NK”), both in the U.S. In January 2016, the DES had completed enrollment
of all patients in the trial. The last patient received the last treatment in February. We expect to report top line data from
the DES trial at the end of April 2016. The NK trial, a smaller study in an orphan population, has enrolled seven patients thus
far with a goal of 46. Of the eight original clinical sites for the study, six are enrolling patients, one has yet to receive IRB
approval to begin enrolling patients, and one was unable to consummate a clinical contract with ReGenTree. ReGenTree is considering
adding additional sites to accelerate patient enrollment.
Currently,
we have active partnerships in three major territories: the U.S., China and Pan Asia. Our partners have been moving forward and
making progress in each territory. In each case, the cost of development is being borne by our partners with no financial obligation
for RegeneRx. Patient accrual, treatment, and follow-up for ophthalmic trials are, in general, relatively fast, as opposed to most
other clinical efforts, so preliminary data from the U.S. dry eye trial should be forthcoming in the second quarter of 2016 and
data from the NK study toward the end of 2016 or possibly later.
We still have
significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in
the U.S., Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic
clinical trials before moving into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset
at that time. However, we intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in
the cardiovascular or central nervous system fields or finding a suitable partner with the resources and capabilities to develop
it as we have with RGN-259.
In addition
to these RGN-259 development activities, we intend to continue to pursue additional partnering activities, particularly for RGN-352,
our injectable systemic product candidate for cardiac and central nervous system indications.
We anticipate
incurring additional operating losses in the future as we continue to explore the potential clinical benefits of Tß4-based
product candidates over multiple indications. To fund further development and clinical trials we have entered into a series of
strategic partnerships under licensing and joint venture agreements (see Note 4) where our partners are responsible for advancing
development of our product candidates with multiple clinical trials.
We will need
additional funds to continue operations through the third quarter of 2016 and will require substantial capital if we wish to internally
advance development of our unlicensed programs. Accordingly, we will continue to evaluate opportunities to raise additional capital
and are in the process of exploring various alternatives, including, without limitation, a public or private placement of our securities,
debt financing, corporate collaboration and licensing arrangements, government grants, or the sale of our company or certain of
our intellectual property rights.
Overview
of Tß4
Tß4 is
a synthetic copy of a naturally occurring 43-amino acid peptide that was originally isolated from bovine thymus glands. It plays
a vital role in cell structure and motility and in the protection, regeneration, remodeling and healing of tissues.
Although it
is recognized that wound healing and tissue regeneration are complex processes, most companies working to develop new drugs in
this area have focused primarily on the development of growth factors to stimulate healing only and have, to date, failed to demonstrate
dramatic improvements in the healing process. Unlike growth factors, numerous preclinical animal studies, published by independent
researchers, have identified several important biological activities involving Tß4 that we believe make it potentially useful
as a wound healing, repair and tissue regenerating agent. These activities include:
|
·
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Progenitor (Stem) Cell Recruitment and Differentiation.
Independent research
published in the journal
Nature
in November 2006 featured the discovery that Tß4 is the key signaling molecule that
recruits and triggers adult epicardial progenitor cells, or EPCs, to differentiate into coronary blood vessels. EPCs are partially
differentiated stem cells that can further differentiate into specific cell types when needed. Confirmatory research published
in 2009 in the
Journal of Molecular and Cellular Cardiology
concluded that Tß4 is responsible for the initiation of
the embryonic coronary developmental program and EPC differentiation in adult mice. These publications confirm that Tß4’s
interaction with EPCs is necessary for the maintenance of a healthy adult animal heart, as well as for normal embryo and fetal
heart development in mammals. In Neuroscience (2009 and 2010), and the J. Neurosurgery (2010), Tß4 was shown to similarly
stimulate oligodendrogenesis,
i.e
., the differentiation of oligodendroctye progenitor cells into myelin-producing oligodendrocytes,
whereby restoring functional recovery in animal models of multiple sclerosis, stroke, and traumatic brain injury.
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Actin Regulation.
Tß4 regulates actin, which comprises up to 10%
of the protein of non-muscle cells in the body and plays a central role in cell structure and in the movement of cells. Independent
research studies have indicated that Tß4 stimulates the migration of human keratinocytes, or skin cells, as well as corneal
epithelial cells that protect the eye, human endothelial cells and progenitor cells of the heart and brain. Endothelial cells are
the major cell type responsible for the formation of new blood vessels, a process known as angiogenesis. Certain of these studies
conducted at the National Institutes of Health, or NIH, were the first to suggest the role of Tß4 in wound healing. The data
from these studies encouraged us to license the rights to Tß4 from the NIH in 2001 and to launch an initial clinical development
program that targeted the use Tß4 for chronic dermal wounds.
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Reduction of Inflammation and scar tissue formation.
Uncontrolled inflammation
is the underlying basis of many pathologies and injuries. Independent research has shown that Tß4 is a potent anti-inflammatory
agent in skin cells and in corneal epithelial cells in the eye. Tß4 has also been shown to decrease the levels of inflammatory
mediators and to significantly reduce the influx of inflammatory cells in the reperfused heart of animals. More recent preclinical
research suggests that Tß4 blocks activation of the NFκB pathway, which is involved in DNA activation of inflammatory
mediators, thereby modulating inflammation in the body. This anti-inflammatory activity may explain, in part, the mechanism by
which Tß4 appeared to improve functional outcome in the mouse multiple sclerosis model described above, as well as promoting
repair in the heart and skin. In the skin, it has been shown to reduce scar formation by reduction of infiltration of myofibroblasts.
Identifying a factor such as Tß4 that reduces scarring and blocks activation of NFκB suggests that Tß4 could
have additional important therapeutic applications for inflammation-related diseases, such as cancer, osteoarthritis, rheumatic
diseases, autoimmune diseases, inflammatory pulmonary disease and pancreatitis.
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Collagen and Laminin-5 Stimulation.
Tß4 has a number of additional
biological activities shown to reduce inflammation, stimulate the formation of collagen, and up-regulate the expression of laminin-5,
a subepithelial basement membrane protein. Both collagen and laminin-5 are central to healthy tissue, wound repair and the prevention
of disease.
Laminin-5 promotes cell migration and maintains cell-cell and cell-matrix contacts for intact tissues
which are important for preventing fluid loss and bacterial infection.
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Anti-Apoptosis.
Tß4 has been shown to prevent apoptosis, or programmed
cell death, in two animal models and in two tissue types. In the rodent model, corneal apoptosis, or loss of corneal epithelial
cells leading to corneal epithelial thinning, was prevented through topical administration of Tß4 eye drops. In the heart
muscle of ischemic animal models, such as in mice and pigs, cell death was prevented by either local or systemic administration
of Tß4. It acts by reducing oxidative enzymes.
|
Tß4 has
shown efficacy in heart repair and regeneration in numerous animal models. A 2004 paper in
Nature
showed that it could reduce
the lesion size, improve cardiac function and promote survival. The 2006
Nature
publication mentioned above further concluded
that Tß4’s interaction with EPCs resulted in the formation of cardiomyocytes that repaired damaged myocardium, or heart
tissue, in mice after an induced acute myocardial infarction, or AMI, commonly known as a heart attack. Research published in the
journal
Circulation
showed Tß4’s cardioprotective effects in a pig ischemic-reperfusion model. This pig model
is accepted as an important model upon which to base human clinical research, as pigs are larger mammals, the anatomy of the pig
heart is similar to that of the human heart, and vascular response processes are completed five to six times faster in pigs than
in humans, so that long-term results can be obtained in a relatively short period of time. This research also identified Tß4’s
interaction with EPCs as the underlying basis of cardioprotection through the differentiation of EPCs into cardiomyocytes, yielding
statistically significant cardiac functional recovery results when compared to the administration of placebo.
Similar research
in the area of brain and central nervous system tissues also showed efficacy of repair and regeneration was published in the journal
Neuroscience in 2009. This publication concluded that Tß4 triggered the differentiation of oligodendrocyte progenitor cells
to form myelin-producing oligodendrocytes, which led to the remyelination of axons in the brain of mice with experimental autoimmune
encephalomyelitis, or EAE. This mouse model is an accepted small animal model for the study of multiple sclerosis. Research published
in the Journal of Neurosurgery in 2010 and also in the Journal of Neurological Science in 2014 showed that Tß4 could improve
functional neurological outcome in an animal stroke model. A second study was published in the Journal of Neurosurgery in 2011
demonstrating that administration of Tß4 can significantly improve histological and functional outcomes in rats with traumatic
brain injury, or TBI, indicating that Tß4 has considerable therapeutic potential for patients with TBI. More recently, researchers
studying Tß4 under a material transfer agreement (MTA) found that Tß4 had beneficial effects in animal models of peripheral
neuropathy, one of the major complications of diabetes. This research was published in the Journal of Neurobiology of Disease in
December 2012 and appears to corroborate previous findings using Tß4 for repair of central nervous system disorders. A paper
in Neuropharmacology in 2014 found many benefits of Tß4 administration in a rat model of spinal cord injury, including decreased
lesion size at 7 days, increased neural and oligodendrocyte survival, increase levels of myelin basic protein (a marker of mature
oligodendrocytes), decreased ED1 (a marker of activated microglia/macrophages), and decreased proinflammatory cytokines. Thus,
Tß4 has efficacy for repair and regeneration in several nervous system injury models including MS, TBI, stroke, peripheral
neuropathy, and spinal cord injury and there will likely be additional applications in this area.
We
believe that these various biological activities work in concert to play a vital role in the healing and repair of injured or damaged
tissue and suggest that Tß4 is an essential component of the tissue protection and regeneration process that may lead to
many potential medical applications. All of our product candidates utilize Tß4 as the active pharmaceutical ingredient (API),
which is manufactured by solid-phase peptide synthesis and is an exact copy of the naturally occurring peptide. We have created
three distinct formulations for various routes of administration and medical indications.
Our Product Candidates
RGN-259
RGN-259 is
our proprietary preservative-free eye drop formulation of Thymosin beta 4. In September 2011, we completed a Phase 2a exploratory
clinical trial evaluating the safety and efficacy of RGN-259 in 72 patients with moderate dry eye syndrome. Patients were randomly
assigned to receive either RGN-259 or placebo in this double-masked, placebo-controlled trial. All patients received either RGN-259
(0.1% concentration) or placebo, twice daily for 30 days. Various signs and symptoms of dry eye, such as the degree of ocular surface
damage, ocular itching, burning and grittiness, among others, were graded periodically during and following the treatment period.
The trial was conducted by Ora Inc., an ophthalmic contract research organization that specializes in dry eye research and clinical
trials, and utilized Ora’s Controlled Adverse Environment (CAE
®
) chamber, which is a model that exacerbates
and standardizes signs and symptoms in the dry eye patient.
In November
2011, we reported preliminary safety and efficacy results from the trial. RGN-259 was deemed safe and well-tolerated, with no observed
drug-related adverse events.
The co-primary
outcome measures evaluated in the trial were inferior corneal fluorescein staining and decreased ocular discomfort on day 29, 24
hours after CAE
®
challenge. Various secondary outcome efficacy measures were also evaluated in the trial. These
outcome measures were based on the best available animal data at the time but without the benefit of any actual human clinical
experience in dry eye. While the study did not meet statistical significance for reducing inferior corneal fluorescein staining,
it did show a positive trend in this exploratory trial. RGN-259 did, however, show a statistically significant efficacy result
in the other co-primary endpoint of decreased ocular discomfort and also demonstrated statistical significance in several secondary
endpoints such as reduction of central corneal and superior corneal staining, important signs in dry eye patients and approvable
endpoints by the FDA.
Key outcome
measures were as follows:
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Patients receiving RGN-259 experienced a 325% greater reduction from baseline in central corneal
fluorescein staining compared to placebo at the 24 hour recovery period (p = 0.0075). Reduction of fluorescein staining is indicative
of a reduction in ocular surface damage of the central cornea;
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Patients receiving RGN-259 experienced a 257% greater reduction from baseline in exacerbation of
superior corneal fluorescein staining in the CAE
®
chamber as compared to the placebo (p = 0.0210); and
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Patients receiving RGN-259 experienced a 27.3% greater reduction in exacerbation of ocular discomfort
at day 28 during a 75-minute challenge in the CAE chamber compared to the placebo group (p = 0.0244). Reduction indicates that
RGN-259 can slow progression of ocular symptoms in patients with dry eye syndrome.
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Other CAE
®
-related findings, such as peripheral (combination of the average of superior
and inferior) corneal staining reduction, were observed having statistical significance, while others had positive trends after
treatment with RGN-259. These observations are in line with the known biological properties and mechanisms of action of RGN-259
reported in various nonclinical studies.
|
With respect
to inferior corneal fluorescein staining, we did see a positive trend toward improvement, at day 28 during exposure to adverse
conditions in the CAE
®
chamber in patients receiving RGN-259 compared to placebo, although this improvement was
not deemed to be statistically significant (p = 0.0968).
Statistical
significance (p value) of ≤ 0.05 is the generally accepted threshold for showing an outcome did not happen merely by chance.
The co-primary
outcome measures, selected at the outset of this initial Phase 2a exploratory trial, were based on the best available animal data
at the time but without the benefit of any actual human clinical experience in dry eye. Therefore, we believe that not having met
one of the two co-primary outcome measures at this stage is not as important as identifying statistically significant outcomes
that could potentially serve as approvable endpoints in later stage or in pivotal Phase 3 clinical trials. We believe that the
statistically significant observation of reduction in central and/or superior corneal staining, as well as symptom improvements
observed in the trial and described above, reflect actual patient benefits and would represent acceptable outcome measures to the
FDA for use in follow-up Phase 2b or confirmatory pivotal Phase 3 trials. We prepared a clinical study report for submission to
the FDA that describes the results of the exploratory Phase 2a clinical trial and the results were published in an appropriate
medical journal.
In June 2012,
we reported preliminary results from a double-masked, vehicle-controlled, physician-sponsored Phase 2 clinical trial evaluating
RGN-259 for the treatment of nine patients (18 eyes) with severe dry eye. RGN-259 was observed to be safe and well-tolerated and
met key efficacy objectives with statistically significant sign and symptom improvements, compared to vehicle control, at various
time intervals, including 28 days post-treatment.
In the trial,
nine patients with severe dry eye (18 eyes) were treated with RGN-259 or vehicle control six times daily over a period of 28 days.
They were evaluated upon entering the study after a two-week washout period, at weekly intervals during the treatment phase, at
the end of the 28-day treatment period, and at a follow-up visit 28 days after treatment. Statistically significant differences
in sign and symptom assessments, such as ocular discomfort and corneal fluorescein staining, were seen at various time points throughout
the study. Of particular note were the differences between RGN-259 and vehicle control 28 days post-treatment, or the follow-up
period. The RGN-259-treated group had a 35.1% reduction of ocular discomfort (symptom) compared to vehicle control (p = 0.0141),
and a 59.1% reduction of total corneal fluorescein staining (sign) compared to vehicle control (p = 0.0108) at 28 days after treatment
showing that the repair was sustained long after treatment cessation.
Consistent
with the reduction of ocular discomfort and fluorescein staining at the 28-day follow-up visit, other improvements seen in the
RGN-259-treated patients included tear film breakup time and increased tear volume production. Likewise, these improvements were
seen at other time points in the study. These results were recently published in an appropriate medical journal.
Strategic Partnerships
Lee’s
Pharmaceuticals
.
In July 2012, we entered into a License Agreement with Lee’s Pharmaceutical (HK) Limited (“Lee’s”),
headquartered in Hong Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137
product candidates, in China, Hong Kong, Macau and Taiwan. Lee’s has filed an investigational new drug application IND with
the Chinese FDA to conduct a Phase 2, randomized, double-masked, dose-response clinical trial with RGN-259 in China for dry-eye
syndrome. Lee's recently informed us that it received notice from China's FDA (CFDA) declining its investigational new drug (IND)
application for a Phase 2b dry eye clinical trial because the API (active pharmaceutical ingredient or Tß4) was manufactured
outside of China. The API was manufactured in the U.S. and provided to Lee's by RegeneRx pursuant to a license agreement to develop
RGN-259 ophthalmic eye drops in the licensed territory. Due to this unexpected regulatory hurdle, Lee's is modifying its clinical
program to conduct the Phase 2b dry eye trial in Hong Kong and Taiwan using the Tß4 supplied by RegeneRx while awaiting the
manufacturing of Tß4 in China for a subsequent Phase 3 registration trial. We do not know when the Hong Kong/Taiwan trial
will begin enrollment of patients. Under this revised strategy, Lee's believes it should be able to begin a Phase 3 registration
trial in China sooner rather than waiting on the production of Tß4 in China before initiating a Phase 2b trial.
GtreeBNT
.
In March 2014, we entered into a License Agreement with GtreeBNT for the license of RGN-259. GtreeBNT licensed certain development
and commercialization rights for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan). GtreeBNT is currently our second
largest shareholder. Gtree filed an IND with the Korean Ministry of Food and Drug Safety to conduct a Phase 2b/3 study with RGN-259
in patients with dry eye syndrome and in July 2015 received approval to conduct the trial. GtreeBNT has informed us that given
its immediate focus on the two U.S. trials, it is considering the best timing for the Korean trial.
U.S.
Joint Venture (ReGenTree, LLC).
On January 28, 2015, we announced that we entered into a Joint Venture Agreement (the “Joint
Venture Agreement”) with GtreeBNT. The Joint Venture Agreement provides for the creation of an entity (the “Joint Venture”
or “ReGenTree”), owned by us and GtreeBNT, that will commercialize RGN-259 for treatment of dry eye and neurotrophic
keratopathy in the United States. GtreeBNT will be responsible for funding product development and commercialization efforts and
holds a majority interest of ReGenTree. RegeneRx possesses one of three board seats and certain major decisions and transactions
within ReGenTree, such as commercialization strategy, mergers, and acquisitions, require RegeneRx’s board designee’s
consent. In conjunction with the Joint Venture Agreement, we also entered into a royalty-bearing license agreement (the “License
Agreement”) with ReGenTree pursuant to which we granted to ReGenTree the right to develop and exclusively commercialize RGN-259
in the United States.
Our ownership
interest in ReGenTree is 49% and will be reduced to 42% upon funding, initiation and completion of the Phase 2b trial for Dry Eye
Syndrome. Based on when, and if, ReGenTree achieves certain additional development milestones in the U.S. with RGN-259, our equity
ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon FDA approval of an
NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between
single and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event the ReGenTree
entity is acquired or there is a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled to
40% of all change of control proceeds paid or payable and will forgo any future royalties.
In September
2015, ReGenTree began a multi-centered, randomized, double-masked Phase 2b/3 clinical trial in patients with dry eye syndrome (“DES”)
and a multi-centered, randomized, double-masked Phase 3 clinical trial in patients with neurotrophic keratopathy (“NK”),
both in the U.S. The DES trial has completed full enrollment, treatment and follow-up of all patients. We expect to report top
line data from the DES trial at the end of April 2016.
The NK trial,
a smaller study in an orphan population, has enrolled seven patients thus far with a goal of 46. Of the eight original clinical
sites for the study, six are enrolling patients, one has yet to receive IRB approval to begin enrolling patients, and one was unable
to consummate a clinical contract with ReGenTree. ReGenTree is considering adding additional sites to accelerate patient enrollment.
GtreeBNT has
developed the CMC (chemistry, manufacturing and controls) dossier required for Phase 3 clinical trials and commercialization in
the U.S. and in Korea. This comprehensive and critical effort ensures that final drug product manufacturing, packaging, stability,
purity, reproducibility, etc., meets regulatory guidelines and product specifications. The product of this activity is the current
product format being utilized in the U.S. trials being conducted by ReGenTree and will also be utilized in the planned clinical
activity to be conducted by GtreeBNT under the RGN-259 license agreement for Pan Asia.
RGN-352
During 2009,
we completed a Phase 1a and Phase 1b clinical trial evaluating the safety, tolerability and pharmacokinetics of the intravenous
administration of RGN-352 in 60 healthy subjects (40 in each group, 20 of whom participated in both Phases). Based on the results
of these Phase 1 trials and extensive preclinical efficacy data published in peer-reviewed journals, in the second half of 2010,
we began start-up activities for a Phase 2 study to evaluate RGN-352 (Tß4 Injectable Solution) in patients who had suffered
an AMI. We had planned to begin enrolling patients in this clinical trial in the second quarter of 2011. However, in March 2011,
we were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged
failure to comply with the current Good Manufacturing Practice (cGMP) regulations. We have since learned that the manufacturer
has closed its manufacturing facility and filed for bankruptcy protection. The FDA prohibited us from using any of the active drug
or placebo formulated by this manufacturer in human trials; consequently, we must have study drug (RGN-352 and RGN-352 placebo)
manufactured by a new cGMP-compliant manufacturer in the event we seek to move forward with this trial. While we have identified
a qualified manufacturer for RGN-352, we have elected to postpone activities on this trial until the requisite funding or a partner
is secured.
In addition
to the potential application of RGN-352 for the treatment of cardiovascular disease, preclinical research published in the scientific
journals
Neuroscience
and the
Journal of Neurosurgery,
among others, indicates that RGN-352 may also prove useful
for patients with multiple sclerosis, or MS, as well as patients suffering a stroke, traumatic brain injury, peripheral neuropathy,
or spinal cord injury. In these preclinical studies, the administration of Tß4 resulted in regeneration of neuronal tissue
by promoting remyelination of axons and stimulating oligodendrogenesis, resulting in improvement of neurological functional activity.
In 2012, researchers studying Tß4 under a material transfer agreement (MTA) found that Tß4 had beneficial effects in
animal models of peripheral neuropathy, one of the major complications of diabetes. This research was published in the journal
of Neurobiology of Disease in 2012 and appears to corroborate previous findings using Tß4 for repair of central nervous system
disorders. We are discussing possible partnership opportunities with companies interested in developing RGN-352 for this indication.
Based on our
Phase 1 data and the preclinical research discussed above, we are evaluating various opportunities for government funding for a
Phase 2a clinical trial to show proof-of-concept in each case while also talking with prospective strategic partners with the interest,
capabilities and resources to further develop product candidate in these fields.
RGN-137
Clinical
Development — Epidermolysis Bullosa (EB).
In 2005, we began enrolling patients in a Phase 2 clinical
trial designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with EB. EB is a genetic disease
of approximately 10 gene mutations that results in fragile skin and other epithelial structures (e.g., cornea and GI tract) that
can blister spontaneously or separate at the slightest trauma or friction, creating a wound that at times does not heal or heals
poorly. In severe cases, recurrent blistering and tissue loss may be life threatening. EB has been designated as an “orphan”
indication by the FDA’s Office of Orphan Drugs. A portion of this trial was funded by a grant of $681,000 received from the
FDA. In this randomized, double-blind, placebo-controlled, dose-response trial, nine U.S. clinical sites evaluated the safety,
tolerability, and wound healing effectiveness of three different concentrations of RGN-137 compared to placebo. RGN-137 was applied
topically to the skin, once daily for up to 56 consecutive days. We completed enrollment of 30 out of the original target of 36
patients and closed the Phase 2 trial in late 2011 as the availability of eligible patients had been exhausted. We submitted the
final report to the FDA in 2014.
Clinical
Development — Pressure Ulcers.
In late 2005, we began enrolling patients in a Phase 2 clinical trial
designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with chronic pressure ulcers, commonly
known as bedsores. In this randomized, double-blind, placebo-controlled, dose-response trial, 15 clinical sites in the United States
enrolled a total of 72 patients to evaluate the safety, tolerability, and wound healing effectiveness of three different concentrations
of RGN-137 compared to placebo. RGN-137 was applied topically to patients’ ulcers, once daily for up to 84 consecutive days.
Patients in the trial were between 19 and 85 years old and had at least one stable Stage III or IV pressure ulcer with a surface
area between 5 and 70 cm
2
. Stage III and IV pressure ulcers are full thickness wounds that penetrate through the skin
and muscle, sometimes completely to the bone.
In January
2009, we reported final data from this trial. RGN-137 was well-tolerated at all three dose levels studied, with no dose-limiting
adverse events, which achieved the primary objective of the study. As for efficacy, all Tß4 doses performed similarly compared
to placebo, with no statistically significant efficacy results. However, patients treated with the middle dose showed a 17% improvement
of wound healing, which was the highest rate among the three active doses evaluated. The improvement in ulcer healing in this middle
dose group following nine weeks of treatment was equal to the improvement in patients treated with placebo after 12 weeks of treatment.
A follow-on evaluation, reported at the 3rd International Symposium on the Thymosins in Health and Disease in March 2012, showed
that for those pressure ulcer patients’ wounds that healed, RGN-137 mid dose (0.02% Tß4 gel product) accelerated wound
closure with a median time to healing of 22 days as compared to 57 days for the placebo. Although those results are clinically
significant, they were not statistically significant.
Clinical
Development — Venous Stasis Ulcers.
In mid-2006 we began enrolling patients in a Phase 2 clinical trial
designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with venous stasis ulcers. Venous stasis
ulcers are a common type of chronic wound that develops on the ankle or lower leg in patients with chronic vascular disease. In
these patients blood flow in the lower extremities is impaired leading to venous hypertension, edema (swelling) and mild redness
and scaling of the skin that gradually progresses to ulceration. In this double-blind, placebo-controlled, dose-response study,
8 European sites in Italy (N=5) and Poland (N=3) make up the 72 patients randomized to receive three different concentrations of
RGN-137 or placebo. RGN-137 or placebo was applied topically to patients’ ulcers once daily for consecutive days. A patient’s
ulcer size and ulcer stability for enrollment were between 3 and 30 cm
2
and at least 6 weeks in duration, respectively.
In 2009, we
reported final data from that trial. All doses of RGN-137 were well tolerated. More patients achieved healing in the RGN-137 mid
dose (0.03% Tß4 gel product) than in any other dose group. The mid dose showed both an increased incidence of wound healing
and a faster healing time compared to placebo. The mid dose decreased the median time to healing by 45% among those wounds that
completely healed. A follow-on evaluation, reported at the 3rd International Symposium on the Thymosins in Health and Disease in
March 2012, showed that for those venous stasis ulcer patients’ wounds greater than 3 cm
2
that healed, the RGN-137
mid dose (0.03% Tß4 gel product) accelerated wound closure with a median time to healing of 49 days as compared to 78 days
for the placebo. Those results were both clinically and statistically significant.
GtreeBNT.
In March 2014, we entered into a License Agreement with GtreeBNT to license certain development and commercialization rights
for RGN-137 in the U.S.
Our Strategy
We seek to
maximize the value of our product candidates by advancing their clinical development and then identifying suitable partners for
further development, regulatory approval, and marketing. We intend to engage in strategic partnerships with companies with clinical
development and commercialization strengths in desired pharmaceutical therapeutic fields. We are actively seeking partners with
suitable infrastructure, expertise and a long-term initiative in our medical fields of interest. To that end, we have entered several
important licensing and joint venture agreements with pharmaceutical companies to develop our product candidates.
Our ownership
interest in ReGenTree is 49% and will be reduced to 42% upon funding, initiation and completion of the Phase 2b trial for Dry Eye
Syndrome. Based on when, and if, ReGenTree achieves certain additional development milestones in the U.S. with RGN-259, our equity
ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon FDA approval of an
NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between
single and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event the ReGenTree
entity is acquired or there is a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled to
40% of all change of control proceeds paid or payable and will forgo any future royalties.
The Joint Venture
with GtreeBNT follows two previous transactions with GtreeBNT signed in March 2014 when we had entered into License Agreements
for the license of our RGN-259 and RGN-137 product candidates. GtreeBNT licensed the development and commercialization rights for
RGN-259 in Asia (excluding China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization rights
for RGN-137 in the U.S.
We have entered
into a License Agreement with Lee’s Pharmaceutical (HK) Limited, headquartered in Hong Kong, for the license of Thymosin
Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and
Taiwan. Lee’s is an affiliate of Sigma-Tau, which collectively with its affiliates is our largest stockholder.
We previously
entered into a strategic partnership with Defiante Farmaceutica S.A., (“Defiante”), formerly a wholly-owned subsidiary
of Sigma-Tau Group, a leading international pharmaceutical company, which collectively comprise our largest shareholder, or Sigma-Tau,
for development and marketing of RGN-137 and RGN-352 for specified indications in Europe and other contiguous countries. Defiante
merged with Sigma-Tau Industrie Farmaceutiche Riunite S.p.A. in 2013 and Sigma-Tau recently merged with Alfa Wasserman S.p.A.,
an Italian pharmaceutical company. Currently, there is no ongoing development of our products by Alfa Wasserman.
Manufacturing
We use a major
contract manufacturer to produce bulk Tß4, which is the active pharmaceutical ingredient, or API, in our product candidates
by an established and proven manufacturing process known as solid-phase peptide synthesis. While we do not currently have long-term
supply agreements in place, we and ReGenTree intend to establish a long-term supply arrangement with at least one manufacturer
once practicable. No assurance can be given, however, that such agreements will be negotiated on favorable terms, or at all. Contractors
are selected on the basis of their supply capability, ability to produce a product in accordance with Current Good Manufacturing
Practice, or cGMP, requirements of the FDA and ability to meet our established specifications and quality requirements. Given our
recent licensing and joint venture deals, our partner in Korea and the U.S. is working closely with our current primary contract
manufacturer on the cGMP validation process and consistency runs, among other things, to prepare for the manufacture of bulk Tß4
for use in future clinical trials and commercialization of our formulated product candidates. Through ReGenTree we are also identifying
and qualifying other potential API manufacturers. RegeneRx will have access to the data resulting from this endeavor should we
need to use it for purposes outside the licensed territories.
We also use
a number of outside contract manufacturers to formulate bulk Tß4 into our product candidates, RGN-137, RGN-259 and RGN-352.
We use separate manufacturers for each formulation of Tß4. All of these formulations may require modifications, along with
additional studies, as we advance our clinical development programs through commercialization.
One of the
compelling reasons to create a joint venture with GtreeBNT to develop RGN-259 in the U.S. for ophthalmology products was their
recent manufacturing experience gained from their development of RGN-259 in Korea. This experience has allowed ReGenTree to move
rapidly from Phase 2 to Phase 3 clinical trials in the U.S. without duplication of required Chemistry, Manufacturing, and Control
(CMC) efforts, which are quite substantial when moving into Phase 3 and in anticipation of commercialization. GtreeBNT has been
working with companies to manufacture RGN-259 in blow-filled sealed containers, which are currently being utilized for Phase 3
clinical trials and will be used for commercial marketing upon FDA approval.
As described
elsewhere in this report, in 2011 our formulation and vialing contractor for RGN-352 underwent a manufacturing inspection by the
FDA and was found not to be in compliance with cGMP, resulting in a clinical hold of our Phase 2 AMI clinical trial. This company
has since closed its manufacturing facility and filed for bankruptcy protection. If we are to continue clinical development of
RGN-352, we will need to secure a cGMP-compliant formulation and filling manufacturer of RGN-352. We have identified several cGMP-compliant
companies able to perform this service.
Competition
We are engaged
in a business that is highly competitive, and our target medical indications are ones with significant unmet needs. Moreover, the
cosmetic and cosmeceutical industries are rapidly developing new products based on new scientific research. Consequently, there
are many enterprises, both domestic and foreign, pursuing therapies and products that could compete with ours. Most of these entities
have financial and human resources that are substantially greater than ours, specifically with regard to the conduct of clinical
research and development activities, clinical testing and in obtaining the regulatory approvals necessary to market pharmaceutical
products. Brief descriptions of some of these competitive products follow:
RGN-259.
Most
specialty ophthalmic companies have a number of products on the market that could compete with RGN-259. There are numerous antibiotics
to treat eye infections to promote corneal wound healing and many eye lubrication products that are soothing to the eye and help
eye healing, many of which are sold without prescriptions. Companies also market steroids to treat certain conditions within our
area of interest. Allergan, Inc. markets Restasis
™
, Ophthalmic Emulsion,
the only commercially available and FDA-approved eye drop to treat dry eye.
Restasis, and other products, have been
approved for marketing in certain other countries where we have licensed RGN-259. Shire PLC is developing its product candidate,
Lifitegrast, and is in pivotal Phase 3 clinical trials in the U.S. Shire has said it plans to resubmit an NDA for Lifitegrast in
2016. We believe RGN-259 is different than any other product candidate for dry eye in that it actively promotes repair using a
multi-faceted approach of increasing cell migration and laminin-5 production, and decreasing inflammation and apoptosis.
RGN-352.
Currently,
there are no approved pharmaceutical products for regenerating cardiac tissue following a heart attack, nor are there approved
pharmaceutical products for regeneration of nervous tissue or for the remyelination of axons of patients with multiple sclerosis
or patients suffering from traumatic brain injury. However, many pharmaceutical companies and research organizations are developing
products, pharmacologic and stem cell therapies and technologies that are intended to prevent cardiac damage, improve cardiac function,
and regenerate cardiac muscle after a heart attack. There are also companies developing products that are purported to remyelinate
neurons and provide functional improvement for patients suffering from multiple sclerosis, stroke, traumatic brain injury, and
peripheral neuropathy. If we, or a partner, were to successfully develop RGN-352 for cardiovascular or central nervous system indications,
such products would have to compete with other drugs or therapies currently being developed or marketed by large pharmaceutical
companies for similar indications.
RGN-137.
There are numerous companies developing new pharmaceutical products for wound healing. Products and therapies such as antibiotics,
honey-based ointments, silver-based compounds and low frequency cavitational ultrasound are also used to treat certain types of
dermal wounds. Moreover, dermal wound healing is a large and highly fragmented marketplace that includes numerous therapeutic products
and medical devices for treating acute and chronic dermal wounds.
Government
Regulation
In the United
States, the Federal Food, Drug, and Cosmetic Act, as amended, or FFDCA, and the regulations promulgated thereunder, and other federal
and state statutes and regulations govern, among other things, the testing, manufacturing, labeling, storing, recordkeeping, distribution,
advertising and promotion of our product candidates. Regulation by governmental authorities in the United States and foreign countries
will be a significant factor in the manufacturing and potential marketing of our product candidates and in our ongoing research
and product development activities. Any product candidate we develop will require regulatory approval by governmental agencies
prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical studies, clinical trials
and other approval procedures by the FDA and similar health authorities in foreign countries. The process of obtaining these approvals
and subsequent compliance with appropriate federal and state statutes and regulations requires the expenditure of substantial resources.
Preclinical
studies must ordinarily be conducted to evaluate an investigational new drug’s potential safety by toxicology studies and
potential efficacy by pharmacology studies. The results of these studies, among other things, are submitted to the FDA as part
of an Investigational New Drug Application, or IND, which must be reviewed by the FDA before clinical trials can begin. Typically,
clinical evaluation involves a three-stage process. Phase 1 clinical trials are conducted with a small number of healthy volunteers
to determine the safety profile and the pattern of drug absorption, distribution, metabolism and excretion, and to assess the drug’s
effect on the patient. Phase 2, or therapeutic exploratory, trials are conducted with somewhat larger groups of patients, who are
selected by relatively narrow criteria yielding a more homogenous population that is afflicted with the target disease, in order
to determine preliminary efficacy, optimal dosages and expanded evidence of safety. Phase 2 trials should allow for the determination
of the dose to be used in Phase 3 clinical trials. Phase 3, or therapeutic confirmatory, large scale, multi-center, comparative
trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of
safety and efficacy required by the FDA and other regulatory authorities. The primary objective of Phase 3 clinical trials is to
show that the drug confers therapeutic benefit that outweighs any safety risks. All clinical trials must be registered with a central
public database, such as www.clinicaltrials.gov, and once completed, results of the clinical trials must be entered in the database.
The results
of all of these preclinical studies and clinical trials, along with detailed information on manufacturing, are submitted to the
FDA in the form of a New Drug Application, or NDA, for approval to commence commercial sales. The FDA’s review of an NDA
requires the payment of a user fee currently in excess of $1.8 million, which may be waived for the first NDA submitted by
a qualifying small business. In responding to an NDA, the FDA may refuse to file the application if the FDA determines that the
application does not satisfy its regulatory approval criteria, request additional information or grant marketing approval. Therefore,
even if we complete Phase 3 clinical trials for our product candidates and submit an NDA to the FDA, there can be no assurance
that the FDA will grant marketing approval, or if granted, that it will be granted on a timely basis. If the FDA does approve a
product candidate, it may require, among other things, post-marketing testing, including potentially expensive Phase 4 trials,
which monitor the safety of the drug. In addition, the FDA may in some circumstances impose risk evaluation and mitigation strategies
that may be difficult and expensive to administer. Product approvals may be withdrawn if compliance with regulatory requirements
is not maintained or if problems occur after the product reaches the market.
Among the conditions
for NDA approval is the requirement that the applicable clinical, pharmacovigilance, quality control and manufacturing procedures
conform on an ongoing basis with current Good Clinical Practices, Good Laboratory Practices, current Good Manufacturing Practices,
and computer information system validation standards. During the review of an NDA, the FDA will perform a pre-licensing inspection
of select clinical sites, manufacturing facilities and the related quality control records to determine the applicant’s compliance
with these requirements. To assure compliance, applicants must continue to expend time, money and effort in the area of training,
production and quality control. After approval of any product, manufacturers are subject to periodic inspections by the FDA. If
a company fails to comply with FDA regulatory requirements, FDA may pursue a wide range of remedial actions, including seizure
of products, corrective actions, warning letters and fines. As described in this report, in 2011 one of our prior contract manufacturers
was alleged by the FDA to have not complied with current Good Manufacturing Practices, which impaired our ability to conduct a
Phase 2 AMI trial with RGN-352.
We have received
orphan drug designation from the FDA for RGN-137 for the treatment of EB and RGN-259 for the treatment of neurotrophic keratopathy
or NK, (now to be developed by ReGenTree). The FDA may designate a product or products as having orphan drug status to treat a
disease or condition that affects less than 200,000 individuals in the United States, or, if patients of a disease number more
than 200,000, the sponsor can establish that it does not realistically anticipate its product sales will be sufficient to recover
its costs. If a product candidate is designated as an orphan drug, then the sponsor may receive incentives to undertake the development
and marketing of the product, including grants for clinical trials, as well as a waiver of the user fees for submission of an NDA
application. For example, as described above, we received a grant from the FDA for our Phase 2 clinical trial of RGN-137 to treat
patients with EB.
Generally,
if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it
has such designation, the product is entitled to marketing exclusivity for a period of seven years in the United States and ten
years in the EU. There may be multiple designations of orphan drug status for a given drug and for different indications. Orphan
drug designation does not guarantee that a product candidate will be approved by the FDA for marketing for the designation, and
even if a sponsor of a product candidate for an indication for use with an orphan drug designation is the first to obtain FDA approval
of an NDA for that designation and obtains marketing exclusivity, another sponsor’s application for the same drug product
may be approved by the FDA during the period of exclusivity if the FDA concludes that the competing product is clinically superior.
In this instance, the orphan designation and marketing exclusivity originally granted would be lost in favor of the clinically
superior product.
Intellectual Property
We hold worldwide
patents and patent applications covering peptide compositions, uses and formulations related to dermal and ophthalmic indications
and other organ and tissue repair activities, as well as for cosmetic and consumer product applications. In 2001, we entered into
a license agreement with the NIH under which we received an exclusive worldwide license from the NIH for all claims within the
scope of the NIH’s patent application, and any issued patents, covering the use of Tß4 as a tissue repair and regeneration
factor. During 2007, patents were issued in Europe and the United States related to the original NIH patent application, which
patents expire in July 2019. Corresponding patents have been granted in Hong Kong, Australia and China and certain other territories.
The issued European patent was opposed by a third party at the European Patent Office and, in December 2009, we argued the case
before the Opposition Division of the European Patent Office in Munich, Germany and prevailed with certain amendments to the claims.
In exchange for the exclusive license, we agreed to make certain minimum royalty and milestone payments to the NIH. In 2013, we
amended certain provisions of the exclusive license; we were permitted to credit amounts paid to prosecute or maintain the licensed
patent rights during 2013 calendar year against the 2013 minimum annual royalty, reducing the minimum annual royalty beginning
in 2014 to $2,000 and fixing the maximum sublicense participation fee. Through December 31, 2015, we have complied with all
minimum royalty requirements and no milestone payments have been required under the agreement.
We hold a U.S. patent
relating to the use of Tß4 for treatment of alopecia, an autoimmune skin disease that results in hair loss, which expires
in 2017, with corresponding patents in Europe and Singapore that expire in 2018. In 2006, we were issued a patent in China for
the use of Tß4 to treat EB, which expires in 2022.
We hold a U.S.
patent relating to the use of Tß4 for the treatment of congestive heart failure. This patent issued in January 2012, and
will expire in 2027. Other patent applications for our various product candidates, if issued, will offer protection in the U.S.
and certain other territories through 2033.
We have also
filed numerous additional U.S. and international patent applications covering various compositions, uses, formulations and
other components of Tß4, as well as for novel peptides resulting from our research efforts, the latest of which were filed
during 2013. There can be no assurance that these, or any other future patent applications under which we have rights, will result
in the issuance of a patent or that any patent issued will not be subject to challenge or opposition. In the case of a claim of
patent infringement by or against us, there can be no assurance that we will be able to afford the expense of any litigation that
may be necessary to enforce our proprietary rights.
We have also
evaluated a number of our patents and patent applications in certain territories to determine whether it is cost-effective to continue
to maintain or prosecute them. In some cases, we have determined that the value or potential value of such patents and/or applications
is not worth the continued effort or expense and have either ceased efforts to pursue specific patents or abandoned any that have
short expiries or cover countries of minimal strategic interest to us or our partners. We will continue to evaluate our portfolio
and take such actions from time to time as appropriate.
Material Agreements
National Institutes of Health
We have entered
into a license agreement with NIH under which we are obligated to pay an annual minimum royalty of $2,000. In 2013 we amended certain
provisions of the exclusive license; we were permitted to credit amounts paid to prosecute or maintain the licensed patent rights
during 2013 calendar year against the 2013 minimum annual royalty. Beginning in 2014 the minimum annual royalty is $2,000. Additionally,
we are obligated to pay the NIH a percentage of sales of qualifying product candidates, if any. There have been no such sales to
date. Through December 31, 2015, we have complied with all minimum royalty requirements, and no milestone payments have been
required under the agreement.
Defiante/Sigma-Tau/Alfa Wassermann
We have exclusively
licensed certain internal and external wound healing European rights to Tß4 to Defiante, which merged with Sigma-Tau Industrie
Farmaceutiche Riunite S. P. A. in 2013. In 2015, Sigma-Tau merged into Alfa Wassermann, an Italian pharma company. These licensed
rights to Tß4 include its use to treat indications that are the subject of all of our current dermal clinical trials of RGN-137,
as well as the treatment of heart attacks. The license excludes the use of Tß4 in any ophthalmic indications and other indications
that are disease-based and not the result of a wound. Under the agreement, Alfa Wassermann may develop Tß4 for the treatment
of internal and external wounds in Europe and certain other contiguous and geographically relevant countries. The license agreement
expires on a country-by-country basis upon the last to expire of any granted patent in the territory having at least one valid
claim covering the products then on the market, the expiration of any other exclusive or proprietary marketing rights.
Under the license
agreement, Alfa Wassermann is obligated to pay us a royalty on commercial sales, if any, and we will supply all required Tß4
for development. Upon the completion of a Phase 2 clinical trial for the covered indications that yields positive results in terms
of efficacy and safety, Alfa Wassermann must either pay us a $5 million milestone payment or initiate and fund a pivotal Phase
3 clinical trial for the applicable product candidate in order to maintain the license. We have completed two Phase 2 clinical
trials of RGN-137 for the treatment of pressure ulcers and venous stasis ulcers which, due to the lack of statistical significance
of the primary efficacy endpoints, did not trigger any payment obligations to us.
The license
agreement with Defiante also contains future clinical and regulatory milestones in the licensed territory. If those milestones
are attained, certain performance criteria regarding commercial registration and minimum annual royalties will be payable to us
in each licensed country. The agreement does not prevent us from sublicensing the technology in countries outside the licensed
territory and has no impact on any U.S. rights. RegeneRx may seek to reacquire the licensed rights back from Alfa Wassermann
at some point in the future
Lee’s Pharmaceuticals
On July 15,
2012, we entered into a License Agreement with Lee’s Pharmaceutical for the license of Tß4 in any pharmaceutical formulation,
including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. Lee’s paid us $200,000
upon signing of a term sheet with respect to the transaction on March 27, 2012, and Lee’s paid us an additional $200,000
upon signing of the definitive license agreement.
The terms of
the license agreement include aggregate potential milestone payments of up to $3.6 million and royalties ranging from low double
digit to high single digit royalties on commercial sales, if any.
Under the agreement,
Lee’s is responsible for all developmental costs associated with each product candidate. We provided Tß4 to Lee’s
at no charge for a Phase 2 ophthalmic clinical trial and will provide Tß4 to Lee’s for all other developmental and
clinical work at a price equal to our cost.
The two companies
have discussed Lee’s development plans and we have continued to provide information as requested. Lee’s previously
filed an investigational new drug application IND with the Chinese FDA (CFDA) to conduct begin phase 2, randomized, double-masked,
dose-response clinical trial with RGN-259 in China for dry-eye syndrome. Recently, Lee’s received notice from the CFDA that
it would not grant an IND to begin Phase 2 studies because the API (active pharmaceutical ingredient or Tß4) was not manufactured
in China. Therefore, Lee’s has informed us that they intend to initiate Phase 2 in Hong Kong (HK) and will proceed under
their regulatory process while establishing API manufacturing capabilities in mainland China for future Phase 3 studies. It is
believed that this strategy will facilitate the initiation of Phase 2 clinical trials in Lee’s licensed territory. We have
not been informed of a projected starting date for Phase 2 in HK.
GtreeBNT
On March 7,
2014, we entered into license agreements with GtreeBNT Co., Ltd. The two Licensing Agreements are for the license of territorial
rights to two of our Thymosin Beta 4-based products candidates, RGN-259 and RGN-137.
Under the License
Agreement for RGN-259, our preservative-free eye drop product candidate, GtreeBNT will have the right to develop and commercialize
RGN-259 in Asia (excluding China, Hong Kong, Taiwan, and Macau). The rights will be exclusive in Korea, Japan, Australia, New Zealand,
Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Mongolia, Myanmar (Burma), Philippines, Singapore, Thailand, Vietnam,
and Kazakhstan, and semi-exclusive in India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, Kyrgyzstan, Tajikistan,
Turkmenistan and Uzbekistan, collectively, the Territory (the “259 Territory”). Under the 259 License Agreement we
are eligible to receive aggregate potential milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties
of a low double digit percentage of any commercial sales of the licensed product sold by GtreeBNT in the 259 Territory.
Under the License
Agreement for RGN-137, our topical dermal gel product candidate, GtreeBNT will have the exclusive right to develop and commercialize
RGN-137 in the U.S. (the”137 Territory”). Under the 137 License Agreement we are eligible to receive aggregate potential
milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties of a low double digit percentage of
any commercial sales of the Company’s licensed product sold by GtreeBNT in the 137 Territory.
Each license
agreement contains diligence provisions which require the initiation of certain clinical trials within certain time periods that,
if not met, would result in the loss of rights or exclusivity in certain countries. GtreeBNT will pay for all developmental costs
associated with each product candidate. We will provide a certain limited amount of Tß4 to GtreeBNT at no charge for initial
clinical trials in Korea, Japan and Australia for RGN-259 and in the U.S. for RGN-137 and will provide Tß4 to GtreeBNT for
all other developmental and clinical work on a cost plus basis. We retain the manufacturing and supply rights for Tß4 in
the respective Territories and the parties will negotiate in good faith an exclusive supply agreement for Tß4 as soon as
practicable. We will also have the right to exclusively license any improvements made by GtreeBNT to our products outside of the
licensed territory on a royalty-free basis.
The two firms
have created a joint development committee and continue to discuss and the development of the licensed products and share information
relating thereto. Both companies will also share all non-clinical and clinical data and other information related to development
of the licensed product candidates.
U.S. Joint Venture
On January
28, 2015, the Company entered into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company and licensee in certain
Pan Asian countries. The Joint Venture Agreement provides for the creation of the Joint Venture, ReGenTree, LLC (“ReGenTree”),
jointly owned by the Company and GtreeBNT that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy
in the United States, as well as any other relevant ophthalmic indications.
GtreeBNT is
solely responsible for funding all of the product development and commercialization efforts of ReGenTree. GtreeBNT made an initial
contribution of $3 million in cash and received an initial equity stake of 51%. RegeneRx retains 49% ownership of ReGenTree. GtreeBNT’s
equity stake may increase (and RegeneRx’s would proportionally decrease) upon ReGenTree achieving certain product development
milestones (including receipt of a new drug application (“NDA”) by the U.S. FDA). GtreeBNT has subsequently funded
the ongoing Phase 2b/3 and Phase 3 U.S. clinical trials for dry eye syndrome and neurotrophic keratopathy, respectively.
Our ownership
interest in ReGenTree is 49% and will be reduced to 42% upon funding, initiation and completion of the Phase 2b trial for Dry Eye
Syndrome. Based on when, and if, ReGenTree achieves certain additional development milestones in the U.S. with RGN-259, our equity
ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon FDA approval of an
NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between
single and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event the ReGenTree
entity is acquired or there is a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled to
40% of all change of control proceeds paid or payable and will forgo any future royalties.
The Company
is not required or otherwise obligated to provide financial support to ReGenTree.
ReGenTree is
responsible for executing all development and commercialization activities under the License Agreement, which activities will be
directed by a joint development committee comprised of representatives of the Company and GtreeBNT. The License Agreement has a
term that extends to the later of the expiration of the last patent covered by the License Agreement or 25 years from the first
commercial sale under the License Agreement. The License Agreement may be earlier terminated if the Joint Venture fails to meet
certain commercialization milestones, or if either party breaches the License Agreement and fails to cure such breach, or as a
result of government action that limits the ability of the Joint Venture to commercialize the product, as a result of a challenge
to a licensed patent, following termination of the license between the Company and certain agencies of the United States federal
government, or upon the bankruptcy of either party.
Development Agreements
We have entered
into agreements with outside service providers for the manufacture and development of Tß4, the formulation of Tß4 into
our product candidates, the conduct of nonclinical safety, toxicology and efficacy studies in animal models, and the management
and execution of clinical trials in humans. Terms of these agreements vary in that they can last from a few months to more than
a year in duration. For additional information regarding our research and development expenses over the past two years, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in this report.
Employees
We currently
have three full time employees including our President and CEO and also employ two part time employees. We also retain seven independent
contractors. We believe that we have good relations with our employees and contractors.
Corporate Information
We were incorporated
in Delaware in 1982 under the name Alpha 1 Biomedicals, Inc. In 2000, we changed our corporate name to RegeneRx Biopharmaceuticals,
Inc. Our principal executive office is located at 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850. Our telephone
number is (301) 208-9191.
Available Information
Our corporate
website is
www.regenerx.com
. Our electronic filings with the U.S. Securities and Exchange Commission, or SEC, including
our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of
charge through our website as soon as reasonably practicable after we have electronically filed such information with, or furnished
such information to, the SEC.
Item 1A. Risk Factors
Set forth below
and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause actual results
to differ materially from the results contemplated by the forward-looking statements contained in this report. The descriptions
below include any material changes to and supersede the description of the risk factors affecting our business previously disclosed
in “Part II, Item 1A. Risk Factors” of the Annual Report.
Risks Related to Our Liquidity and Need for
Financing
Before giving effect to any
potential additional sales of our securities, we estimate that our existing capital resources and the $250,000 cash inflow from
the April 2016 execution of a term sheet with an affiliated entity will only be sufficient to fund our operations into the third
quarter of 2016.
As of December 31, 2015, we had
cash and cash equivalents on hand of approximately $318,000, this amount coupled with the $250,000 received pursuant to the execution
of a term sheet with an affiliated party in April 2016 will only fund our planned operations into the third quarter of 2016, which
means we will need additional capital to operate through 2016. As a result, we may be required to engage in capital raising transactions
that cause a reduction in the trading price of our common stock.
In addition to our current
need to raise operating funds, we will need substantial additional capital for the continued development of product candidates
through marketing approval and for our longer-term future operations.
Beyond our current capital needs,
we anticipate that substantial new capital resources will be required to continue our longer-term independent product development
efforts, including any and all follow-on trials that will result from our current clinical programs beyond those currently contemplated,
and to scale up manufacturing processes for our product candidates. However, the actual amount of funds that we will need will
be determined by many factors, some of which are beyond our control. These factors include, without limitation:
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the scope of our clinical trials, which is significantly influenced by the quality of clinical
data achieved as trials are completed and the requirements established by regulatory authorities;
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the speed with which we complete our clinical trials, which depends on our ability to attract and
enroll qualifying patients and the quality of the work performed by our clinical investigators and contract research organizations
chosen to conduct the studies;
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the time required to prosecute, enforce and defend our intellectual property rights, which depends
on evolving legal regimes and infringement claims that may arise between us and third parties;
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the ability to manufacture at scales sufficient to supply commercial quantities of any of our product
candidates that receive regulatory approval, which may require levels of effort not currently anticipated; and
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the successful commercialization of our product candidates, which will depend on our ability to
either create or partner with an effective commercialization organization and which could be delayed or prevented by the emergence
of equal or more effective therapies.
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Emerging biotechnology companies
like us may raise capital through corporate collaborations and by licensing intellectual property rights to other biotechnology
or pharmaceutical enterprises. We intend to pursue this strategy, but there can be no assurance that we will be able to enter into
additional license agreements with respect to our intellectual property or product development programs on commercially reasonable
terms, if at all. There are substantial challenges and risks that will make it difficult to successfully implement any of these
alternatives. If we are successful in raising additional capital through such a license or collaboration, we may have to give up
valuable rights to our intellectual property. In addition, the business priorities of a strategic partner may change over time,
which creates the possibility that the interests of the strategic partner in developing our technology may diminish and could have
a potentially material negative impact on the value of our interest in the licensed intellectual property or product candidates.
Further, if we raise additional
funds by selling shares of our common stock or securities convertible into our common stock the ownership interest of our existing
stockholders may be significantly diluted. If additional funds are raised through the issuance of preferred stock or debt securities,
these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees,
interest expense, restrictive covenants or the granting of security interests in our assets.
Our failure to successfully address
our long-term liquidity requirements would have a material negative impact on our business, including the possibility of surrendering
our rights to some technologies or product opportunities, delaying our clinical trials or ceasing our operations.
We have incurred losses since
inception and expect to incur significant losses in the foreseeable future and may never become profitable.
We have not commercialized any product
candidates to date and incurred net operating losses every year since our inception in 1982. We believe these losses will continue
for the foreseeable future, and may increase, as we pursue our product development efforts related to Tß4. As of December
31, 2015, our accumulated deficit totaled approximately $105 million.
As we expand our research and development
efforts and seek to obtain regulatory approval of our product candidates to make them commercially viable, we anticipate substantial
and increasing operating losses. Our ability to generate revenues and to become profitable will depend largely on our ability,
alone or through the efforts of third-party licensees and collaborators, to efficiently and successfully complete the development
of our product candidates, obtain necessary regulatory approvals for commercialization, scale-up commercial quantity manufacturing
capabilities either internally or through third-party suppliers, and market our product candidates. There can be no assurance that
we will achieve any of these objectives or that we will ever become profitable or be able to maintain profitability. Even if we
do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time
and are not otherwise able to raise necessary funds to continue our development efforts and maintain our operations, we may be
forced to cease operations.
Our common stock is quoted
on the over-the-counter market, which subjects us to the SEC’s penny stock rules and may decrease the liquidity of our common
stock.
Our common stock is traded over-the-counter
on the OTC Bulletin Board. Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a
stock exchange. There may be a limited market for our stock now that it is quoted on the OTC Bulletin Board, trading in our stock
may become more difficult and our share price could decrease. Specifically, you may not be able to resell your shares of common
stock at or above the price you paid for such shares or at all.
In addition, our ability to raise
additional capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot guarantee
that we would be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity
financing while our shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete
a financing while our common stock is traded on a national securities exchange. Further, we are unable to use short-form registration
statements on Form S-3 for the registration of our securities, which could impair our ability to raise additional capital as needed.
Our common stock is also subject
to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. The SEC
generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject
to certain exceptions. The ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their
shares in the secondary market will be limited and, as a result, the market liquidity for our common stock will likely be adversely
affected. We cannot assure you that trading in our securities will not be subject to these or other regulations in the future.
The report of our independent
registered public accounting firm contains explanatory language that substantial doubt exists about our ability to continue as
a going concern.
The report of our independent registered
public accounting firm on our financial statements for the year ended December 31, 2015 contains explanatory language that
substantial doubt exists about our ability to continue as a going concern, without raising additional capital. As described in
this annual report, we estimate that our existing capital resources, including the $250,000 received pursuant to the execution
of a term sheet with an affiliated party in April 2016 will only be adequate to fund our operations into the third quarter of 2016.
Therefore, we are seeking sources of capital, but if we are unable to obtain sufficient financing to support and complete these
activities, then we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we
curtail our operations, we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect the
value of our common shares.
Risks Related to Our Business
and Operations
Our planned Phase 2 clinical
trial of RGN-352 was placed on clinical hold by the FDA in March 2011 due to non-compliance of cGMP regulations by a contract manufacturer
and we are unsure when, if ever, we will be able to resume this trial.
In the second half of 2010, we implemented
the development plans for our phase 2 clinical trial to evaluate RGN-352 in patients who have suffered an acute myocardial infarction,
or AMI. We had planned to begin enrolling patients near the end of the first quarter of 2011. However, in March 2011, we were notified
by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply
with current Good Manufacturing Practice (“cGMP”) regulations. The FDA has prohibited us from using any of the active
drug or placebo manufactured by this manufacturer in human trials, which will require us to identify a cGMP-compliant manufacturer
and to have new material produced in the event that we seek to resume this trial. We have also learned that the contract manufacturer
has closed its manufacturing facility and has filed for bankruptcy protection. Significant preparatory time and procedures will
be required before any new suitable manufacturer would be able to manufacture RGN-352 for the AMI trial. Since we are unable to
estimate the length of time that the trial will be on clinical hold, we have elected to cease activities on this trial until the
FDA clinical hold is resolved and the requisite funding might be secured. Consequently, there can be no assurance that we will
be able to timely initiate trial activities or complete this trial, if at all.
All of our drug candidates
are based on a single compound.
Our current primary business focus
is the development of Tß4, and its analogues, derivatives and fragments, for the regeneration and accelerated repair of damaged
tissue from non-healing dermal and corneal wounds, cardiac injury, central/peripheral nervous system diseases and other conditions,
as well as an improvement in various functions, such as, but not limited to, cardiac and neurological. Unlike many pharmaceutical
companies that have a number of unique chemical entities in development, we are dependent on a single molecule, formulated for
different routes of administration and different clinical indications, for our potential commercial success. As a result, any common
safety or efficacy concerns for Tß4-based products that cross formulations would have a much greater impact on our business
prospects than if our product pipeline were more diversified.
We may never be able to commercialize
our product candidates.
Although Tß4 has shown biological
activity in in vitro studies and in vivo animal models and while we observed clinical activity and efficacious outcomes in our
recent RGN-259 Phase 2a trial and earlier Phase 2 dermal trials, we cannot assure you that our product candidates will exhibit
activity or importance in humans in large-scale trials. Our drug candidates are still in research and development, and we do not
expect them to be commercially available for the foreseeable future, if at all. Only a small number of research and development
programs ultimately result in commercially successful drugs. Potential products that appear to be promising at early stages of
development may not reach the market for a number of reasons. These include the possibility that the potential products may:
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be found ineffective or cause harmful side effects during preclinical studies or clinical trials;
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fail to receive necessary regulatory approvals;
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be precluded from commercialization by proprietary rights of third parties;
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be difficult to manufacture on a large scale; or
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be uneconomical or otherwise fail to achieve market acceptance.
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If any of these potential problems
occurs, we may never successfully market Tß4-based products.
We are subject to intense government
regulation, and we may not receive regulatory approvals for our drug candidates.
Our product candidates will require
regulatory approvals prior to sale. In particular, therapeutic agents are subject to stringent approval processes, prior to commercial
marketing, by the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and corresponding foreign
approvals is costly and time-consuming, and we cannot assure you that such approvals will be granted. Also, the regulations we
are subject to change frequently and such changes could cause delays in the development of our product candidates.
Three of our drug candidates are
currently in the clinical development stage, and we cannot be certain that we or our collaborators will successfully complete the
clinical trials necessary to receive regulatory product approvals. The regulatory approval process is lengthy, unpredictable and
expensive. To obtain regulatory approvals in the United States, we or a collaborator must ultimately demonstrate to the satisfaction
of the FDA that our product candidates are sufficiently safe and effective for their proposed administration to humans. Many factors,
known and unknown, can adversely impact clinical trials and the ability to evaluate a product candidate’s safety and efficacy,
including:
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the FDA or other health regulatory authorities, or institutional review boards, or IRBs, do not
approve a clinical trial protocol or place a clinical trial on hold;
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suitable patients do not enroll in a clinical trial in sufficient numbers or at the expected rate,
for reasons such as the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for
the trial, the perceptions of investigators and patients regarding safety, and the availability of other treatment options;
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clinical trial data is adversely affected by trial conduct or patient withdrawal prior to completion
of the trial;
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there may be competition with ongoing clinical trials and scheduling conflicts with participating
clinicians;
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patients experience serious adverse events, including adverse side effects of our drug candidates,
for a variety of reasons that may or may not be related to our product candidates, including the advanced stage of their disease
and other medical problems;
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patients in the placebo or untreated control group exhibit greater than expected improvements or
fewer than expected adverse events;
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third-party clinical investigators do not perform the clinical trials on the anticipated schedule
or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations do not perform data
collection and analysis in a timely or accurate manner;
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service providers, collaborators or co-sponsors do not adequately perform their obligations in
relation to the clinical trial or cause the trial to be delayed or terminated;
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we are unable to obtain a sufficient supply of manufactured clinical trial materials;
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regulatory inspections of manufacturing facilities, which may, among other things, require us or
a co-sponsor to undertake corrective action or suspend the clinical trials, such as the clinical hold with respect to our Phase
2 clinical trial of RGN-352;
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the interim results of the clinical trial are inconclusive or negative;
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the clinical trial, although approved and completed, generates data that is not considered by the
FDA or others to be clinically relevant or sufficient to demonstrate safety and efficacy; and
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changes in governmental regulations or administrative actions affect the conduct of the clinical
trial or the interpretation of its results.
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There can be no assurance that our
clinical trials will in fact demonstrate, to the satisfaction of the FDA and others, that our product candidates are sufficiently
safe or effective. The FDA or we may also restrict or suspend our clinical trials at any time if it is believed that subjects participating
in the trials are being exposed to unacceptable health risks.
Clinical trials for product candidates
such as ours are often conducted with patients who have more advanced forms of a particular condition or other unrelated conditions.
For example, in clinical trials for our product candidate RGN-137, we have studied patients who are not only suffering from chronic
epidermal wounds but who are also older and much more likely to have other serious adverse conditions. During the course of treatment
with our product candidates, patients could die or suffer other adverse events for reasons that may or may not be related to the
drug candidate being tested. Further, and as a consequence that all of our drug candidates are based on Tß4, crossover risk
exists such that a patient in one trial may be adversely impacted by one drug candidate, and that adverse event may have implications
for our other trials and other drug candidates. However, even if unrelated to our product candidates, such adverse events can nevertheless
negatively impact our clinical trials, and our business prospects would suffer.
These factors, many of which may
be outside of our control, may have a negative impact on our business by making it difficult to advance product candidates or by
reducing or eliminating their potential or perceived value. As a consequence, we may need to perform more or larger clinical trials
than planned. Further, if we are forced to contribute greater financial and clinical resources to a study, valuable resources will
be diverted from other areas of our business. If we fail to complete or if we experience material delays in completing our clinical
trials as currently planned, or we otherwise fail to commence or complete, or experience delays in, any of our other present or
planned clinical trials, including as a result of the actions of third parties upon which we rely for these functions, our ability
to conduct our business as currently planned could materially suffer.
We may not successfully establish
and maintain development and testing relationships with third-party service providers and collaborators, which could adversely
affect our ability to develop our product candidates.
We have only limited resources, experience
with and capacity to conduct requisite testing and clinical trials of our drug candidates. As a result, we rely and expect to continue
to rely on third-party service providers and collaborators, including corporate partners, licensors and contract research organizations,
or CROs, to perform a number of activities relating to the development of our drug candidates, including the design and conduct
of clinical trials, and potentially the obtaining of regulatory approvals. For example, we currently rely on several third-party
contractors to manufacture and formulate Tß4 into the product candidates used in our clinical trials, develop assays to assess
Tß4’s effectiveness in complex biological systems, recruit clinical investigators and sites to participate in our trials,
manage the clinical trial process and collect, evaluate and report clinical results.
We may not be able to maintain or
expand our current arrangements with these third parties or maintain such relationships on favorable terms. Our agreements with
these third parties may also contain provisions that restrict our ability to develop and test our product candidates or that give
third parties rights to control aspects of our product development and clinical programs. In addition, conflicts may arise with
our collaborators, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation
of financial provisions or the ownership of intellectual property developed during the collaboration. If any conflicts arise with
our existing or future collaborators, they may act in their self-interest, which may be adverse to our best interests. Any failure
to maintain our collaborative agreements and any conflicts with our collaborators could delay or prevent us from developing our
product candidates. We and our collaborators may fail to develop products covered by our present and future collaborations if,
among other things:
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we do not achieve our objectives under our collaboration agreements;
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we or our collaborators are unable to obtain patent protection for the products or proprietary
technologies we develop in our collaborations;
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we are unable to manage multiple simultaneous product development collaborations;
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our collaborators become competitors of ours or enter into agreements with our competitors;
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we or our collaborators encounter regulatory hurdles that prevent commercialization of our product
candidates; or
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we develop products and processes or enter into additional collaborations that conflict with the
business objectives of our other collaborators.
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We also have less control over the
timing and other aspects of our clinical trials than if we conducted the monitoring and supervision entirely on our own. Third
parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical
trial protocol or applicable regulations. We also rely on clinical research organizations to perform much of our data management
and analysis. They may not provide these services as required or in a timely manner. If any of these parties do not meet deadlines
or follow proper procedures, including procedures required by law, the preclinical studies and clinical trials may take longer
than expected, may be delayed or may be terminated, which would have a materially negative impact on our product development efforts.
If we were forced to find a replacement entity to perform any of our preclinical studies or clinical trials, we may not be able
to find a suitable entity on favorable terms or at all. Even if we were able to find a replacement, resulting delays in the tests
or trials may result in significant additional expenditures and delays in obtaining regulatory approval for drug candidates, which
could have a material adverse impact on our results of operations and business prospects.
GtreeBNT Co., Ltd. has limited
drug development experience.
In March 2014 we completed two licensing
agreements for the development and commercialization of RGN-259 and RGN-137 in certain territories, with GtreeBNT, headquartered
outside of Seoul, Korea. In January 2015 we entered into a Joint Venture Agreement with GtreeBNT and entered into a license agreement
with the Joint Venture, pursuant to which granted to the Joint Venture the right to develop and exclusively commercialize RGN-259
in the United States. Although we will share control of the Joint Venture with GtreeBNT, GtreeBNT will have greater control of
over the Joint Venture than we will meaning that GtreeBNT will have significant control over the commercialization of RGN-259.
Historically, GtreeBNT’s business
focus has been in the IT software industry in Korea with strong IP positions addressing specific software tools and apps such as
optimized multimedia software for smart phones. GtreeBNT made a strategic decision in November 2013 to expand into the biopharmaceutical
business through selected strategic alliances with biopharmaceutical companies in the U.S. and EU. The collaboration with RegeneRx
is the first strategic investment in this initiative. While GtreeBNT has hired executives and staff with significant pharmaceutical
experience, the company has no internal drug development experience. As a result, GtreeBNT may face more and different challenges
in the development of these product candidates than would more established pharmaceutical companies.
We are subject to intense competition
from companies with greater resources and more mature products, which may result in our competitors developing or commercializing
products before or more successfully than we do.
We are engaged in a business that
is highly competitive. Research and development activities for the development of drugs to treat indications within our focus are
being sponsored or conducted by private and public research institutions and by major pharmaceutical companies located in the United
States and a number of foreign countries. Most of these companies and institutions have financial and human resources that are
substantially greater than our own and they have extensive experience in conducting research and development activities and clinical
trials and in obtaining the regulatory approvals necessary to market pharmaceutical products that we do not have. As a result,
they may develop competing products more rapidly that are safer, more effective, or have fewer side effects, or are less expensive,
or they may develop and commercialize products that render our product candidates non-competitive or obsolete.
With respect to our product candidate
RGN-259, there are also numerous ophthalmic companies developing drugs for corneal wound healing and other front-of-the-eye diseases
and injuries, including dry eye syndrome. Amniotic membranes have been successfully used to treat corneal wounds in certain cases,
as have topical steroids and antibacterial agents. Most specialty ophthalmic companies have a number of products on the market
that could compete with RGN-259. There are numerous antibiotics to treat eye infections to promote corneal wound healing and many
eye lubrication products that are soothing to the eye and help eye healing, many of which are sold without prescriptions. Companies
also market steroids to treat certain conditions within our area of interest. Allergan, Inc. markets Restasis™, Ophthalmic
Emulsion, the only commercially available and FDA-approved eye drop to treat dry eye. Restasis, and other products, have been approved
for marketing in certain other countries where we have licensed RGN-259. Shire PLC is developing is product candidate, Lifitegrast,
and is in pivotal Phase 3 clinical trials in the U.S. Shire has said it plans to resubmit an NDA for Lifitegrast in 2016.
We have initially targeted our product
candidate RGN-352 for cardiovascular indications. Most large pharmaceutical companies and many smaller biomedical companies are
vigorously pursuing the development of therapeutics to treat patients after heart attacks and for other cardiovascular indications.
With respect to our product candidate
RGN-137 for wound healing, Johnson & Johnson has previously marketed Regranex™ for this purpose in patients with diabetic
foot ulcers. Other companies, such as Novartis, are developing and marketing artificial skins, which we believe could also compete
with RGN-137. Moreover, wound healing is a large and highly fragmented marketplace attracting many companies, large and small,
to develop products for treating acute and chronic wounds, including, for example, honey-based ointments, hyperbaric oxygen therapy,
and low frequency cavitational ultrasound.
Even if approved for marketing,
our technologies and product candidates are unproven and they may fail to gain market acceptance.
Our product candidates, all of which
are based on the molecule Tß4, are new and unproven and there is no guarantee that health care providers or patients will
be interested in our product candidates, even if they are approved for use. If any of our product candidates are approved by the
FDA, our success will depend in part on our ability to demonstrate sufficient clinical benefits, reliability, safety, and cost
effectiveness of our product candidates relative to other approaches, as well as on our ability to continue to develop our product
candidates to respond to competitive and technological changes. If the market does not accept our product candidates, when and
if we are able to commercialize them, then we may never become profitable. Factors that could delay, inhibit or prevent market
acceptance of our product candidates may include:
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the timing and receipt of marketing approvals;
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the safety and efficacy of the products;
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the emergence of equivalent or superior products;
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the cost-effectiveness of the products; and
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It is difficult to predict the future
growth of our business, if any, and the size of the market for our product candidates because the markets are continually evolving.
There can be no assurance that our product candidates will prove superior to products that may currently be available or may become
available in the future or that our research and development activities will result in any commercially profitable products.
We have no marketing experience,
sales force or distribution capabilities. If our product candidates are approved, and we are unable to recruit key personnel to
perform these functions, we may not be able to commercialize them successfully.
Although we do not currently have
any marketable products, our ability to produce revenues ultimately depends on our ability to sell our product candidates if and
when they are approved by the FDA and other regulatory authorities. We currently have no experience in marketing or selling pharmaceutical
products, and we do not have a marketing and sales staff or distribution capabilities. Developing a marketing and sales force is
also time-consuming and could delay the launch of new products or expansion of existing product sales. In addition, we will compete
with many companies that currently have extensive and well-funded marketing and sales operations. If we fail to establish successful
marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties, our ability to generate
revenues will suffer.
If we enter markets outside
the United States our business will be subject to political, economic, legal and social risks in those markets, which could adversely
affect our business.
There are significant regulatory
and legal barriers to entering markets outside the United States that we must overcome if we seek regulatory approval to market
our product candidates in countries other than the United States. We would be subject to the burden of complying with a wide variety
of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties
adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would be subject
to political, economic and social uncertainties including, among others:
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changes and limits in import and export controls;
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increases in custom duties and tariffs;
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changes in currency exchange rates;
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economic and political instability;
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changes in government regulations and laws;
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absence in some jurisdictions of effective laws to protect our intellectual property rights; and
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currency transfer and other restrictions and regulations that may limit our ability to sell certain
product candidates or repatriate profits to the United States.
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Any changes related to these and
other factors could adversely affect our business if and to the extent we enter markets outside the United States. Additionally,
we have entered into license agreements with Sigma-Tau S.p.A, Lee’s Pharmaceutical Limited and GtreeBNT for the development
of certain of our product candidates in international markets. As a result, these development activities will be subject to compliance
in all respects with local laws and regulations and may be subject to many of the risks described above.
Governmental and third-party
payors may subject any product candidates we develop to sales and pharmaceutical pricing controls that could limit our product
revenues and delay profitability.
The successful commercialization
of our product candidates, if they are approved by the FDA, will likely depend on our ability to obtain reimbursement for the cost
of the product and treatment. Government authorities, private health insurers and other organizations, such as health maintenance
organizations, are increasingly seeking to lower the prices charged for medical products and services. Also, the trend toward managed
health care in the United States, the growth of healthcare maintenance organizations, and recently enacted legislation reforming
healthcare and proposals to reform government insurance programs could have a significant influence on the purchase of healthcare
services and products, resulting in lower prices and reducing demand for our product candidates. The cost containment measures
that healthcare providers are instituting and any healthcare reform could reduce our ability to sell our product candidates and
may have a material adverse effect on our operations. We cannot assure you that reimbursement in the United States or foreign countries
will be available for any of our product candidates, and that any reimbursement granted will be maintained, or that limits on reimbursement
available from third-party payors will not reduce the demand for, or the price of, our product candidates. The lack or inadequacy
of third-party reimbursements for our product candidates would decrease the potential profitability of our operations. We cannot
forecast what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement
may be enacted in the future, or what effect the legislation or regulation would have on our business.
We have no manufacturing or
formulation capabilities and are dependent upon third-party suppliers to provide us with our product candidates. If these suppliers
do not manufacture our product candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if
we are unable to identify suitable replacement suppliers if needed, our clinical development efforts could be delayed, prevented
or impaired.
We do not own or operate manufacturing
facilities and have little experience in manufacturing pharmaceutical products. We currently rely, and expect to continue to rely,
primarily on peptide manufacturers to supply us with Tß4 for further formulation into our product candidates. We have historically
engaged three separate smaller drug formulation contractors for the formulation of clinical grade product candidates, one for each
of our three product candidates in clinical development, although, as described in this report, the contractor we engaged to formulate
and vial RGN-352 filed for bankruptcy and closed its manufacturing facility, and our clinical trial involving RGN-352 has been
placed on clinical hold. We currently do not have an alternative source of supply for either Tß4 or the individual drug candidates.
If these suppliers, together or individually, are not able to supply us with either Tß4 or individual product candidates
on a timely basis, in sufficient quantities, at acceptable levels of quality and at a competitive price, or if we are unable to
identify a replacement manufacturer to perform these functions on acceptable terms as needed, our development programs could be
seriously jeopardized.
The clinical hold on our RGN-352
trial will require us to have new material manufactured by a cGMP-compliant manufacturer in the event that we seek to resume this
trial. Significant preparatory time and procedures will be required before any new manufacturer would be able to manufacture RGN-352
for the AMI trial, due to the time required for revalidation of processes and assays related to such production that were already
in place with the original manufacturer. Since we are unable to estimate the length of time that the trial will be on clinical
hold, we have elected to cease activities on this trial until the FDA clinical hold is resolved and the requisite funding might
be secured.
Other risks of relying solely on
single suppliers for each of our product candidates include:
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the possibility that our other manufacturers, and any new manufacturer that we may identify for
RGN-352, may not be able to ensure quality and compliance with regulations relating to the manufacture of pharmaceuticals;
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their manufacturing capacity may not be sufficient or available to produce the required quantities
of our product candidates based on our planned clinical development schedule, if at all;
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they may not have access to the capital necessary to expand their manufacturing facilities in response
to our needs;
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commissioning replacement suppliers would be difficult and time-consuming;
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individual suppliers may have used substantial proprietary know-how relating to the manufacture
of our product candidates and, in the event we must find a replacement or supplemental supplier, our ability to transfer this know-how
to the new supplier could be an expensive and/or time-consuming process;
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an individual supplier may experience events, such as a fire or natural disaster, that force it
to stop or curtail production for an extended period;
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an individual supplier could encounter significant increases in labor, capital or other costs that
would make it difficult for them to produce our products cost-effectively; or
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an individual supplier may not be able to obtain the raw materials or validated drug containers
in sufficient quantities, at acceptable costs or in sufficient time to complete the manufacture, formulation and delivery of our
product candidates.
|
Our suppliers may use hazardous
and biological materials in their businesses. Any claims relating to improper handling, storage or disposal of these materials
could be time-consuming and costly to us, and we are not insured against such claims.
Our product candidates and processes
involve the controlled storage, use and disposal by our suppliers of certain hazardous and biological materials and waste products.
We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture,
storage, handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the
standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely
eliminated. In the event of an accident, we could be held liable for any damages that result, and we do not carry insurance for
this type of claim. We may also incur significant costs to comply with current or future environmental laws and regulations.
We face the risk of product
liability claims, which could adversely affect our business and financial condition.
We may be subject to product liability
claims as a result of our testing, manufacturing, and marketing of drugs. In addition, the use of our product candidates, when
and if developed and sold, will expose us to the risk of product liability claims. Product liability may result from harm to patients
using our product candidates, such as a complication that was either not communicated as a potential side effect or was more extreme
than anticipated. We require all patients enrolled in our clinical trials to sign consents, which explain various risks involved
with participating in the trial. However, patient consents provide only a limited level of protection, and it may be alleged that
the consent did not address or did not adequately address a risk that the patient suffered. Additionally, we will generally be
required to indemnify our clinical product manufacturers, clinical trial centers, medical professionals and other parties conducting
related activities in connection with losses they may incur through their involvement in the clinical trials.
Our ability to reduce our liability
exposure for human clinical trials and commercial sales, if any, of Tß4 is dependent in part on our ability to obtain sufficient
product liability insurance or to collaborate with third parties that have adequate insurance. Although we intend to obtain and
maintain product liability insurance coverage if we gain approval to market any of our product candidates, we cannot guarantee
that product liability insurance will continue to be available to us on acceptable terms, or at all, or that its coverage will
be sufficient to cover all claims against us. A product liability claim, even one without merit or for which we have substantial
coverage, could result in significant legal defense costs, thereby potentially exposing us to expenses significantly in excess
of our revenues, as well as harm to our reputation and distraction of our management.
If any of our key employees
discontinue their services with us, our efforts to develop our business may be delayed.
We are highly dependent on the principal
members of our management team. The loss of our Chairman and Chief Scientific Officer, Allan Goldstein, or Chief Executive Officer,
J.J. Finkelstein could prevent or significantly delay the achievement of our goals. We cannot assure you that Dr. Goldstein or
Mr. Finkelstein, or any other key employees or consultants, will not elect to terminate their employment or consulting arrangements.
In addition, we do not maintain a key man life insurance policy with respect to any of our management personnel. In the future,
we anticipate that we will also need to add additional management and other personnel. Competition for qualified personnel in our
industry is intense, and our success will depend in part on our ability to attract and retain highly skilled personnel. We cannot
assure you that our efforts to attract or retain such personnel will be successful.
Mauro Bove, a member of our
Board, was also a director and officer of entities affiliated with Sigma-Tau and is a director of Lee’s Pharmaceuticals,
relationships which could give rise to a conflict of interest for Mr. Bove.
Mauro Bove is a member of our Board
of Directors, and, until March 31, 2014, was a director and officer of entities affiliated with Sigma-Tau, which collectively make
up our largest stockholder group. At this time Mr. Bove remains engaged with Sigma-Tau as a consultant. Sigma-Tau has subsequently
merged into Alfa Wassermann, S.p.A., an Italian pharmaceutical company. Sigma-Tau/Alfa Wassermann, previously provided us with
significant funding and is also our strategic partner in Europe with respect to the development of certain of our drug candidates.
We have issued shares of common stock, convertible promissory notes and common stock warrants to Sigma-Tau and its affiliates in
several private placement financing transactions, including as recently as September 2013. We have licensed certain rights to our
product candidates generally for the treatment of dermal and internal wounds to Sigma-Tau/Alfa Wassermann. Under the license agreement,
upon the completion of a Phase 2 clinical trial of either of these product candidates that yields positive results in terms of
clinical efficacy and safety, Sigma-Tau/Alfa Wassermann is obligated to either make a $5 million milestone payment to us or
to initiate and fund a pivotal Phase 3 clinical trial of the product candidate. In 2009, we completed two Phase 2 clinical trials
of RGN-137, but these trials were not sufficient to trigger the milestone obligation. There can be no assurance that we will ever
receive this payment or be able to initiate a pivotal Phase 3 clinical trial of RGN-137 that would be funded by Sigma-Tau/Alfa
Wassermann. As a result of Mr. Bove’s relationship with Sigma-Tau, there could be a conflict of interest between Sigma-Tau/Alfa
Wassermann and our other stockholders with respect to these and other agreements and circumstances that may require the exercise
of the Board’s discretion with respect to Sigma-Tau/Alfa Wassermann. Any decision in the best interests of Sigma-Tau/Alfa
Wassermann may not be in the best interest of our other stockholders.
Additionally, Mr. Bove is a non-executive
director of Lee’s Pharmaceuticals, in which affiliates of Sigma-Tau/Alfa Wassermann have a significant equity interest. In
July 2012, we entered into a license agreement for TB4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product
candidates for development in China, Hong Kong, Macau and Taiwan. There can be no assurance that we will ever receive any further
payments from Lee’s under the agreement. As a result of Mr. Bove’s relationship with Lee’s and Sigma-Tau,
Mr. Bove may have interests that are different from our other stockholders in connection with these and other agreements and circumstances
that may require the exercise of the Board’s discretion with respect to Lee’s or Sigma-Tau. These conflicts could result
in decisions that are not in the best interest of our other stockholders.
Risks Related To Our Intellectual
Property
We are partially reliant on
our license from the National Institutes of Health for the rights to Tß4, and any loss of these rights could adversely affect
our business.
We have received an exclusive worldwide
license to intellectual property discovered at the National Institutes of Health, or NIH, pertaining to the use of Tß4 in
wound healing and tissue repair. The intellectual property rights from this license, along with independent patent applications
we have filed, as well as patents and patent applications under licenses we acquired, form the basis for our current commercial
development focus with Tß4. The NIH license terminates upon the last to expire of the patent applications that are filed,
or any patents that may issue from such applications, in connection with the license. This license requires us to pay a minimum
annual royalty to the NIH, regardless of the success of our product development efforts, plus certain other royalties upon the
sale of products created by the intellectual property granted under the license. In 2013 we amended certain provisions of the exclusive
license; we were permitted to credit amounts paid to prosecute or maintain the licensed patent rights during the 2013 calendar
year against the 2013 minimum annual royalty of $25,000. Beginning in 2014, the minimum annual royalty is $2,000. While we believe
that we have complied with all requirements to maintain the license, the loss of this license would have an adverse effect on our
business and business prospects.
We may not be able to maintain
broad patent protection for our product candidates, which could limit the commercial potential of our product candidates.
Our success will depend in part on
our ability to obtain, defend and enforce patents, both in the United States and abroad. We have attempted to create a substantial
intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and fragments
and derivatives of Tß4. As described elsewhere in this report, we currently do not have adequate financial resources to fund
our ongoing business activities substantially beyond 12 months without additional funding. As a result of our current financial
condition, we continuously evaluate our issued patents and patent applications and may decide to limit their therapeutic and/or
geographic coverage in an effort to enhance our ability to focus on certain medical conditions and countries within our financial
constraints. As a result, we may not be able to protect our intellectual property rights in indications and/or territories that
we otherwise would, and, therefore, our ability to commercialize Tß4, if at all, could be substantially limited, which could
have a material adverse impact on our future results of operations.
If we are not able to maintain
adequate patent protection for our product candidates, we may be unable to prevent our competitors from using our technology or
technology that we license.
Our success will depend in substantial
part on our ability to obtain, defend and enforce patents, maintain trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the NIH, we have exclusive
rights to use Tß4 in the treatment of non-healing wounds. While patents covering our use of Tß4 have issued in some
countries, we cannot guarantee whether or when corresponding patents will be issued, or the scope of any patents that may be issued,
in other countries. We have attempted to create a substantial intellectual property portfolio, submitting patent applications for
various compositions of matter, methods of use and fragments and derivatives of Tß4. We have also in-licensed other intellectual
property rights from third parties that could be subject to the same risks as our own patents. If any of these patent applications
do not issue, or do not issue in certain countries, or are not enforceable, the ability to commercialize Tß4 in various medical
indications could be substantially limited or eliminated.
In addition, the patent positions
of the products being developed by us and our collaborators involve complex legal and factual uncertainties. As a result, we cannot
assure you that any patent applications filed by us, or by others under which we have rights, will result in patents being issued
in the United States or foreign countries. In addition, there can be no assurance that any patents will be issued from any pending
or future patent applications of ours or our collaborators, that the scope of any patent protection will be sufficient to provide
us with competitive advantages, that any patents obtained by us or our collaborators will be held valid if subsequently challenged
or that others will not claim rights in or ownership of the patents and other proprietary rights we or our collaborators may hold.
Unauthorized parties may try to copy aspects of our product candidates and technologies or obtain and use information we consider
proprietary. Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no harm or threat will
be made to our or our collaborators’ intellectual property. In addition, changes in, or different interpretations of, patent
laws in the United States and other countries may also adversely affect the scope of our patent protection and our competitive
situation.
Due to the significant time lag between
the filing of patent applications and the publication of such patents, we cannot be certain that our licensors were the first to
file the patent applications we license or, even if they were the first to file, also were the first to invent, particularly with
regards to patent rights in the United States. In addition, a number of pharmaceutical and biotechnology companies and research
and academic institutions have developed technologies, filed patent applications or received patents on various technologies that
may be related to our product candidates. Some of these technologies, applications or patents may conflict with our or our licensors’
technologies or patent applications. A conflict could limit the scope of the patents, if any, that we or our licensors may be able
to obtain or result in denial of our or our licensors’ patent applications. If patents that cover our activities are issued
to other companies, we may not be able to develop or obtain alternative technology.
Additionally, there is certain subject
matter that is patentable in the United States but not generally patentable outside of the United States. Differences in what constitutes
patentable subject matter in various countries may limit the protection we can obtain outside of the United States. For example,
methods of treating humans are not patentable in many countries outside of the United States. These and other issues may prevent
us from obtaining patent protection outside of the United States, which would have a material adverse effect on our business, financial
condition and results of operations.
Changes to U.S. patent laws
could materially reduce any value our patent portfolio may have.
The value of our patents depends
in part on their duration. A shorter period of patent protection could lessen the value of our rights under any patents that may
be obtained and may decrease revenues derived from its patents. For example, the U.S. patent laws were previously amended to change
the term of patent protection from 17 years following patent issuance to 20 years from the earliest effective filing
date of the application. Because the time from filing to issuance of biotechnology applications may be more than three years depending
on the subject matter, a 20-year patent term from the filing date may result in substantially shorter patent protection. Future
changes to patent laws could shorten our period of patent exclusivity and may decrease the revenues that we might derive from the
patents and the value of our patent portfolio
.
We may not have adequate protection
for our unpatented proprietary information, which could adversely affect our competitive position.
In addition to our patents, we also
rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive
position. However, others may independently develop substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality agreements
with employees, consultants and potential collaborators. However, we may not have such agreements in place with all such parties
and, where we do, these agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event
of unauthorized use or disclosure of such information. Also, our trade secrets or know-how may become known through other means
or be independently discovered by our competitors. Any of these events could prevent us from developing or commercializing our
product candidates.
We may be subject to claims
that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.
As is commonplace in the biotechnology
industry, we employ now, and may hire in the future, individuals who were previously employed at other biotechnology or pharmaceutical
companies, including competitors or potential competitors. Although there are no claims currently pending against us, we may be
subject to claims that we or certain employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and would be a significant distraction to management.
Risks Related To Our Securities
Our common stock price is volatile,
our stock is highly illiquid, and any investment in our securities could decline substantially in value.
For the period from January 1,
2015 through March 24, 2016, the closing price of our common stock has ranged from $0.13 to $0.68, with an average daily trading
volume of approximately 74,000 shares. In light of our small size and limited resources, as well as the uncertainties and risks
that can affect our business and industry, our stock price is expected to continue to be highly volatile and can be subject to
substantial drops, with or even in the absence of news affecting our business. The following factors, in addition to the other
risk factors described in this report, and the potentially low volume of trades in our common stock since it is not listed on a
national securities exchange, may have a significant impact on the market price of our common stock, some of which are beyond our
control:
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results of pre-clinical studies and clinical trials;
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commercial success of approved products;
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corporate partnerships;
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technological innovations by us or competitors;
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changes in laws and government regulations both in the U.S. and overseas;
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changes in key personnel at our company;
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developments concerning proprietary rights, including patents and litigation matters;
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public perception relating to the commercial value or safety of any of our product candidates;
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other issuances of our common stock, or securities convertible into or exercisable for our common
stock, causing dilution;
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anticipated or unanticipated changes in our financial performance;
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general trends related to the biopharmaceutical and biotechnological industries; and
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general conditions in the stock market.
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The stock market in general has recently
experienced relatively large price and volume fluctuations. In particular, the market prices of securities of smaller biotechnology
companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of
these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could
cause a decline in its value. You should also be aware that price volatility may be worse if the trading volume of the common stock
remains limited or declines.
Our principal stockholders
have significant voting power and may take actions that may not be in the best interests of our other stockholders.
Our officers, directors and principal
stockholders together control approximately 52% of our outstanding common stock. Included in this group is Sigma-Tau and its affiliates,
which together hold outstanding shares representing approximately 30% of our outstanding common stock and GtreeBNT which owns approximately
19% of our outstanding common stock. These stockholders also hold options, warrants, convertible promissory notes and stock purchase
rights that provide them with the right to acquire significantly more shares of common stock. Accordingly, if these stockholders
acted together they could control the outcome of all stockholder votes. This concentration of ownership may have the effect of
delaying or preventing a change in control and might adversely affect the market price of our common stock, and therefore may not
be in the best interest of our other stockholders.
If securities or industry analysts
do not publish research or reports or publish unfavorable research about our business, the price of our common stock and other
securities and their trading volume could decline.
The trading market for our common
stock and other securities will depend in part on the research and reports that securities or industry analysts publish about us
or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If securities
or industry analysts do not commence or maintain coverage of us, the trading price for our common stock and other securities would
be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers
us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover
us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the
price of our common stock and other securities and their trading volume to decline.
The exercise of options and
warrants, conversion of convertible promissory notes, and other issuances of shares of common stock or securities convertible into
common stock will dilute your interest.
As of December 31, 2015, there were
outstanding options to purchase an aggregate of 7,131,211 shares of our common stock under our 2000 and 2010 incentive equity plans
at exercise prices ranging from $0.14 per share to $3.00 per share and outstanding warrants to purchase 1,807,407 shares of our
common stock at a weighted average exercise price of $0.32 per share. In addition to the outstanding options and warrants we have
also issued five series of convertible promissory notes, which are presently convertible into an aggregate of 13,683,334 shares
of our common stock. In October 2012, we sold convertible promissory notes totaling $300,000 that are convertible into 2,000,000
shares of common stock at a conversion price of $0.15 per share. In October 2014 the maturity date of these notes was extended
for an additional three years. In 2013, we sold three additional series of convertible promissory notes, which notes totaled $646,000
and are initially convertible into 10,766,667 shares of common stock at a conversion price of $0.06 per share. In January 2014,
we sold a fifth series of convertible promissory notes, which notes totaled $55,000 and are initially convertible into 916,667
shares of common stock at a conversion price of $0.06 per share. The notes issued in 2013 and January 2014 contain down round provisions
under which the conversion prices of these notes could be decreased as a result of future equity offerings below the conversion
price of the notes. The exercise of options and warrants or note conversions at prices below the market price of our common stock
could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our
capital stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts.
Any issuance of our common stock
that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend
or stock split, will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding
shares. Moreover, if we issue options or warrants to purchase our common stock in the future and those options or warrants are
exercised or we issue restricted stock, stockholders may experience further dilution. Holders of shares of our common stock have
no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series.
In addition, most of the outstanding
warrants to purchase shares of our common stock have an exercise price above the current market price for our common stock. As
a result, these warrants may not be exercised prior to their expiration, in which case we would not realize any proceeds from their
exercise.
Our certificate of incorporation
and Delaware law contain provisions that could discourage or prevent a takeover or other change in control, even if such a transaction
would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders
to replace or remove our current management.
Our certificate of incorporation
provides our Board with the power to issue shares of preferred stock without stockholder approval. In addition, we are subject
to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Subject to specified exceptions, this
section provides that a corporation may not engage in any business combination with any interested stockholder, as defined in that
statute, during the three-year period following the time that such stockholder becomes an interested stockholder. This provision
could also have the effect of delaying or preventing a change of control of our company. The foregoing factors could reduce the
price that investors or an acquirer might be willing to pay in the future for shares of our common stock.
We may become involved in securities
class action litigation that could divert management’s attention and harm our business and our insurance coverage may not
be sufficient to cover all costs and damages.
The stock market has from time to
time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical
and biotechnology companies. These broad market fluctuations may cause the market price of our common stock to decline. In the
past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation
has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often
is expensive and diverts management’s attention and resources, which could hurt our business, operating results and financial
condition.
Item 1B. Unresolved Staff
Comments.
None.
Item 2. Properties.
Our corporate
headquarters are located in Rockville, Maryland where we lease office space. Beginning in June 2014 we consolidated our office
space and amended our lease agreement for the reduced space. We believe that our facilities are generally suitable to meet our
needs for the foreseeable future; however, we will continue to seek alternate or additional space as needed.
Item 3. Legal Proceedings.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities.
Our common
stock is quoted on the OTC Bulletin Board under the symbol “RGRX.” Our common stock last traded at $0.68 on March
24, 2016.
The following
table sets forth the high and low bid prices for our common stock, as reported by the OTC Bulletin Board, for the periods indicated.
The quotations reported by the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
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2015
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2014
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High
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Low
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High
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Low
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First Quarter
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$
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0.38
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$
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0.13
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$
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0.28
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|
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$
|
0.05
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Second Quarter
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$
|
0.60
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$
|
0.25
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$
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0.27
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|
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$
|
0.15
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Third Quarter
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$
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0.50
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$
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0.32
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$
|
0.20
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|
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$
|
0.10
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Fourth Quarter
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$
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0.45
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$
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0.35
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$
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0.18
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$
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0.12
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As of December
31, 2015, we had 745 holders of record of our common stock and over 3,700 beneficial holders of our common stock.
We have never
declared or paid a cash dividend on our common stock and since all of our funds are committed to clinical research we do not anticipate
that any cash dividends will be paid on our common stock in the foreseeable future.
On March 28,
2014, we issued 11,250,000 shares of common stock to GtreeBNT, Co. Ltd. for aggregate cash proceeds of $1,500,000 in connection
with two license agreements and a securities purchase agreement with GtreeBNT. The offer, sale, and issuance of the shares to GtreeBNT
were exempt from registration under the Securities Act under Section 4(2) of the Securities Act and Regulation D promulgated thereunder
as transactions by an issuer not involving a public offering. GtreeBNT represented to the Company that it is an accredited investor
as defined in Rule 501 promulgated under the Securities Act.
On August 29,
2014, the Company issued 8,333,333 shares of common stock to GtreeBNT, Co. Ltd. for aggregate cash proceeds of $1,000,000. The
offer, sale, and issuance of the shares to GtreeBNT were exempt from registration under the Securities Act under Section 4(2) of
the Securities Act and Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. GtreeBNT
represented to the Company that it is an accredited investor as defined in Rule 501 promulgated under the Securities Act.
On May 4, 2015,
we issued 30,000 shares of our common stock, valued at approximately $16,500 to ProActive Capital Resources Group LLC in consideration
for investor relations services. This issuance was exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, on the basis that the transactions did not involve a public offering.
On May 11,
2015, we issued 249,671 shares of our common stock to Lincoln Park Capital, LLC upon the cashless exercise of a warrant. This issuance
was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, on the basis that the transactions did
not involve a public offering.
Item 6. Selected Financial
Data.
Not Applicable.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operation.
You should
read the following discussion and analysis together with our financial statements and the related notes included elsewhere in this
annual report.
Business Overview
We are a biopharmaceutical
company focused on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection,
repair, and regeneration. We have formulated Tß4 into three distinct product candidates in clinical development:
• RGN-259,
a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;
• RGN-352,
an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical indications
that may be treated by systemic administration; and
• RGN-137,
a topical gel for dermal wounds and reduction of scar tissue.
We are continuing
strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical development of
all of our product candidates.
In addition
to our three pharmaceutical product candidates, we are also evaluating the potential use of peptide fragments and derivatives of
Tß4 for cosmeceutical and other personal care uses. These fragments are select amino acid sequences, and variations thereof,
within the Tß4 molecule that have demonstrated activity in several
in vitro
preclinical research studies that we have
sponsored. We believe the biological activities of these fragments may be useful, for example, in developing novel cosmeceutical
products for the anti-aging market. Our strategy is to collaborate with another company to develop cosmeceutical formulations based
on these peptides.
Current Financial Circumstances
Our current
capital resources coupled with the $250,000 received pursuant to the execution of a term sheet with an affiliated party in April
2016, will only be sufficient to fund operations into the third quarter of 2016.
Current Clinical Status
On January
28, 2015, we announced that we had entered into a Joint Venture Agreement with GtreeBNT Co., Ltd., a Korean pharma company and
shareholder of the Company. The Joint Venture Agreement provides for the creation of an entity, ReGenTree, LLC, jointly owned by
us and GtreeBNT that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan indication in
the United States. GtreeBNT is be responsible for funding all product development and commercialization efforts, and holds a majority
interest in ReGenTree. In March 2015, GtreeBNT reported that it received $7.28 million to expand international development of the
product candidate, RGN-259 (designated GBT-201 in Korea). The $7.28 million will be used for development of RGN-259/GBT-201 for
dry eye syndrome and neurotrophic keratopathy in the U.S. through the U.S. joint venture, ReGenTree, LLC.
In September
2015, ReGenTree began a Phase 2b/3 clinical trial in patients with dry eye syndrome (“DES”) and a Phase 3 clinical
trial in patients with neurotrophic keratopathy (“NK”), both in the U.S. In January 2016, the DES had completed enrollment
of all patients in the trial. The last patient received the last treatment in February. We expect to report top line data from
the DES trial at the end of April 2016. The NK trial, a smaller study in an orphan population, has enrolled seven patients thus
far with a goal of 46. Of the eight original clinical sites for the study, six are enrolling patients, one has yet to receive IRB
approval to begin enrolling patients, and one was unable to consummate a clinical contract with ReGenTree. ReGenTree is considering
adding additional sites to accelerate patient enrollment.
Currently,
we have active partnerships in three major territories: the U.S., China and Pan Asia. Our partners have been moving forward and
making progress in each territory. In each case, the cost of development is being borne by our partners with no financial obligation
for RegeneRx. Patient accrual, treatment, and follow-up for these ophthalmic trials are, in general, relatively fast, as opposed
to most other clinical efforts.
We still have
significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in
the U.S., Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic
clinical trials before moving into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset
at that time. However, we intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in
the cardiovascular or central nervous system fields or finding a suitable partner with the resources and capabilities to develop
it as we have with RGN-259.
Financial
Operations Overview
We have never
generated product revenues, and we do not expect to generate product revenues until the FDA approves one of our product candidates,
if ever, and we begin marketing and selling it. Subject to the availability of financing, we expect to invest increasingly significant
amounts in the furtherance of our current clinical programs and may add additional nonclinical studies and new clinical trials
as we explore the potential of our current product candidates in other indications and explore new formulations of Tß4-based
product candidates. As we expand our clinical development initiatives, we expect to incur substantial and increasing losses. Accordingly,
we will need to generate significant product revenues in order to ultimately achieve and then maintain profitability. Also, we
expect that we will need to raise substantial additional capital in order to meet product development requirements. We cannot assure
investors that such capital will be available when needed, on acceptable terms, or at all.
Most of our
expenditures to date have been for research and development, or R&D, activities and general and administrative, or G&A,
activities. R&D costs include all of the wholly-allocable costs associated with our various clinical programs passed through
to us by our outsourced vendors. Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into
our product candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology, safety and
pharmacokinetic studies, clinical trial management, medical oversight, laboratory evaluations, statistical data analysis, regulatory
compliance, quality assurance and other related activities. R&D includes cash and non-cash compensation, travel and other miscellaneous
costs of our internal R&D personnel, three persons in total, who are wholly dedicated on a part-time basis to R&D efforts.
R&D also includes a proration of our common infrastructure costs for office space and communications. We expense our R&D
costs as they are incurred.
R&D expenditures
are subject to the risks and uncertainties associated with clinical trials and the FDA review and approval process. As a result,
these expenses could exceed our expectations, possibly materially. We are uncertain as to what we will incur in future research
and development costs for our clinical studies, as these amounts are subject to the outcome of current studies, management's continuing
assessment of the economics of each individual research and development project and the internal competition for project funding.
G&A costs
include outside professional fees for legal, business development, audit and accounting services. G&A also includes cash and
non-cash compensation, travel and other miscellaneous costs of our internal G&A personnel, two in total, who are wholly dedicated
to G&A efforts. G&A also includes a proration of our common infrastructure costs for office space, and communications.
Our G&A expenses also include costs to maintain our intellectual property portfolio. Historically we have expanded our patent
prosecution activities and in some cases, we have filed patent applications for non-critical strategic purposes intended to prevent
others from filing similar patent claims. We continue to closely monitor our patent applications in the United States, Europe and
other countries with the advice of outside legal counsel to determine if they will continue to provide strategic benefits. In cases
where we believe the benefit has been realized or it becomes unnecessary due to the issuance of other patents, or for other reasons
that will not affect the strength of our intellectual property portfolio, we have and will continue to abandon these patent applications
in order to reduce our costs of continued prosecution or maintenance.
Critical
Accounting Policies
We prepare
our financial statements in conformity with accounting principles generally accepted in the United States. Such accounting principles
require that our management make estimates and assumptions that affect the amounts reported in our financial statements and accompanying
notes. Our actual results could differ materially from those estimates. The items in our financial statements that have required
us to make significant estimates and judgments are as follows:
Revenue Recognition
We recognize
revenue in accordance with the authoritative guidance for revenue recognition. We recognize revenue when all of the following criteria
are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been
rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. We also
comply with the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables. Multiple-element
arrangements are analyzed to determine whether the deliverables, which may include a license together with performance obligations
such as providing a clinical supply of product and steering committee services, can be separated or whether they must be accounted
for as a single unit of accounting. Revenue associated with licensing agreements consists of non-refundable upfront license fees
and milestone payments. Non-refundable upfront license fees received under license agreements, whereby continued performance or
future obligations are considered inconsequential to the relevant license technology, are recognized as revenue upon delivery of
the technology.
Whenever we
determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the
performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a relative performance
or straight-line method. We recognize revenue using the relative performance method provided that the we can reasonably estimate
the level of effort required to complete our performance obligations under an arrangement and such performance obligations are
provided on a best-efforts basis. Revenue recognized is limited to the lesser of the cumulative amount of payments received or
the cumulative amount of revenue earned, as determined using the relative performance method, as of each reporting period.
If we cannot
reasonably estimate the level of effort required to complete our performance obligations under an arrangement, the performance
obligations are provided on a best-efforts basis and we can reasonably estimate when the performance obligation ceases or the remaining
obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding royalties and payments
contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line basis over the period
we expect to complete our performance obligations. Revenue is limited to the lesser of the cumulative amount of payments received
or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period ending date.
If we cannot
reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory, then revenue is deferred
until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized
over the remaining estimated period of performance.
We recognize
consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone
is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the
following criteria:
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The consideration is commensurate with either the entity's performance to achieve the milestone
or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity's performance
to achieve the milestone;
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The consideration relates solely to past performance; and
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The consideration is reasonable relative to all of the deliverables and payment terms within the
arrangement.
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A milestone
is defined as an event (i) that can only be achieved based in whole or in part on either the entity's performance or on the occurrence
of a specific outcome resulting from the entity's performance, (ii) for which there is substantive uncertainty at the date
the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due
to us.
Amounts received
prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in our accompanying balance sheets.
Variable Interest
Entities
The Company
has determined that the Joint Venture is a “variable interest entity”, since the total equity investment at risk is
not sufficient to permit the Joint Venture to finance its activities without additional subordinated financial support. Further,
because of GtreeBNT’s majority equity stake in the Joint Venture, voting control, control of the board of directors, and
substantive management rights, and given that the Company does not have the power to direct the Joint Venture’s activities
that most significantly impact its economic performance, the Company determined that it is not the primary beneficiary of the Joint
Venture and therefore is not required to consolidate the Joint Venture. The Company reports its equity stake in the Joint Venture
using the equity method of accounting because, while it does not control the Joint Venture, the Company can exert significant influence
over the Joint Ventures activities by virtue of its board representation.
Because the
Company is not obligated to fund the Joint Venture, and has not provided any financial support and has no commitment to provide
financial support in the future to the Joint Venture, the carrying value of its investment in the Joint Venture is zero. As a result,
the Company is not recognizing its share (49%) of the Joint Venture’s operating losses and will not recognize any such losses
until the Joint Venture produces net income (as opposed to net losses) and at that point the Company will reduce its share of the
Joint Venture’s net income by its share of previously suspended net losses. As of December 31, 2015, because it has not provided
any financial support, the Company has no financial exposure as a result of its variable interest in the Joint Venture.
Convertible Notes
with Detachable Warrants.
In accordance
with Accounting Standards Codification (“ASC”) 470-20,
Debt with Conversion and Other Options
, the proceeds
received from convertible notes are allocated between the convertible notes and the detachable warrants based on the relative fair
value of the convertible notes without the warrants and the relative fair value of the warrants. The portion of the proceeds allocated
to the warrants is recognized as additional paid-in capital and a debt discount. The debt discount related to warrants is accreted
into interest expense through maturity of the notes.
Derivative
Financial Instruments.
Derivative
financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying
variables (e.g. interest rate, security price or other variable), which require no initial net investment and permit net settlement.
Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial
instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
The Company
does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company
has issued financial instruments including warrants that are either (i) not afforded equity classification, (ii) embody risks not
clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances, these
instruments are required to be carried as derivative liabilities, at fair value, in the Company’s financial statements. In
other instances these instruments are classified as equity instruments in the Company’s financial statements.
The Company
estimates the fair values of its derivative financial instrument using the Black-Scholes option pricing model because it embodies
all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these
instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective
estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external
market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of
the Company’s common stock, which has a high-historical volatility. Since derivative financial instruments are initially
and subsequently carried at fair values, the Company’s operating results reflect the volatility in these estimate and assumption
changes in each reporting period.
Share-based
payment
We account
for share-based compensation based on the estimated grant date fair value of the award using the Black-Scholes option-pricing model.
The estimated grant date fair value is recognized over the requisite service period.
Determining
the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective
assumptions, including the expected life of the share-based payment awards and stock price volatility. Since our historical data
is limited, the expected life was determined in accordance with SEC Staff Accounting Bulletin No. 107 guidance for “plain
vanilla” options. Since our historical trading volume is relatively low, we estimated the expected volatility based on monthly
closing prices for a period consistent with the expected life of the option.
The assumptions
used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to
estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate
is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have
recorded in the current period. See Notes 2 and 9 to the Financial Statements for a further discussion on stock-based compensation
and the relative ranges of our historical, underlying assumptions.
Costs
of pre-clinical studies and clinical trials
We accrue estimated
costs for pre-clinical studies and clinical trials conducted by contract research organizations and participating hospitals. These
costs are a significant component of research and development expenses. We accrue costs for pre-clinical studies and clinical trials
performed by contract research organizations based on estimates of work performed under the contracts. Costs of setting up hospital
sites for participation in trials are accrued immediately. Hospital costs related to patient enrollment are accrued as patients
are entered in the trial.
Results of Operations
Comparison
of years ended December 31, 2015 and 2014
Revenues
.
For the year ended December 31, 2015, we recorded revenue in the amount of $60,612, $40,000 of this revenue related to the sale
of unformulated Tß4 to GtreeBNT for use in their product development work in Korea. There were no associated costs with this
transaction as the cost of Tß4 had been expensed in a prior period. We also recorded revenue in the amount of $20,612 which
reflects the amortization of the upfront license fee over the life of the ReGenTree license agreement of 25 years. We did not record
any revenue for the year ended December 31, 2014.
Expenses
— Research and development
. For the year ended December 31, 2015, our R&D expenditures decreased by $164,000,
or 45%, to $203,000, from approximately $367,000 in 2014. The decrease from 2014 reflects the execution of the our strategy to
out license or partner our development programs in addition to our entry into the ReGenTree joint venture agreement in 2015 under
which we are not responsible for the development activity or costs. The 2014 R&D expenditures were primarily related to the
engagement of part-time personnel, outside consultants and CROs to evaluate our readiness to proceed directly into a Phase 3 clinical
trial for neurotrophic keratopathy (NK) under the orphan designation received in late 2013. In 2015 our R&D expense includes
$73,000 of non-cash stock based compensation expense versus $48,000 in 2014.
Expenses
— General and administrative
. For the year ended December 31, 2015, our G&A expenses increased by approximately
$379,000, or 32%, to $1.6 million from $1.2 million in 2014. The increase was primarily the result of increases in professional
services including legal costs incurred in association with completing the ReGenTree joint venture agreement. Our 2015 financial
statements reflect cost increases of stock option expense (increase of $44,000), professional services (increase of $211,000),
investor relations (increase of $81,000), insurance (increase of $16,000), compliance (increase of $30,000) and travel and related
(increase of $13,000). These increases were partially offset by decreases in facility and related costs (decreased by $16,000)
Liquidity and Capital Resources
We have not
commercialized any of our product candidates to date and have incurred significant losses since inception. We have primarily financed
our operations through the issuance of common stock and common stock warrants in private and public financings, issuance of convertible
debt, and, as discussed below, we have been awarded government grants and will continue to pursue other governmental funding sources.
The report of our independent registered public accounting firm regarding our financial statements as of and for the year ended
December 31, 2015 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our history
of net losses and dependence on future financing in order to meet our planned operating activities.
We incurred
a net loss of $5,270,000 for the year ended December 31, 2015. We had cash and cash equivalents of $318,000 at December 31, 2015,
this amount coupled with the $250,000 received pursuant to the execution of a term sheet with an affiliated party in April 2016,
will fund our operations into the third quarter of 2016. We will need to raise capital in the very near future to fund our operating
budget for 2016 and beyond. A sale of common stock and warrants, a convertible instrument or an expansion of licensed rights are
possible sources of operating capital in the near future. Additionally, we intend to continue to pursue additional partnering activities,
particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.
Net Cash
Used in Operating Activities.
Net cash used in operating activities was $525,000 and $1,704,000 for the years ended December 31,
2015 and 2014, respectively. Our reported net loss for the year ended December 31, 2015 was $5,270,000, which included $366,000
in non-cash expenses as well as an unrealized loss of $3,388,000 as a result of the increase in valuation of our convertible debt
derivative component. In 2015 our statement of cash flows reflects an additional $979,000 related to payments received under the
license agreement with the Joint Venture as well as a net decrease in accounts payable and accrued expenses of $80,000 and a decrease
in prepaid expenses of $62,000. For 2014 we reported a net loss of $2,754,000 which included $302,000 of non-cash expenses as well
as an unrealized loss of $1,015,000 as a result of the increase in valuation of our convertible debt derivative component. In 2014
we also experienced a net decrease in accounts payable and accrued expenses of $207,000 and well as an increase in prepaid expenses
of $60,000.
Net Cash
Used in Investing Activities.
Net cash used in investing activities for 2015 was $1,000 for capital expenditures. Net cash
used in investing activities for 2014 was $13,000.
Net Cash Provided
by Financing Activities.
Net cash provided by financing activities totaled $0 and $2,555,000 for the years
ended December 31, 2015 and 2014, respectively. In 2014 the cash provided by financing activities consisted of the
proceeds from the sale of common stock to GtreeBNT in March ($1,500,000) and August ($1,000,000) and $55,000 from the sale of
convertible debt offerings as discussed in Note 7 to our financial statements included in this report.
Future Funding Requirements
The expenditures
that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity
and capital resources. Currently, RegeneRx has active partnerships in three major territories: the U.S., China and Pan Asia. Our
partners have been moving forward and making progress in each territory. In each case, the cost of development is being borne by
our partners with no financial obligation for RegeneRx. Patient accrual, treatment, and follow-up for ophthalmic trials are, in
general, relatively fast, as opposed to most other clinical efforts, so data from the U.S. dry eye trial should be forthcoming
by the end of April 2016 and data from the NK study toward the end of 2016 or possibly later.
We still have
significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in
the U.S., Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic
clinical trials before moving into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset
at that time. However, we intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in
the cardiovascular or central nervous system fields or finding a suitable partner with the resources and capabilities to develop
it as we have with RGN-259.
Our current
capital resources coupled with the $250,000 received pursuant to the execution of a term sheet with an affiliated party in April
2016, we only have sufficient capital to fund operations into the third quarter of 2016. A sale of common stock and warrants, a
convertible instrument or additional partnering of licensed rights are possible sources of operating capital in the future.
In addition,
the length of time required for clinical trials varies substantially according to the type, complexity, novelty and intended use
of a product candidate. Some of the factors that could impact our liquidity and capital needs include, but are not limited to:
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the progress of our clinical trials;
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the progress of our research activities;
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the number and scope of our research programs;
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the progress of our preclinical development activities;
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the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent
and other intellectual property claims;
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the costs related to development and manufacture of preclinical, clinical and validation lots for
regulatory purposes and commercialization of drug supply associated with our product candidates;
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our ability to enter into corporate collaborations and the terms and success of these collaborations;
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the costs and timing of regulatory approvals; and
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the costs of establishing manufacturing, sales and distribution capabilities.
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In addition,
the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising
during the clinical trial protocol, including, among others, the following:
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the number of patients that ultimately participate in the trial;
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the duration of patient follow-up that seems appropriate in view of the results;
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the number of clinical sites included in the trials; and
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the length of time required to enroll suitable patient subjects.
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Also, we test
our product candidates in numerous preclinical studies to identify indications for which they may be efficacious. We may conduct
multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may
elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources
on more promising product candidates or indications.
Our proprietary
product candidates have not yet achieved FDA marketing approval, which is required before we can market them as therapeutic products.
In order to proceed to subsequent clinical trial stages and to ultimately achieve marketing approval, the FDA must conclude that
our clinical data establish safety and efficacy. Historically, the results from preclinical studies and early clinical trials have
often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising
results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory
approvals.
Sources
of Liquidity
We have not
commercialized any of our product candidates to date and have primarily financed our operations through the issuance of common
stock and common stock warrants in private and public financings in addition to a series of five convertible debt placements from
October 2012 to January 2014. In March 2014 we entered into a strategic transaction with GtreeBNT which includes the purchase of
approximately 19.6 million shares of common stock by G-GtreeBNT in two tranches, GtreeBNT is now our second largest stockholder.
Our current capital resources coupled with the $250,000 received pursuant to the execution of a term sheet with an affiliated party
in April 2016, we only have sufficient capital to fund operations into the third quarter of 2016. A sale of common stock and warrants,
a convertible instrument or additional partnering of licensed rights are possible sources of operating capital in the future.
On January
28, 2015, we announced that we had entered into a Joint Venture Agreement with GtreeBNT , a shareholder of the Company. The Joint
Venture Agreement provides for the creation of an entity, ReGenTree, LLC, jointly owned by us and GtreeBNT, which will commercialize
RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan indication in the United States. GtreeBNT is responsible
for funding all product development and commercialization efforts.
RegeneRx’s
ownership interest in ReGenTree is 49% and will be reduced to 42% when the clinical study report is filed for the Phase 3 dry eye
clinical trial. Based on when, and if, certain additional development milestones are achieved in the U.S. with RGN-259, our equity
ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon approval of an NDA
for Dry Eye Syndrome in the U.S. In conjunction with the Joint Venture Agreement, we also entered into a royalty-bearing license
agreement (the “License Agreement”) with ReGenTree pursuant to which we granted to ReGenTree the right to develop and
exclusively commercialize RGN-259 in the United States. We received a total of $1 million in two tranches under the terms of the
License Agreement. The first tranche of $500,000 was received in March 2015 and a second in the amount of $500,000, was received
in September 2015.
We are also
entitled to royalties as a percentage of net sales ranging from the single digits to the low-double digits based on the medical
indications approved and whether the Joint Venture commercializes products directly or through a third party. In the event the
ReGenTree entity is acquired or there is a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled
to 40% of all change of control proceeds paid or payable and will forgo any future royalties. RegeneRx possesses one of three board
seats and certain major decisions and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions,
require RegeneRx’s board designee’s consent. Additionally, we intend to continue to pursue additional partnering activities,
particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.
Licensing
Agreements
As noted above,
we have entered into two strategic agreements with GtreeBNT. GtreeBNT licensed the development and commercialization rights for
RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization rights
for RGN-137 in the U.S. In January 2015 we entered into a joint venture and licensing agreement with GtreeBNT that will commercialize
RGN-259 for treatment of dry eye and neurotrophic keratitis in the United States, as well as any other indications within the field
of ophthalmology. The license agreements provide for the opportunity for us to receive milestone payments upon specified commercial
events and royalty payments in connection with any commercial sales of the licensed products in the respective territories. However,
there are no assurances that we will be able to attain any such milestones or generate any such royalty payments under the agreements.
We have a license
agreement with Sigma-Tau/Alfa Wassermann that provides the opportunity for us to receive milestone payments upon specified events
and royalty payments in connection with commercial sales of Tß4 in Europe. However, we have not received any milestone payments
to date, and there can be no assurance that we will be able to attain such milestones and generate any such payments under the
agreement.
We also have
entered into a license agreement with Lee’s Pharmaceuticals that provides for the opportunity for us to receive milestone
payments upon specified events and royalty payments in connection with any commercial sales of Tß4-based products in China,
Hong Kong, Macau and Taiwan. However, there are no assurances that we will be able to attain any such milestones or generate any
such royalty payments under the agreement.
Government
Grants
We have previously
received significant government funding and continue to pursue such funding for both RGN-259 as well as RGN-352, although there
can be no guarantee that we will be able to obtain any such funding.
Other Financing
Sources
Other potential
sources of outside capital include entering into additional strategic business relationships, additional issuances of equity securities
or debt financing or other similar financial instruments. If we raise additional capital through a strategic business relationship,
we may have to give up valuable rights to our intellectual property. If we raise funds by selling additional shares of our common
stock or securities convertible into our common stock, the ownership interest of our existing stockholders may be significantly
diluted. In addition, if additional funds are raised through the issuance of preferred stock or debt securities, these securities
are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense,
restrictive covenants and the granting of security interests in our assets.
Our failure
to successfully address liquidity requirements could have a materially negative impact on our business, including the possibility
of surrendering our rights to some technologies or product opportunities, delaying our clinical trials, or ceasing operations.
There can be no assurance that we will be able to obtain additional capital in sufficient amounts, on acceptable terms, or at all.
Off-Balance Sheet Arrangements
We do not have
any off-balance sheet arrangements, as such term is defined in Item 303(a)(4) of Regulation S-K.
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements
and Supplementary Data.
The financial
statements required by this item are included beginning on page F-1 of this report.
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
We maintain
disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and timely reported as provided in SEC rules and forms
and that such information is accumulated and communicated to our management, including our Chief Executive Officer who currently
serves as both our principal executive officer and our principal financial officer, as appropriate, to allow for timely decisions
regarding required disclosure. We periodically review the design and effectiveness of our disclosure controls and procedures, including
compliance with various laws and regulations that apply to our operations. We make modifications to improve the design and effectiveness
of our disclosure controls and procedures and may take other corrective action if our reviews identify a need for such modifications
or actions. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and
we apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any
system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of
the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
We have carried
out an evaluation, under the supervision and the participation of our management, including our Chief Executive Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act), as of December 31, 2015, the end of the period covered by this report. Based upon that evaluation,
our Chief Executive Officer, in his capacity as principal executive officer and principal financial officer, concluded that our
disclosure controls and procedures were effective as of December 31, 2015.
Management’s Annual Report
on Internal Control over Financial Reporting
Our management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on our financial statements.
Because of
its inherent limitations, including the possibility of human error and the circumvention or overriding of controls, a system of
internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting
may vary over time.
A significant
deficiency is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that is
less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s
financial reporting. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
Under the supervision
and with the participation of our management, including our Chief Executive Officer in his capacity as principal executive officer
and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework set forth in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation, management has concluded that our internal control over financial reporting
was effective as of December 31, 2015.
Changes in Internal Control
over Financial Reporting
There were
no changes to the Company’s Internal Controls over Financial Reporting in the quarter ended December 31, 2015.
Item 9B. Other Information.
None.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
The accompanying notes are an integral
part of these financial statements.
Notes to Financial Statements
December 31, 2015
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1.
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ORGANIZATION AND BUSINESS
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Organization
and Nature of Operations.
RegeneRx Biopharmaceuticals,
Inc. (“RegeneRx”, the “Company”, “We”, “Us”, “Our”), a Delaware corporation,
was incorporated in 1982. We are focused on the discovery and development of novel molecules to accelerate tissue and organ repair.
Our operations are confined to one business segment: the development and marketing of product candidates based on Thymosin Beta
4 (“Tß4”), an amino acid peptide.
Management
Plans to Address Operating Conditions.
On January
28, 2015, we announced that we had entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with GtreeBNT
Co., Ltd., a Korean pharma company (“GtreeBNT”) and shareholder of the Company. The Joint Venture Agreement provides
for the creation of an entity, ReGenTree, LLC (the “Joint Venture” or “ReGenTree”), jointly owned by us
and GtreeBNT, that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan indication in the
United States. GtreeBNT will be responsible for funding all product development and commercialization efforts, and holds a majority
interest of ReGenTree that varies depending on development milestones achieved and eventual commercialization path, if successful.
In March 2015, GtreeBNT reported that it received $7.28 million to expand international development of the product candidate, RGN-259
(designated GBT-201 in Korea). The $7.28 million will be used for development of RGN-259/GBT-201 for dry eye syndrome and neurotrophic
keratopathy in the U.S. through the U.S. joint venture, ReGenTree, LLC.
RegeneRx’s
ownership interest in ReGenTree is 49% and will be reduced to 42% when the clinical study report is filed for the Phase 3 dry eye
clinical trial. Based on when, and if, certain additional development milestones are achieved in the U.S. with RGN-259, our equity
ownership may be incrementally reduced to between 42% and 25%, with 25% being the final equity ownership upon approval of an NDA
for Dry Eye Syndrome in the U.S. In the event the ReGenTree entity is acquired or there is a change of control that occurs following
achievement of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable and will forgo any future
royalties.
In conjunction
with the Joint Venture Agreement, we also entered into a royalty-bearing license agreement (the “License Agreement”)
with ReGenTree pursuant to which we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United
States. We received a total of $1 million in two tranches under the terms of the License Agreement. The first tranche of $500,000
was received in March 2015 and a second in the amount of $500,000 was received in September 2015. We are also entitled to royalties
as a percentage of net sales ranging from the single digits to the low-double digits based on the medical indications approved
and whether the Joint Venture commercializes products directly or through a third party. RegeneRx possesses one of three board
seats and certain major decisions and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions,
require RegeneRx’s board designee’s consent.
In September
2015, ReGenTree began a Phase 2b/3 clinical trial in patients with dry eye syndrome (“DES”) and a Phase 3 clinical
trial in patients with neurotrophic keratopathy (“NK”), both in the U.S. In January 2016, the DES had completed enrollment
of all patients in the trial. The last patient received the last treatment in February. We expect to report top line data from
the DES trial at the end of April 2016. The NK trial, a smaller study in an orphan population, has enrolled seven patients thus
far with a goal of 46. Of the eight original clinical sites for the study, six are enrolling patients, one has yet to receive IRB
approval to begin enrolling patients, and one was unable to consummate a clinical contract with ReGenTree. ReGenTree is considering
adding additional sites to accelerate patient enrollment.
Currently,
we have active partnerships in three major territories: the U.S., China and Pan Asia. Our partners have been moving forward and
making progress in each territory. In each case, the cost of development is being borne by our partners with no financial obligation
for RegeneRx. We received $250,000 pursuant to the signing of a term sheet with an affiliated entity in April 2016, with this amount
coupled with our current cash, we believe we should be able to maintain our existing operations at the current level into the third
quarter of 2016.
Lee's Pharmaceutical
Ltd. (“Lee’s”), RegeneRx's licensee in China, Hong Kong, Macau and Taiwan, recently received notice from China's
FDA (“CFDA”) declining its investigational new drug (“IND”) application for a Phase 2b dry eye clinical
trial because the API (active pharmaceutical ingredient or Tß4Tß4) was manufactured outside of China. The API was manufactured
in the U.S. and provided to Lee's by RegeneRx pursuant to a license agreement to develop RGN-259 ophthalmic eye drops in the licensed
territory. Due to this unexpected regulatory hurdle, Lee's plans to modify its clinical program to conduct the Phase 2b dry eye
trial in Hong Kong and Taiwan using the Tß4 supplied by RegeneRx while awaiting the manufacturing of Tß4 in China for
a subsequent Phase 3 registration trial. We do not know when the Hong Kong/Taiwan trial will begin enrollment of patients. Under
this revised strategy, Lee's believes it should be able to begin a Phase 3 registration trial in China sooner, rather than waiting
on the production of Tß4 in China before initiating a Phase 2b trial.
GtreeBNT, RegeneRx's
licensee in Korea, Australia, Japan and a number of other countries in Asia. GtreeBNT filed an IND with the Korean Ministry of
Food and Drug Safety to conduct a Phase 2b/3 study with RGN-259 in patients with dry eye syndrome and in July 2015 received approval
to conduct the trial. GtreeBNT has informed us that given its immediate focus on the two U.S. trials, it is considering the best
timing for the Korean trial.
We still have
significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in
the U.S., Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic
clinical trials before moving into the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset
at that time. However, we intend to continue to develop RGN-352, either by obtaining grants to fund a Phase 2a clinical trial in
the cardiovascular or central nervous system fields or finding a suitable partner with the resources and capabilities to develop
it as we have with RGN-259.
We have incurred
net losses of $5,270,000 and $2,754,000 for the years ended December 31, 2015 and 2014, respectively. Since inception, and through
December 31, 2015, we have an accumulated deficit of $105 million and we had cash and cash equivalents of $318,000 as of December
31, 2015. We anticipate incurring additional losses in the future as we continue to explore the potential clinical benefits of
Tß4-based product candidates over multiple indications. We have entered into a series of strategic partnerships under licensing
and joint venture agreements where our partners are responsible to advance development of our product candidates with multiple
clinical trials starting in 2015 and 2016. Even after extending the maturity date of our October 2012 Notes until October 2017,
we will need additional funds to continue operations beyond the third quarter of 2016 as well as substantial additional funds in
order to significantly advance development of our unlicensed programs. Accordingly, we will continue to evaluate opportunities
to raise additional capital and are in the process of exploring various alternatives, including, without limitation, a public or
private placement of our securities, debt financing, corporate collaboration and licensing arrangements, or the sale of our company
or certain of our intellectual property rights.
These factors
raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared
assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction
of our liabilities in the normal course of business.
Although we
intend to continue to seek additional financing or additional strategic partners, we may not be able to complete a financing or
corporate transaction, either on favorable terms or at all. If we are unable to complete a financing or strategic transaction,
we may not be able to continue as a going concern after our funds have been exhausted, and we could be required to significantly
curtail or cease operations, file for bankruptcy or liquidate and dissolve. There can be no assurance that we will be able to obtain
any sources of funding. The financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should we be forced to take any such actions.
In addition
to our current operational requirements, we continually refine our operating strategy and evaluate alternative clinical uses of
Tß4. However, substantial additional resources will be needed before we will be able to achieve sustained profitability.
Consequently, we continually evaluate alternative sources of financing such as the sharing of development costs through strategic
collaboration agreements. There can be no assurance that our financing efforts will be successful and, if we are not able to obtain
sufficient levels of financing, we would delay certain clinical and/or research activities and our financial condition would be
materially and adversely affected. Even if we are able to obtain sufficient funding, other factors including competition, dependence
on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of peptides, and technology obsolescence
could have a significant impact on us and our operations.
To achieve
profitability we, and/or a partner, must successfully conduct pre-clinical studies and clinical trials, obtain required regulatory
approvals and successfully manufacture and market those pharmaceuticals we wish to commercialize. The time required to reach profitability
is highly uncertain, and there can be no assurance that we will be able to achieve sustained profitability, if at all.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Use of Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the United Stated of America
(“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported earnings, financial
position and various disclosures. Critical accounting policies involved in applying our accounting policies are those that require
management to make assumptions about matters that are highly uncertain at the time the accounting estimate was made and those for
which different estimates reasonably could have been used for the current period. Critical accounting estimates are also those
which are reasonably likely to change from period to period, and would have a material impact on the presentation of our financial
condition, changes in financial condition or results of operations. Our most critical accounting estimates relate to accounting
policies for revenue recognition, clinical trial accruals and share-based arrangements. Management bases its estimates on historical
experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ
from these estimates.
Cash and
Cash Equivalents.
Cash and cash equivalents consist of cash and highly-liquid investments with original maturities of three
months or less when acquired and are stated at cost that approximates their fair market value.
Concentration
of Credit Risk.
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily
of cash and cash equivalents. We limit our exposure to credit loss by placing our cash and cash equivalents with high quality financial
institutions and, in accordance with our investment policy, in securities that are rated investment grade.
Property
and Equipment.
Property and equipment consists of office furniture and equipment, and is stated at cost and depreciated over
the estimated useful lives of the assets (generally two to five years) using the straight-line method. Expenditures for maintenance
and repairs which do not significantly prolong the useful lives of the assets are charged to expense as incurred. Depreciation
expense was $3,403 and $4,823 for the years ended December 31, 2015 and 2014, respectively.
Impairment
of Long-lived Assets.
When we record long-lived assets our policy is to regularly perform reviews to determine if and when
the carrying value of our long-lived assets becomes impaired. During the years ended December 31, 2015 and 2014 no impairment losses
were recorded.
Convertible
Notes with Detachable Warrants.
In accordance with Accounting Standards Codification (ASC) 470-20,
Debt with Conversion
and Other Options
, the proceeds received from convertible notes are allocated between the convertible notes and the detachable
warrants based on the relative fair value of the convertible notes without the warrants and the warrants. The portion of the proceeds
allocated to the warrants is recognized as additional paid-in capital and a debt discount. The debt discount related to warrants
is accreted into interest expense through maturity of the notes.
Derivative
Financial Instruments.
Derivative financial instruments consist of financial instruments or other contracts that contain a
notional amount and one or more underlying variables (e.g. interest rate, security price or other variable), which require no initial
net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial
instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as
liabilities or, in rare instances, assets.
The Company
does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company
has issued financial instruments including warrants that are either (i) not afforded equity classification, (ii) embody risks not
clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances, these
instruments are required to be carried as derivative liabilities, at fair value, in the Company’s financial statements.
The Company
estimates the fair values of its derivative financial instrument using the Black-Scholes option pricing model because it embodies
all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these
instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective
estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external
market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of
the Company’s common stock, which has a high-historical volatility. Since derivative financial instruments are initially
and subsequently carried at fair values, the Company’s operating results reflect the volatility in these estimate and assumption
changes in each reporting period.
Revenue
Recognition.
We recognize revenue in accordance with the authoritative guidance for revenue recognition. We recognize revenue
when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title)
has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability
is reasonably assured. We also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple
deliverables. Multiple-element arrangements are analyzed to determine whether the deliverables, which may include a license together
with performance obligations such as providing a clinical supply of product and steering committee services, can be separated or
whether they must be accounted for as a single unit of accounting. Revenue associated with licensing agreements consists of non-refundable
upfront license fees and milestone payments. Non-refundable upfront license fees received under license agreements, whereby continued
performance or future obligations are considered inconsequential to the relevant license technology, are recognized as revenue
upon delivery of the technology.
Whenever we
determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the
performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a relative performance
or straight-line method. We recognize revenue using the relative performance method provided that the we can reasonably estimate
the level of effort required to complete our performance obligations under an arrangement and such performance obligations are
provided on a best-efforts basis. Revenue recognized is limited to the lesser of the cumulative amount of payments received or
the cumulative amount of revenue earned, as determined using the relative performance method, as of each reporting period.
If we cannot
reasonably estimate the level of effort required to complete our performance obligations under an arrangement, the performance
obligations are provided on a best-efforts basis and we can reasonably estimate when the performance obligation ceases or the remaining
obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding royalties and payments
contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line basis over the period
we expect to complete our performance obligations. Revenue is limited to the lesser of the cumulative amount of payments received
or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period ending date.
If we cannot
reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory, then revenue is deferred
until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized
over the remaining estimated period of performance.
We recognize
consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone
is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the
following criteria:
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·
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The consideration is commensurate with either the entity's performance to achieve the milestone
or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity's performance
to achieve the milestone;
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·
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The consideration relates solely to past performance; and
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·
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The consideration is reasonable relative to all of the deliverables and payment terms within the
arrangement.
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A milestone
is defined as an event (i) that can only be achieved based in whole or in part on either the entity's performance or on the occurrence
of a specific outcome resulting from the entity's performance, (ii) for which there is substantive uncertainty at the date
the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due
to us.
Amounts received
prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in our accompanying condensed balance
sheets.
Variable
Interest Entities
The Company
has determined that the Joint Venture is a “variable interest entity”, since the total equity investment at risk is
not sufficient to permit the Joint Venture to finance its activities without additional subordinated financial support. Further,
because of GtreeBNT’s majority equity stake in the Joint Venture, voting control, control of the board of directors, and
substantive management rights, and given that the Company does not have the power to direct the Joint Venture’s activities
that most significantly impact its economic performance, the Company determined that it is not the primary beneficiary of the Joint
Venture and therefore is not required to consolidate the Joint Venture. The Company reports its equity stake in the Joint Venture
using the equity method of accounting because, while it does not control the Joint Venture, the Company can exert significant influence
over the Joint Ventures activities by virtue of its board representation.
Because the
Company is not obligated to fund the Joint Venture, and has not provided any financial support and has no commitment to provide
financial support in the future to the Joint Venture, the carrying value of its investment in the Joint Venture is zero. As a result,
the Company is not recognizing its share (49%) of the Joint Venture’s operating losses and will not recognize any such losses
until the Joint Venture produces net income (as opposed to net losses) and at that point the Company will reduce its share of the
Joint Venture’s net income by its share of previously suspended net losses. As of December 31, 2015, because it has not provided
any financial support, the Company has no financial exposure as a result of its variable interest in the Joint Venture.
Research
and Development
. Research and development (“R&D”) costs are expensed as incurred and include all of the wholly-allocable
costs associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include: manufacturing
T
b
4; formulation of T
b
4 into the various product
candidates; stability for both T
b
4 and the various formulations; pre-clinical toxicology;
safety and pharmacokinetic studies; clinical trial management; medical oversight; laboratory evaluations; statistical data analysis;
regulatory compliance; quality assurance; and other related activities. R&D includes cash and non-cash compensation, employee
benefits, travel and other miscellaneous costs of our internal R&D personnel, four persons in total, who are wholly dedicated
to R&D efforts. R&D also includes a pro-ration of our common infrastructure costs for office space and communications.
Cost of
Preclinical Studies and Clinical Trials.
We accrue estimated costs for preclinical studies based on estimates of work performed.
We estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection
and management. Costs based on clinical data collection and management are recognized based on estimates of unbilled goods and
services received in the reporting period. We monitor the progress of the trials and their related activities and adjust the accruals
accordingly. Adjustments to accruals are charged to expense in the period in which the facts that give rise to the adjustment become
known. In the event of early termination of a clinical trial, we would accrue an amount based on estimates of the remaining non-cancelable
obligations associated with winding down the clinical trial.
Patent Costs.
Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred since
recoverability of such expenditures is uncertain.
Income Taxes.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. We recognize the effect of income tax positions only if those positions
are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater
than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. Our policy for recording interest and penalties associated with audits is that penalties and interest expense are recorded
in “Income taxes” in our statements of operations.
The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making that assessment. We recorded a full valuation allowance against all estimated
net deferred tax assets at December 31, 2015 and 2014. We have significant net operating loss carryforwards to potentially reduce
future federal and state taxable income, and research and experimentation tax credit carryforwards available to potentially offset
future federal and state income taxes. Use of our net operating loss and research and experimentation credit carryforwards may
be limited due to changes in our ownership as defined within Section 382 of the Internal Revenue Code.
Net Loss
Per Common Share.
Net loss per common share for the years ended December 31, 2015 and 2014, respectively, is based on
the weighted-average number of shares of common stock outstanding during the periods. Basic and diluted loss per share are identical
for all periods presented as potentially dilutive securities have been excluded from the calculation of the diluted net loss per
common share because the inclusion of such securities would be antidilutive. The potentially dilutive securities include 22,621,951
shares and 34,050,093 shares in 2015 and 2014, respectively, reserved for the exercise of outstanding options, warrants and convertible
debt instruments.
Share-Based
Compensation.
We measure share-based compensation expense based on the grant date fair value of the awards which is then recognized
over the period which service is required to be provided. We estimate the grant date fair value using the Black-Scholes option-pricing
model (“Black-Scholes”). We recognized $231,607 and $163,432 in share-based compensation expense for the years ended
December 31, 2015 and 2014, respectively.
Fair Value
of Financial Instruments.
The carrying amounts of our financial instruments, as reflected in the accompanying balance sheets,
approximate fair value. Financial instruments consist of cash and cash equivalents, accounts payable, and convertible debt and
accrued interest. Because the convertible debt with an interest rate of 5% is with related parties, it was not practicable to estimate
the effect of subjective risk factors, which might influence the value of the debt. The most significant of these risk factors
include the lack of collateralization.
Recent Accounting
Pronouncements.
In May 2014,
the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which provides guidance for revenue recognition
for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance.
The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations,
3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in
enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. The
standard is effective for the Company’s reporting year beginning December 15, 2017 and early adoption is not permitted. The
Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its financial statements.
In April 2015,
the FASB issued ASU 2015-03,
Interest – Imputation of Interest
, which amends the presentation of debt issuance costs.
These costs will now be presented as a direct reduction from the carrying amount of that debt liability. The update
is effective for financial statements issued for reporting periods beginning after December 15, 2015. This guidance
should be applied on a retrospective basis with disclosures for a change in accounting principle applicable. The Company
has not yet adopted this update and is currently evaluating the impact, if any, it may have on its financial condition and results
of operations.
In November
2015, the FASB issued new guidance on the balance sheet classification of deferred taxes. To simplify presentation, the new guidance
requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent
on the balance sheet. The accounting standard is effective for public business entities for annual reporting periods (including
interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is permitted. The adoption of
this guidance did not have an impact on our financial statements.
In January
2016, the FASB issued a new accounting standard on recognition and measurement of financial assets and financial liabilities. The
accounting standard primarily affects the accounting for equity investments, financial liabilities under the fair value option,
and the presentation and disclosure requirements for financial instruments. In addition, it includes a clarification related
to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale
debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods)
beginning after December 15, 2017. Early adoption is permitted for the provision to record fair value changes for financial liabilities
under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently
evaluating the impact, if any, that the pronouncement will have on the financial statements.
In February
2016, the FASB issued ASU 2016-02,
Leases
, which supersedes ASC Topic 840,
Leases
, and creates a new topic, ASC
Topic 842,
Leases
. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including
operating leases, with a term greater than 12 months on its balance sheet. ASU 2016-02 also expands the required quantitative
and qualitative disclosures surrounding leases. ASU 2016-02 is effective for the Company beginning
January
1, 2019
. Early adoption is permitted. The Company has determined that the adoption of ASU 2016-02 will currently have no
impact on its consolidated financial statements.
In March 2016,
the FASB issued ASU 2016-07,
Equity Method and Joint Ventures
affect all entities that have an investment that becomes
qualified for the equity method of accounting as a result of an increase in the level of ownership or degree of influence. ASU
2016-07 is effective for the Company beginning on
January 1, 2017
, early adoption is permitted.
The Company is currently evaluating the effect this ASU will have on the consolidated financial statements.
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3.
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FAIR VALUE MEASUREMENTS
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The authoritative
guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are
(i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value
hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value which are the following:
|
•
|
|
Level 1 — Quoted prices in active markets for identical assets and liabilities.
|
|
•
|
|
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities.
|
|
•
|
|
Level 3 — Unobservable inputs.
|
At December 31,
2015 and 2014, our only qualifying assets that required measurement under the foregoing fair value hierarchy were money market
funds included in Cash and Cash Equivalents valued at $318,000 and $844,000, respectively, which were valued using Level 1 inputs.
Our December 31, 2015 balance sheet reflects qualifying liabilities resulting from the price protection provision in the convertible
promissory notes issued in March, July and September of 2013 and January 2014 (see Note 7). We evaluated the derivative liability
embedded in the series of convertible notes to determine if an adjustment to the carrying value of the liability was required at
December 31, 2015 using the following assumptions.
|
|
March 2013
|
|
|
July 2013
|
|
|
Sept 2013
|
|
|
Jan 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Risk-free rate of return
|
|
|
0.92
|
%
|
|
|
0.92
|
%
|
|
|
0.92
|
%
|
|
|
0.92
|
%
|
Expected life in years
|
|
|
2.25
|
|
|
|
2.5
|
|
|
|
2.7
|
|
|
|
3
|
|
Volatility
|
|
|
119.5
|
%
|
|
|
114.0
|
%
|
|
|
110.7
|
%
|
|
|
104.9
|
%
|
Given the conditions
surrounding the trading of the Company’s equity securities, the Company values its derivative instruments related to embedded
conversion features from the issuance of convertible debentures in accordance with the Level 3 guidelines. For the year
ended December 31, 2015, the following table reconciles the beginning and ending balances for financial instruments that are recognized
at fair value in these financial statements.
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
New
|
|
|
Change in
|
|
|
December 31,
|
|
|
|
2014
|
|
|
Issuances
|
|
|
Fair Values
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion features
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013
|
|
$
|
412,500
|
|
|
$
|
-
|
|
|
$
|
1,087,500
|
|
|
$
|
1,500,000
|
|
July 2013
|
|
|
183,334
|
|
|
|
-
|
|
|
|
483,333
|
|
|
|
666,667
|
|
September 2013
|
|
|
588,500
|
|
|
|
-
|
|
|
|
1,551,500
|
|
|
|
2,140,000
|
|
January 2014
|
|
|
100,836
|
|
|
|
-
|
|
|
|
265,833
|
|
|
|
366,669
|
|
Derivative instruments
|
|
$
|
1,285,170
|
|
|
$
|
-
|
|
|
$
|
3,388,166
|
|
|
$
|
4,673,336
|
|
|
4.
|
LICENSES, INTELLECTUAL PROPERTY, AND RELATED PARTY TRANSACTIONS
|
We have an
exclusive, worldwide licensing agreement with the National Institutes of Health (“NIH”) for all claims to T
b
4
within their broadly-defined patent application. In exchange for this exclusive worldwide license, we must make certain royalty
and milestone payments to the NIH. In 2013 we amended certain provisions of the exclusive license; we were permitted to credit
amounts paid to prosecute or maintain the licensed patent rights during 2013 calendar year against the 2013 minimum annual royalty
of $25,000. Beginning in 2014 the minimum annual royalty is $2,000. No assurance can be given as to whether or when a patent will
be issued, or as to any claims that may be included or excluded within the patent. We have also filed numerous additional patent
applications covering various compositions, uses, formulations and other components of T
b
4,
as well as to novel peptides resulting from our research efforts. Some of these patents have issued, while many patent applications
are still pending.
We have also
entered into an agreement with a university under the terms of which we have received an exclusive license to technology and intellectual
property. The agreement, which is generally cancelable by us, provided for the payment of a license issue fee and/or minimum
annual payments. The initial license fee of $25,000 was paid in 2010 and no minimum fees were due for the year ended December
31, 2011. Beginning in 2012, minimum annual maintenance fees are $5,000 annually which was paid in 2012 but has not been paid for
2013, 2014 or 2015 as of the date of this report. In addition, the agreements provide for payments upon the achievement of certain
milestones in product development. The agreement also requires us to fund certain costs associated with the filing and prosecution
of patent applications. In February 2013 this agreement was amended to include additional technology and intellectual property.
The expanded license does not require payment of an initial license fee or additional annual maintenance fees but will be subject
to payments upon the achievement of certain milestones for a product developed under the amended license of the additional technology
and intellectual property.
All license
fees are included in Research and Development in the accompanying statements of operations.
We have entered
into a License and Supply Agreement (the “Agreement”) with Defiante Farmaceutica S.A. (“Defiante”) a Portuguese
company that is a wholly owned subsidiary of Sigma-Tau, S.p.A., an international pharmaceutical company and an affiliate of Sigma-Tau
Finanziaria S.p.A., who together with its affiliates comprise our largest stockholder group (the “Sigma-Tau Group”).
This Agreement grants to Defiante the exclusive right to use T
b
4 to conduct research and
development activities in Europe. Under the Agreement, we will receive fees and royalty payments based on a percentage of specified
sales of T
b
4-related products by Defiante. The term of the Agreement continues until the
later of the expiration of any patents developed under the Agreement, the expiration of marketing rights, or December 31,
2016. Defiante merged with Sigma-Tau Industrie Farmaceutiche Riunite S.p.A. in 2013 and Sigma-Tau Industrie Farmaceutiche Riunite
S.p.A. merged with Alfa Wassermann, S.p.A.
In 2012, we
entered into a License Agreement (the “Agreement”) with Lee’s Pharmaceutical (HK) Limited, headquartered in Hong
Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates,
in China, Hong Kong, Macau and Taiwan. Under the License Agreement, we are eligible to receive milestone payments and royalties,
ranging from low double digit to high single digit percentages of any commercial sales of the licensed products. Lee’s will
pay for all developmental costs associated with each product candidate. We will provide Tß4 to Lee’s at no charge for
a Phase 2 ophthalmic clinical trial and will provide Tß4 to Lee’s for all other developmental and clinical work at
a price equal to our cost. We will also have the right to exclusively license any improvements made by Lee’s to RegeneRx’s
products outside of the licensed territory. Lee’s paid us $200,000 upon signing of a term sheet in March 2012, and Lee’s
paid us an additional $200,000 upon signing of the definitive license agreement. Lee’s is an affiliate of Sigma-Tau, which
collectively with its affiliates is our largest stockholder. As of December 31, 2015 and 2014, we have unearned revenue totaling
$400,000 pursuant to this Agreement.
On March 7,
2014, we entered into license agreements with GtreeBNT Co., Ltd. The two Licensing Agreements are for the license of territorial
rights to two of our Thymosin Beta 4-based products candidates, RGN-259 and RGN-137.
Under the License
Agreement for RGN-259, our preservative-free eye drop product candidate, GtreeBNT will have the right to develop and commercialize
RGN-259 in Asia (excluding China, Hong Kong, Taiwan, and Macau). The rights will be exclusive in Korea, Japan, Australia, New Zealand,
Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Mongolia, Myanmar (Burma), Philippines, Singapore, Thailand, Vietnam,
and Kazakhstan, and semi-exclusive in India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, Kyrgyzstan, Tajikistan,
Turkmenistan and Uzbekistan, collectively, the Territory (the “259 Territory”). Under the 259 License Agreement we
are eligible to receive aggregate potential milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties
of a low double digit percentage of any commercial sales of the licensed product sold by GtreeBNT in the 259 Territory.
Under the License
Agreement for RGN-137, our topical dermal gel product candidate, GtreeBNT will have the exclusive right to develop and commercialize
RGN-137 in the U.S. (the”137 Territory”). Under the 137 License Agreement we are eligible to receive aggregate potential
milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties of a low double digit percentage of
any commercial sales of the Company’s licensed product sold by GtreeBNT in the 137 Territory.
Each license
agreement contains diligence provisions which require the initiation of certain clinical trials within certain time periods that,
if not met, would result in the loss of rights or exclusivity in certain countries. GtreeBNT will pay for all developmental costs
associated with each product candidate. We will provide a certain limited amount of Tß4 to GtreeBNT at no charge for initial
clinical trials in Korea, Japan and Australia for RGN-259 and in the U.S. for RGN-137 and will provide Tß4 to GtreeBNT for
all other developmental and clinical work on a cost plus basis. We have the right to exclusively license any improvements made
by GtreeBNT to our products outside of the licensed territory on a royalty free basis. The two firms have created a joint development
committee and continue to discuss the development of the licensed products and share information relating thereto. Both companies
will also share all non-clinical and clinical data and other information related to development of the licensed product candidates.
On January 28, 2015, the Company
entered into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company. The Joint Venture Agreement provides for
the creation of the Joint Venture, jointly owned by the Company and GtreeBNT, which will commercialize RGN-259 for treatment of
dry eye and neurotrophic keratopathy in the United States.
GtreeBNT is solely responsible
for funding all the product development and commercialization efforts of the Joint Venture. GtreeBNT made an initial contribution
of $3 million in cash and received an initial equity stake of 51%. RegeneRx’s ownership interest in ReGenTree is 49% and
will be reduced to 42% when the clinical study report is filed for the Phase 3 dry eye clinical trial. Based on when, and if, certain
additional development milestones are achieved in the U.S. with RGN-259, our equity ownership may be incrementally reduced to between
42% and 25%, with 25% being the final equity ownership upon approval of an NDA for Dry Eye Syndrome in the U.S. In addition to
our equity ownership, RegeneRx retains a royalty on net sales that varies between single and low double digits, depending on whether
commercial sales are made by ReGenTree or a licensee. In the event the ReGenTree entity is acquired or there is a change of control
that occurs following achievement of an NDA, RegeneRx shall be entitled to 40% of all change of control proceeds paid or payable
and will forgo any future royalties. The Company is not required or otherwise obligated to provide financial support to the Joint
Venture.
The Joint Venture
is responsible for executing all development and commercialization activities under the License Agreement, which activities will
be directed by a joint development committee comprised of representatives of the Company and GtreeBNT. The License Agreement has
a term that extends to the later of the expiration of the last patent covered by the License Agreement or 25 years from the first
commercial sale under the License Agreement. The License Agreement may be earlier terminated if the Joint Venture fails to meet
certain commercialization milestones, if either party breaches the License Agreement and fails to cure such breach, as a result
of government action that limits the ability of the Joint Venture to commercialize the product, as a result of a challenge to a
licensed patent, following termination of the license between the Company and certain agencies of the United States federal government,
or upon the bankruptcy of either party.
Under the License
Agreement, the Company received $1.0 million in up-front payments and is entitled to receive royalties on the Joint Venture’s
future sales of products. The Company is accounting for the License Agreement with the Joint Venture as a revenue arrangement.
The Company has determined that the deliverables within the License Agreement, including a delivered element (providing the license)
and an undelivered element (participation on the joint development committee), do not have stand-alone value and, as such, are
treated as a single unit of accounting. As a result, the Company is recognizing the up-front milestone payments as revenue ratably
over the anticipated life of the joint development committee, or 25 years. The joint development committee commenced activities
as of April 1, 2015 therefore the Company has begun recognizing the revenue for the license fee. Revenue will be recognized for
future royalty payments as they are earned.
|
5.
|
COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
|
Prepaid expenses
and other current assets are comprised of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$
|
10,552
|
|
|
$
|
50,779
|
|
Prepaid and other
|
|
|
13,748
|
|
|
|
35,746
|
|
|
|
$
|
24,300
|
|
|
$
|
86,525
|
|
Accrued expenses
are comprised of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Accrued professional fees
|
|
$
|
31,788
|
|
|
$
|
80,393
|
|
Accrued other
|
|
|
30,000
|
|
|
|
2,954
|
|
Accrued compensation
|
|
|
22,249
|
|
|
|
9,838
|
|
Accrued interest on convertible notes
|
|
|
133,874
|
|
|
|
83,824
|
|
|
|
$
|
217,911
|
|
|
$
|
177,009
|
|
|
6.
|
EMPLOYEE BENEFIT PLANS
|
In 2014 we
did not offer any Company sponsored health or retirement plans. In 2015 the Company provided health and dental insurance to one
employee under a group plan. No retirement plan was in place for 2015.
2012 Convertible Note
On October
19, 2012 we completed a private placement of convertible notes (the “2012 Notes”) raising an aggregate of $300,000
in gross proceeds. The 2012 Notes were originally scheduled to mature after twenty-four (24) months from issuance. The 2012 Notes
bear interest at a rate of five percent (5%) per annum and are convertible into shares of our common stock at a conversion price
of fifteen cents ($0.15) per share (subject to adjustment as described in the 2012 Notes) at any time prior to repayment, at the
election of the Investors. In the aggregate, the 2012 Notes are convertible into up to 2,000,000 shares of our common stock excluding
interest.
At any time
prior to maturity of the 2012 Notes, with the consent of the holders of a majority in interest of the 2012 Notes, we may prepay
the outstanding principal amount of the 2012 Notes plus unpaid accrued interest without penalty. Upon the commission of any act
of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by
or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation
of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take
possession of the property or assets of the Company, the outstanding principal and all accrued interest on the 2012 Notes will
accelerate and automatically become immediately due and payable.
In connection
with the issuance of the 2012 Notes we also issued warrants to each Investor. The warrants are exercisable for an aggregate of
400,000 shares of common stock with an exercise price of fifteen cents ($0.15) per share for a period of five years. The relative
fair value of the warrants issued is $27,097, calculated using the Black-Scholes-Merton valuation model value of $0.07 with an
expected and contractual life of 5 years, an assumed volatility of 74.36%, and a risk-free interest rate of 0.77%. The warrants
were recorded as additional paid-in-capital and a discount on the 2012 Notes of $27,097. Non-cash interest expense related to the
debt discount during the years ended December 31, 2014 totaled $10,854.
The Investors,
and the principal amount of their respective 2012 Notes and number of shares of common stock issuable upon exercise of their respective
warrants, are as set forth below:
Investor
|
|
Note Principal
|
|
|
Warrants
|
|
Sinaf S.A.
|
|
$
|
200,000
|
|
|
|
266,667
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
|
|
66,667
|
|
Allan L. Goldstein
|
|
$
|
35,000
|
|
|
|
46,666
|
|
J.J. Finkelstein
|
|
$
|
15,000
|
|
|
|
20,000
|
|
Sinaf S. A.
is a direct wholly-owned subsidiary of Aptafin S.p.A., or Aptafin. Aptafin is owned directly by Paolo Cavazza and members of his
family, who directly and indirectly own 38% of Sigma-Tau, our largest stockholder. The other Investors are members of our Board
of Directors including Mr. Finkelstein who serves as our CEO and also the Chairman of our Board of Directors and Dr. Goldstein
who also serves as our Chief Scientific Officer.
During 2014,
the Company amended the existing October 2012 convertible debt agreement with the lenders, solely to extend the due date of the
principal and accrued unpaid until interest October 19, 2017. No other terms of the original debt were amended or modified,
and the lenders did not reduce the borrowed amount or change the interest rate of the debt. The Company considered the restructuring
a troubled debt restructuring as a result of the Company’s financial condition (see Note 1 discussion of “going concern”).
At the date of the amendment, all existing debt discounts and deferred financing fees were fully amortized and the amendment did
not involve any additional fees paid to the lender or third parties; as such there was no gain recognized as a result of the amendment.
2013 Convertible
Notes
On March 29,
2013, we completed a private placement of convertible notes (the “March 2013 Notes”) raising an aggregate of $225,000
in gross proceeds. The March 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after
their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share
(subject to adjustment as described in the March 2013 Notes) at any time prior to repayment, at the election of the investor. In
the aggregate, the March 2013 Notes are initially convertible into up to 3,750,000 shares of our common stock.
At any time
prior to maturity of the March 2013 Notes, with the consent of the holders of a majority in interest of the March 2013 Notes, we
may prepay the outstanding principal amount of the March 2013 Notes plus unpaid accrued interest without penalty. Upon the commission
of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the
filing by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the
continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee
to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the March 2013
Notes will accelerate and automatically become immediately due and payable.
The investors
in the offering included two directors of the Company, Dr. Goldstein and Joseph C. McNay, an outside director. The principal amounts
of their respective March 2013 Notes are as set forth below:
Investor
|
|
Note Principal
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
Allan L. Goldstein
|
|
$
|
25,000
|
|
The Company
has evaluated the terms of the March 2013 Notes which contain a down round provision under which the conversion price could be
decreased as a result of future equity offerings, as defined in the March 2013 Notes. The adjustment would reduce the
conversion price of the March 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related March 2013 Notes have been settled. The bifurcated liability of $225,000 was recorded on the date of issuance
which resulted in a residual debt value of $0. The discount related to the embedded feature will be accreted as an addition
to the debt through the maturity of the notes.
On July 5,
2013, we completed a private placement of convertible notes (the “July 2013 Notes”) raising an aggregate of $100,000
in gross proceeds. The July 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after their
date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject
to adjustment as described in the July 2013 Notes) at any time prior to repayment, at the election of the investor. In the aggregate,
the July 2013 Notes are initially convertible into up to 1,666,667 shares of our common stock.
At any time
prior to maturity of the July 2013 Notes, with the consent of the holders of a majority in interest of the July 2013 Notes, we
may prepay the outstanding principal amount of the July 2013 Notes plus unpaid accrued interest without penalty. Upon the commission
of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the
filing by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the
continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee
to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the July 2013
Notes will accelerate and automatically become immediately due and payable.
The investors
in the offering included four directors of the Company, Mr. Finkelstein, Dr. Goldstein, Mr. McNay and L. Thompson Bowles, previously
an outside director. The principal amounts of their respective July 2013 Notes are as set forth below:
Investor
|
|
Note Principal
|
|
Joseph C. McNay
|
|
$
|
50,000
|
|
Allan L. Goldstein
|
|
$
|
10,000
|
|
J.J. Finkelstein
|
|
$
|
5,000
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
The Company
has evaluated the terms of the July 2013 Notes which contain a down round provision under which the conversion price could be decreased
as a result of future equity offerings, as defined in the July 2013 Notes. The adjustment would reduce the conversion
price of the July 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result,
the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should
be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related
July 2013 Notes have been settled. The bifurcated liability of $66,667 was recorded on the date of issuance which resulted
in a residual debt value of $33,333. The discount related to the embedded feature will be accreted back to debt through the maturity
of the notes.
On September
11, 2013, we completed a private placement of convertible notes raising an aggregate of $321,000 in gross proceeds (the “September
2013 Notes”). The September 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60)
months after their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06)
per share (subject to adjustment as described in the September 2013 Notes) at any time prior to repayment, at the election of the
investor. In the aggregate, the September 2013 Notes are initially convertible into up to 5,350,000 shares of our common
stock.
At any time
prior to maturity of the September 2013 Notes, with the consent of the holders of a majority in interest of the September 2013
Notes, we may prepay the outstanding principal amount of the September 2013 Notes plus unpaid accrued interest without penalty. Upon
the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of
creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver
or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the
September 2013 Notes will accelerate and automatically become immediately due and payable.
The investors
in the offering included an affiliate and three current and one prior directors of the Company. The principal amounts of the affiliate
and directors respective September 2013 Notes are as set forth below:
Investor
|
|
Note Principal
|
|
SINAF S.A.
|
|
$
|
150,000
|
|
Joseph C. McNay
|
|
$
|
100,000
|
|
Allan L. Goldstein
|
|
$
|
11,000
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
R. Don Elsey
|
|
$
|
5,000
|
|
The Company
has evaluated the terms of the September 2013 Notes which contain a down round provision under which the conversion price could
be decreased as a result of future equity offerings, as defined in the September 2013 Notes. The adjustment would reduce
the conversion price of the September 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related September 2013 Notes have been settled. The bifurcated liability of $267,500 was recorded on the date of
issuance which resulted in a residual debt value of $53,500. The discount related to the embedded feature will be accreted back
to debt through the maturity of the notes.
2014 Convertible
Notes
On January
7, 2014, we completed a private placement of convertible notes raising an aggregate of $55,000 in gross proceeds (the “January
2014 Notes”). The January 2014 Notes bear interest at a rate of 5% per annum, mature 60 months after their date
of issuance and are convertible into shares of our common stock at a conversion price of $0.06 per share (subject to adjustment
as described in the January 2014 Notes) at any time prior to repayment, at the election of the Investor. In the aggregate,
the Notes are initially convertible into up to 916,667 shares of our common stock.
At any time
prior to maturity of the January 2014 Notes, with the consent of the holders of a majority in interest of the January 2014 Notes,
we may prepay the outstanding principal amount of the January 2014 Notes plus unpaid accrued interest without penalty. Upon
the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of
creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of 90 days or more, or the appointment of a receiver or
trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the
January 2014 Notes will accelerate and automatically become immediately due and payable.
The Investors
in the offering included two current and one prior directors of the Company. The principal amounts of their respective Notes are
as set forth below:
Investor
|
|
Note Principal
|
|
Joseph C. McNay
|
|
$
|
25,000
|
|
Allan L. Goldstein
|
|
$
|
10,000
|
|
L. Thompson Bowles
|
|
$
|
5,000
|
|
The Company
has evaluated the terms of the January 2014 Notes which contain a down round provision under which the conversion price could be
decreased as a result of future equity offerings, as defined in the January 2014 Notes. The adjustment would reduce
the conversion price of the January 2014 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As
a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes
and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until
the related January 2014 Notes have been settled. The bifurcated liability of $55,000 was recorded on the date of issuance
which resulted in a residual debt value of $0. The discount related to the embedded feature will be accreted back to debt through
the maturity of the notes.
The outstanding
balance of the derivative liability is as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
1,500,000
|
|
|
$
|
412,500
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
666,667
|
|
|
|
183,334
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
2,140,000
|
|
|
|
588,500
|
|
|
|
|
|
|
|
|
|
|
January 2014 notes
|
|
|
366,669
|
|
|
|
100,836
|
|
|
|
|
|
|
|
|
|
|
Total Fair value of derivative liability
|
|
$
|
4,673,336
|
|
|
$
|
1,285,170
|
|
The change
in fair value of the derivative liability is as follows:
|
|
For the twelve months ended
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
1,087,500
|
|
|
$
|
337,500
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
483,333
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
1,551,500
|
|
|
|
481,500
|
|
|
|
|
|
|
|
|
|
|
January 2014 notes
|
|
|
265,833
|
|
|
|
45,836
|
|
|
|
|
|
|
|
|
|
|
Total change in fair value of derivative
|
|
$
|
3,388,166
|
|
|
$
|
1,014,836
|
|
The company
record interest expense and discount accretion as set forth below:
|
|
For the twelve months ended
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
2012 Notes
|
|
$
|
15,000
|
|
|
$
|
25,854
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
|
56,250
|
|
|
|
56,250
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
18,333
|
|
|
|
18,333
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
69,550
|
|
|
|
69,550
|
|
|
|
|
|
|
|
|
|
|
January 2014 notes
|
|
|
13,750
|
|
|
|
13,486
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
172,883
|
|
|
$
|
183,473
|
|
Common Stock.
In April 2015 we entered into a contract with an investor relations firm to provide services for six months. Under the agreement
the Company paid $5,000 per month and issued 30,000 shares of common stock as compensation. In addition, in May 2015 the Company
issued 293,512 shares of common stock pursuant to the “cashless” exercise of warrants issued in 2010.
On August 29,
2014, the Company received gross proceeds of $1,000,000 and pursuant to the warrant exercise issued 8,333,333 shares of common
stock at $0.12 per share pursuant to the securities purchase and licensing agreements signed with GtreeBNT on March 7, 2014. Under
the securities purchase agreement, GtreeBNT invested $1,350,000 for the issuance of 11,250,000 common shares at $0.12 per share
and was required to invest an additional $1,000,000 at $0.12 per share on or before August 31, 2014. Under the terms of the security
purchase agreement, GtreeBNT also has the right to make an optional investment to acquire an additional 5.5 million shares of common
stock at $0.15 per share. Such optional investment right expired unexercised on January 31, 2015.
In addition,
GtreeBNT agreed to pay the Company milestone payments upon the achievement of certain commercial sales milestones, as well as with
royalties on commercial sales. As the security purchase and licensing agreements were signed in contemplation of each other and
the execution of performance under the securities purchase agreement was stipulated as a condition for the retention of the rights
granted under the licensing agreements, the three agreements were treated as a multiple-elements arrangement. Following the closing
of the agreements, the Company determined that the total consideration received under the three agreements, totaling $1,500,000,
should be allocated to identifiable elements within this multiple-elements arrangement (1) the equity investment in the Company’s
common shares, including the purchase option and (2) the licensed development and commercialization rights under the two licensing
agreements. The optional investment right was considered an equity instrument reduced from the Company’s equity, and its
fair value of approximately $725,000 was calculated using the Black Scholes option pricing model at the issuance of this right.
As the common shares were issued at a discount to the then market price of the Company’s common stock of $0.20 on the date
of closing, all of the proceeds received were absorbed by the allocation to the common shares and the optional investment right
leaving no allocation of proceeds to the licensed rights.
Registration
Rights Agreements.
In connection with the sale of certain equity instruments, we have entered into Registration Rights Agreements.
Generally, these Agreements required us to file registration statements with the Securities and Exchange Commission to register
common shares to permit re-sale of common shares previously sold under an exemption from registration or to register common shares
that may be issued on exercise of outstanding warrants.
The Registration
Rights Agreements usually require us to pay penalties for any failure or time delay in filing or maintaining the effectiveness
of the required registration statements. These penalties are usually expressed as a fixed percentage, per month, of the original
amount we received on issuance of the common shares, options or warrants. While to date we have not incurred any penalties under
these agreements, if a penalty is determined to be probable we would recognize the amount as a contingent liability and not as
a derivative instrument.
Share-Based
Compensation.
We recognized $231,607 and $163,432 in stock-based compensation expense for the years ended December 31,
2015 and 2014, respectively. Given our current estimates of future forfeitures, we expect to recognize the compensation cost related
to non-vested options as of December 31, 2015 of $330,000 over the weighted average remaining recognition period of 1.25 years.
Stock Option
and Incentive Plans.
On July 14, 2010, at our Annual Meeting of Stockholders, our stockholders approved the 2010 Equity Incentive
Plan (the “2010 Plan”). The terms of the 2010 Plan provide for the discretionary grant of incentive stock options,
nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock
awards, other stock awards and performance cash awards to our employees, directors and consultants. At inception of the 2010 Plan,
5,000,000 shares of our common stock were reserved for future issuance. On September 10, 2014 at our Annual Meeting of Stockholders,
our stockholders approved an increase in the number of shares available under the 2010 Equity Incentive Plan (the “2010 Plan”).
The increase of 3,000,000 results in a total of 8,000,000 shares of common stock reserved for issuance.
We previously
adopted an equity incentive plan, known as the Amended and Restated 2000 Stock Option and Incentive Plan (the “2000 Plan”).
The 2000 Plan has a term of ten years that expired in December 2010. All outstanding option awards granted under the 2000 Plan
will continue to be subject to the terms and conditions as set forth in the agreements evidencing such option awards and the terms
of the 2000 Plan. Shares remaining available for issuance under the share reserve of the 2000 Plan will not be subject to future
awards under the 2010 Plan, and shares subject to outstanding awards under the 2000 Plan that are terminated or forfeited in the
future will not be subject to future awards under the 2010 Plan.
The following
summarizes share-based compensation expense for the years ended December 31, 2015 and 2014, which was allocated as follows:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
72,766
|
|
|
$
|
48,244
|
|
General and administrative
|
|
|
158,841
|
|
|
|
115,188
|
|
|
|
$
|
231,607
|
|
|
$
|
163,432
|
|
The following
summarizes stock option activity for the years ended December 31, 2015 and 2014:
|
|
|
|
|
Options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
average
|
|
|
|
available for
|
|
|
Number of
|
|
|
Exercise price
|
|
|
exercise
|
|
|
|
grant
|
|
|
shares
|
|
|
range
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
1,959,036
|
|
|
|
5,999,599
|
|
|
|
0.14 – 3.82
|
|
|
|
1.02
|
|
Grants
|
|
|
—
|
|
|
|
2,195,000
|
|
|
|
0.16 – 0.21
|
|
|
|
0.19
|
|
Exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancellations*
|
|
|
|
|
|
|
(1,930,888
|
)
|
|
|
0.16 – 3.82
|
|
|
|
1.54
|
|
December 31, 2014
|
|
|
3,273,029
|
|
|
|
6,263,711
|
|
|
$
|
0.14 – 3.21
|
|
|
$
|
0.58
|
|
Grants
|
|
|
—
|
|
|
|
1,725,000
|
|
|
|
0.19 – 0.40
|
|
|
|
0.33
|
|
Exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancellations*
|
|
|
|
|
|
|
(857,500
|
)
|
|
|
0.14 – 3.21
|
|
|
|
0.41
|
|
December 31, 2015
|
|
|
1,548,029
|
|
|
|
7,131,211
|
|
|
$
|
0.14 – 3.00
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2015
|
|
|
|
|
|
|
7,020,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
|
|
|
|
4,639,961
|
|
|
|
|
|
|
|
|
|
*Note: Cancellations
in 2015 and a portion of the 2014 cancellations were for options issued out of the 2000 Equity Incentive Plan and therefore they
are not available for reissuance.
The following
summarizes information about stock options outstanding at December 31, 2015:
|
|
Outstanding options
|
|
|
Exercisable options
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Weighted-
|
|
|
|
|
|
average
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
remaining
|
|
|
average
|
|
|
Number of
|
|
|
remaining
|
|
|
average
|
|
|
|
shares
|
|
|
contractual
|
|
|
exercise
|
|
|
shares
|
|
|
contractual
|
|
|
exercise
|
|
Range of exercise prices
|
|
outstanding
|
|
|
life
(in
years)
|
|
|
price
|
|
|
exercisable
|
|
|
life
(in
years)
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.14 – $0.36
|
|
|
6,361,971
|
|
|
|
4.6
|
|
|
$
|
0.23
|
|
|
|
3,938,221
|
|
|
|
3.9
|
|
|
$
|
0.20
|
|
$0.40 – $0.76
|
|
|
684,240
|
|
|
|
2.7
|
|
|
|
0.63
|
|
|
|
616,740
|
|
|
|
2.2
|
|
|
|
0.65
|
|
$2.50 – $2.68
|
|
|
35,000
|
|
|
|
0.8
|
|
|
|
2.53
|
|
|
|
35,000
|
|
|
|
0.8
|
|
|
|
2.53
|
|
$3.00 – $3.21
|
|
|
50,000
|
|
|
|
0.0
|
|
|
|
3.00
|
|
|
|
50,000
|
|
|
|
0.0
|
|
|
|
3.00
|
|
|
|
|
7,131,211
|
|
|
|
4.4
|
|
|
|
0.30
|
|
|
|
4,639,961
|
|
|
|
3.6
|
|
|
|
0.31
|
|
Intrinsic value of in-the-money options, using the December 31, 2015 closing price of $0.44
|
|
$
|
950,573
|
|
|
|
|
|
|
|
|
|
|
$
|
3,960,721
|
|
|
|
|
|
|
|
|
|
Determining
the Fair Value of Options.
We use the Black-Scholes valuation model to estimate the fair value of options granted. Black-Scholes
considers a number of factors, including the market price and volatility of our common stock. We used the following forward-looking
range of assumptions to value each stock option granted to employees, directors and consultants during the year ended December 31,
2015 and 2014:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate of return
|
|
|
1.43-1.63
|
%
|
|
|
1.63-1.76
|
%
|
Expected life in years
|
|
|
4.75 - 7
|
|
|
|
4 - 5
|
|
Volatility
|
|
|
90-94
|
%
|
|
|
91-98
|
%
|
Forfeiture rate
|
|
|
2.6
|
%
|
|
|
2.6
|
%
|
Our dividend
yield assumption is based on the fact that we have never paid cash dividends and do not anticipate paying cash dividends in the
foreseeable future. Our risk-free interest rate assumption is based on yields of U.S. Treasury notes in effect at the date of grant.
Our expected life represents the period of time that options granted are expected to be outstanding and is calculated in accordance
with the Securities and Exchange Commission (“SEC”) guidance provided in the SEC’s Staff Accounting Bulletin
107 (“SAB 107”) and SAB 110, using a “simplified” method. The Company has used the simplified method and
will continue to use the simplified method as it does not have sufficient historical exercise data to provide a reasonable basis
upon which to estimate an expected term. Our volatility assumption is based on reviews of the historical volatility of our common
stock. We estimate forfeiture rates at the time of grant and adjust these estimates, if necessary, periodically based on the extent
to which future actual forfeitures differ, or are expected to differ, from such estimates. Accordingly, we have estimated forfeiture
percentages for the unvested portion of previously granted awards that remain outstanding at the date of adoption and for awards
granted subsequent to the date of adoption. Forfeitures are estimated based on the demographics of current option holders and standard
probabilities of employee turnover. Using Black-Scholes and these factors, the weighted average fair value of stock options granted
to employees and directors was $0.33 for the year ended December 31, 2015. We do not record tax-related effects on stock-based
compensation given our historical and anticipated operating experience and offsetting changes in our valuation allowance which
fully reserves against potential deferred tax assets.
Warrants
to Purchase Common Stock
The following
table summarizes our warrant activity for 2015 and 2014:
|
|
|
|
|
Warrants outstanding
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Exercise price
|
|
|
Average
exercise
|
|
|
|
shares
|
|
|
range
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
11,468,901
|
|
|
$
|
0.15 – 1.12
|
|
|
$
|
0.64
|
|
Grants
|
|
|
13,833,333
|
|
|
|
0.12 – 0.15
|
|
|
|
0.18
|
|
Exercises
|
|
|
(8,333,333
|
)
|
|
|
0.12
|
|
|
|
0.12
|
|
Cancellations
|
|
|
(2,865,853
|
)
|
|
|
1.12
|
|
|
|
1.12
|
|
December 31, 2014
|
|
|
14,103,048
|
|
|
$
|
0.15 – $0.56
|
|
|
$
|
0.35
|
|
Exercises
|
|
|
(957,641
|
)
|
|
|
0.38 – 0.45
|
|
|
|
0.40
|
|
Cancellations
|
|
|
(11,338,000
|
)
|
|
|
0.15 – 0.56
|
|
|
|
0.41
|
|
December 31, 2015
|
|
|
1,807,407
|
|
|
$
|
0.15 – $0.38
|
|
|
$
|
0.32
|
|
As a result of its operating losses,
the Company did not recognize a provision (benefit) for income taxes in its statements of operations for 2015 and 2014. The Company
has provided a full valuation allowance against its net deferred tax assets, as it appears more likely than not that its net deferred
tax assets will not be realized.
Significant components of the Company’s
deferred tax assets at December 31, 2015 and 2014 and related valuation reserves are presented below:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
17,856,000
|
|
|
$
|
17,721,000
|
|
Research and development tax credit carryforward
|
|
|
2,257,000
|
|
|
|
2,252,000
|
|
Charitable contribution carryforward
|
|
|
3,000
|
|
|
|
3,000
|
|
Accrued expenses and deferred revenue
|
|
|
565,000
|
|
|
|
164,000
|
|
Amortization
|
|
|
2,000
|
|
|
|
2,000
|
|
Depreciation
|
|
|
1,000
|
|
|
|
2,000
|
|
Non-cash share based compensation
|
|
|
1,083,000
|
|
|
|
1,044,000
|
|
|
|
|
21,767,000
|
|
|
|
21,188,000
|
|
Less — valuation allowance
|
|
|
(21,767,000
|
)
|
|
|
(21,188,000
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At December 31,
2015, we had net operating loss carryforwards for income tax purposes of approximately $45.3 million, which are available to offset
future federal and state taxable income, if any, and, research and development tax credit carryforwards of approximately $2.3 million.
The carryforwards, if not utilized, will expire in increments through 2035.
Section 382
of the Internal Revenue Code imposes substantial restrictions on the utilization of net operating losses and tax credits in the
event of a corporation’s ownership change. During 2009, the Company completed a preliminary study to compute any limits on
the net operating losses and credit carryforwards for purposes of Section 382. It was determined that the Company experienced
a cumulative change in ownership, as defined by the regulations, in 2002. This change in ownership triggers an annual limitation
on the Company’s ability to utilize certain U.S. federal and state net operating loss carryforwards and research tax credit
carryforwards, resulting in the potential loss of approximately $9.8 million of net operating loss carryforwards and $0.2 million
in research credit carryforwards. The Company has reduced the deferred tax assets associated with these carryforwards in its balance
sheets at December 31, 2015 and 2014. The Company believes that the future use of net operating losses and tax credits presented
above may be further reduced as a result of additional ownership changes subsequent to 2009.
The provision
for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2015 and 2014,
due to the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Federal tax benefit at statutory rate
|
|
$
|
(1,782,000
|
)
|
|
$
|
(911,000
|
)
|
State taxes
|
|
|
(285,000
|
)
|
|
|
(146,000
|
)
|
Change in fair value of derivative liabilities
|
|
|
1,336,000
|
|
|
|
400,000
|
|
Other permanent differences and other
|
|
|
98,000
|
|
|
|
124,000
|
|
Research and experimental tax credits
|
|
|
(8,000
|
)
|
|
|
(20,000
|
)
|
Change in valuation allowance
|
|
|
641,000
|
|
|
|
553,000
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As discussed
in Note 2, we recognize the effect of income tax positions only if those positions more likely than not of being sustained. At
December 31, 2015 and 2014, we had no gross unrecognized tax benefits. We do not expect any significant changes in unrecognized
tax benefits over the next 12 months. In addition, we did not recognize any interest or penalties related to uncertain tax positions
at December 31, 2015 and 2014.
The 2005 through
2015 tax years generally remain subject to examination by federal and most state tax authorities. In addition, we would remain
open to examination for earlier years if we were to utilize net operating losses or tax credit carryforwards that originated prior
to 2011.
Lease
.
Beginning in June 2014 we consolidated our office space and amended our lease agreement for the reduced space. The lease commitment
is for 36 months and our rental payments for this period are approximately $4,500 per month until May 2017.
Employment
Continuity Agreements
. We have entered into employment contracts with our executive officers which provide for severance if
the executive is dismissed without cause or under certain circumstances after a change of control in our ownership. At December 31,
2015 these obligations, if triggered, could amount to a maximum of approximately $112,500 for termination without cause or $225,000
with a change of control in the aggregate.
On April 6,
2016, RegeneRx Biopharmaceuticals, Inc. (the "Company") received $250,000 pursuant to the signing of a term sheet with
an affiliated entity. The parties are negotiating the expansion of the licensed rights, and full details of the transaction will
be provided after execution of a definitive agreement targeted for the end of April 2016. The proceeds received of $250,000 will
be used to fund operations into the third quarter while awaiting clinical trial data and seeking additional capital.