Management Plans to Address Operating Conditions.
Our strategy is aimed at being capital
efficient while leveraging our portfolio of clinical assets by seeking strategic relationships with organizations with clinical
development capabilities including development capital. Currently, we have active partnerships in four major territories: North
America, Europe, 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 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 satisfactory results are obtained from the current ophthalmic clinical
program in the U.S. before moving into the EU. This should allow us to obtain a higher value for the asset at that time. However,
we intend to continue to develop RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications,
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 2004, we entered into a strategic partnership
for development and marketing of RGN-137 and RGN-352 for specified fields of use in Europe and other contiguous countries with
Sigma-Tau Group, which was subsequently acquired by Alfa Wassermann S.p.A., both Italian pharmaceutical companies. Pursuant to
the terms of the license, we notified Alfa Wassermann that the license expired by its terms and we, therefore, reacquired rights
to our Tß4-based products in the licensed territory. In August 2017, the Company amended the License Agreement for RGN-137
held by GtreeBNT. Under the amendment the Territory was expanded to include Europe, Canada, South Korea, Australia and Japan. Further,
we now control the cardiovascular and neurovascular assets (RGN-352) in the EU and are able to consolidate them with similar assets
in the U.S. and other territories in Asia to create a worldwide portfolio that we believe will be more attractive to multi-national
pharmaceutical companies.
Since inception, and through June 30, 2018,
we have an accumulated deficit of $105 million and we had cash and cash equivalents of $662,764 as of June 30, 2018. 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. We have entered into a series of strategic partnerships under licensing and joint
venture agreements where our partners are responsible for advancing development of our product candidates by sponsoring multiple
clinical trials. In August 2017, we amended the RGN-137 License Agreement with GtreeBNT in exchange for a series of payments the
last of which was received in June 2018. On March 2, 2018 we entered into a warrant reprice, exercise and issuance agreement (the
“Reprice Agreement”) with the holders of the warrants issued in the 2016 Offering. Under the terms of the Reprice Agreement,
in consideration of the holders exercising in full all of the 2016 Offering warrants the exercise price per share of the warrants
was reduced to $0.20 per share. In addition, and as further consideration, we issued to the holders of the 2016 Offering 3,860,294
new warrants with an exercise price of $0.2301 per share. We received gross proceeds of approximately $1,029,000 pursuant to the
exercise and issued 5,147,059 shares of common stock. The amendment payments and warrant reprice proceeds plus our year end cash
balance will fund planned operations into the first quarter of 2019. We will need to secure additional operating capital to continue
operations beyond the first quarter of 2019 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.
Basis of Presentation.
The accompanying unaudited interim financial
statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of our financial position, results of operations and cash flows for each period presented. These statements
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and with the rules
and regulations of the SEC, for interim financial statements. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP. The accounting policies underlying our unaudited interim financial statements are consistent with those
underlying our audited annual financial statements, but do not include all disclosures including notes required by U.S. GAAP for
complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited annual
financial statements as of and for the year ended December 31, 2017, and related notes thereto, included in our Annual Report on
Form 10-K for the year ended December 31, 2017 (the “Annual Report”).
The Company’s significant accounting
policies are included in “Part IV - Item 15 – Exhibits, Financial Statement Schedules. - Note 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” in the Company’s Annual Report. There have been no changes to these policies except
as described below.
The accompanying December 31, 2017 financial
information was derived from our audited financial statements included in the Annual Report. Operating results for the three and
six month periods ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December
31, 2018 or any other future period.
References in this Quarterly Report on
Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification (“ASC”) issued by the
Financial Accounting Standards Board (“FASB”).
Revenue Recognition.
Effective January 1, 2018, the Company
adopted the new revenue recognition guidance contained in ASC 606, using the modified retrospective method. The adoption of ASC
606 did not result in any material change to how the Company recognizes revenue or to the accounting for costs to obtain and fulfill
contacts with customers. As a result, the adoption did not result in a cumulative effect change on the date of adoption. See discussion
below for the Company’s revenue recognition policies subsequent to the adoption of the new revenue recognition guidance.
Financial Instruments.
Effective January 1, 2018, the Company
adopted new accounting guidance for financial instruments that contain down round features. As of December 31, 2017, the Company’s
existing convertible notes contained embedded conversion features that under previous accounting guidance had been separately accounted
for as derivative liabilities due to the presence of down round protection which (which precluded those embedded features from
being classified as equity). Upon the adoption of the new guidance, the derivative liabilities were transferred to equity (additional
paid in-capital and accumulated deficit) since the presence of those down round features no longer preclude equity treatment. Accordingly,
no previously issued financial statements were adjusted as this guidance was applied prospectively. See Note 6 for further discussion
of the terms of the convertible notes and embedded conversion features.
Use of Estimates.
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. 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 fair value measurements in connection with derivative liabilities, 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 those estimates.
Convertible
Notes with Detachable Warrants.
In accordance with 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 value 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 fairly value these instruments. Estimating the
fair value 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 value, the Company’s operating results reflect the volatility in these estimate and assumption changes in each reporting
period.
Upon the adoption of new accounting guidance
on January 1, 2018, the embedded conversion features in the Company’s convertible notes are no longer accounted for as derivative
liabilities.
Revenue
Recognition.
Subsequent to the adoption of Accounting
Standards Codification Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018
The Company analyzes contracts to determine
the appropriate revenue recognition using the following steps: (i) identification of contracts with customers, (ii) identification
of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract
transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of
the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer
of control of promised goods or services to our customers) in an amount that reflects the consideration to which it expects to
be entitled to in exchange for those goods or services.
The Company's contracts with customers
may at times include multiple promises to transfer products and services. Contracts with multiple promises are analyzed to determine
whether the promises, which may include a license together with performance obligations such as providing a clinical supply of
product and steering committee services, are distinct and should be accounted for as separate performance obligations or whether
they must be accounted for as a single performance obligation. The Company accounts for individual performance obligations separately
if they are distinct. Determining whether products and services are considered distinct performance obligations may require significant
judgment.
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 the Company determines that an
arrangement should be accounted for as a combined performance obligation, we must determine the period over which the performance
obligation will be performed and when revenue will be recognized. Revenue is 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 obligation under an arrangement and such performance obligation is 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 the Company cannot reasonably estimate
the level of effort required to complete our performance obligation under an arrangement, the performance obligation is 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 the Company cannot reasonably estimate
when our performance obligation either ceases or becomes inconsequential and perfunctory, 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.
At the inception of each arrangement that
includes development milestone payments, the Company evaluates the probability of reaching the milestones and estimates the amount
to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal
would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are
not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved
until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal
of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone
selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.
At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones
and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded
on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Amounts received prior to satisfying the
above revenue recognition criteria are recorded as unearned revenue in our accompanying condensed balance sheets.
Contract assets are generated when contractual
billing schedules differ from revenue recognition timing. Contract assets represent a conditional right to consideration for satisfied
performance obligations that becomes a billed receivable when the conditions are satisfied.
Contract liabilities result from arrangements
where we have received payment in advance of performance under the contract. Changes in contract liabilities are generally due
to either receipt of additional advance payments or our performance under the contract.
We have the following amounts recorded
for contract liabilities:
|
|
June 30, 2018
|
|
|
December 31,
2017
|
|
Unearned revenue
|
|
$
|
2,293,229
|
|
|
$
|
2,124,515
|
|
The contract liabilities amount disclosed
above as of June 30, 2018, is primarily related to revenue being recognized on a straight-line basis over periods ranging from
23 to 30 years, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligations
and represents the Company’s best estimate of the period of the obligation.
Revenue recognized from contract liabilities
as of January 1, 2018, during the three and six months ended June 30, 2018, totaled $7,246 and $24,040, respectively. Revenue is
expected to be recognized in the future from contract liabilities as the related performance obligations are satisfied.
For details about the Company’s revenue
recognition policy prior to the adoption of ASC 606, refer to the Company’s Annual Report.
Variable Interest Entities.
The Company accounts for the Joint Venture
(see Note 7) as a “variable interest entity” and that its equity stake in the Joint Venture is a variable interest,
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 Co. Ltd.’s, a Korean pharmaceutical company (“GtreeBNT”)
and a shareholder of the Company, 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 Venture’s activities by virtue of its large equity stake and its board representation.
Because the Company is not obligated to
fund the Joint Venture, and has not provided any financial support 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 (38.5%) 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 June 30, 2018, because it has not provided any financial support and is not obligated to fund the Joint Venture, 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 Tβ4; formulation of Tβ4 into the various
product candidates; stability for both Tβ4 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, payroll taxes, travel and other
miscellaneous costs of our internal R&D personnel, part-time hourly employees and external consultants dedicated to R&D
efforts. R&D also includes a pro-ration of our common infrastructure costs for office space and communications.
Recently Adopted Accounting Pronouncements.
In May 2014, the FASB issued Accounting
Standards Update (“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. In March 2016, the
FASB issued an accounting standard update to clarify the implementation guidance on principal versus agent considerations. In April
2016, the FASB issued an accounting standard update to clarify the identification of performance obligations and the licensing
implementation guidance, while retaining the related principles for those areas. In May 2016, the FASB issued an accounting standard
update to clarify guidance in certain areas and add some practical expedients to the guidance. The amendments in these 2016 updates
do not change the core principle of the previously issued guidance in May 2014. Effective January 1, 2018, the Company adopted
ASU 2014-09 (Topic 606) using the modified retrospective method through a cumulative adjustment to equity, which resulted in an
immaterial difference and no adjustment to our opening balance of accumulated deficit as of January 1, 2018.
In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part
I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests
with a Scope Exception.
Part I of this Update addresses the complexity of accounting for certain financial instruments with
down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in
the strike price being reduced on the basis of the pricing of future equity offerings. When determining whether certain financial
instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification
when assessing whether the instrument is indexed to an entity’s own stock. Part II of this Update addresses the difficulty
of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB
Accounting Standards Codification®. For public business entities, the amendments in Part I of this Update are effective for
years, beginning after December 15, 2018. Effective January 1, 2018, the Company adopted ASU 2017-11,
Distinguishing Liabilities
from Equity (Topic 480)
. As a result, the December 31, 2017 qualifying liabilities of approximately $1.3 million were reclassified
as equity as of January 1, 2018. Accordingly, no previously issued financial statements were adjusted as this guidance was applied
prospectively.
In May 2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting
. ASU 2017-09 provides clarification on when
modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not
change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is
a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive.
The Company adopted ASU 2017-09 in the first quarter of 2018 and the adoption of this ASU did not have a material effect on the
financial statements.
Recent Accounting Pronouncements.
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 not have a significant impact on its financial statements.
In June 2018, the FASB issued ASU 2018-07:
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
This ASU
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees,
and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU 2018-07 is effective
for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, early adoption is permitted
but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the impact this new guidance
will have on its financial statements and related disclosures.
|
2.
|
Net Income (Loss)
per Common Share
|
Basic net income (loss) per common share
for the three and six month periods ended June 30, 2018 and 2017, is based on the weighted-average number of shares of common stock
outstanding during the periods. Diluted loss per share is based on the weighted-average number of shares of common stock outstanding
during each period in which a loss is incurred. Potentially dilutive shares are excluded because the effect is antidilutive. In
periods where there is net income, diluted income per share is based on the weighted-average number of shares of common stock outstanding
plus dilutive securities with a purchase or conversion price below the per share price of our common stock on the last day of the
reporting period. The potentially dilutive securities include 20,212,716 shares and 26,922,933 shares in 2018 and 2017, respectively,
reserved for the conversion of convertible debt or exercise of outstanding options and warrants. For the three and six month periods
ended June 30, 2017, 18,582,297 dilutive securities related to convertible debt, options and warrants was included in the diluted
income per share calculations.
|
3.
|
Stock-Based Compensation
|
We measure stock-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 value of our stock option awards on the date of grant using the Black-Scholes option pricing model (“Black-Scholes”)
and amortize that cost over the expected term of the grant. We recognized $60,177 and $47,934 in stock-based compensation expense
for the three months ended June 30, 2018 and 2017, respectively. We recognized $120,345 and $114,292 in stock-based compensation
expense for the six months ended June 30, 2018 and 2017, respectively
We did not issue stock options to employees,
consultants and directors during the six months ended June 30, 2018 or 2017, respectively.
A summary of the Company’s stock
options for the six months ended June 30, 2018 is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic Value
|
|
Options Outstanding, December 31, 2017
|
|
|
8,058,788
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Options Outstanding,June 30, 2018
|
|
|
8,058,788
|
|
|
$
|
0.29
|
|
|
|
3.4 years
|
|
|
$
|
95,353
|
|
Vested and unvested but expected to vest, June 30, 2018
|
|
|
8,004,211
|
|
|
$
|
0.29
|
|
|
|
3.4 years
|
|
|
$
|
94,603
|
|
Exercisable at June 30, 2018
|
|
|
6,985,038
|
|
|
$
|
0.28
|
|
|
|
2.8 years
|
|
|
$
|
94,603
|
|
The average expected life was determined
using historical data. We expect to recognize the compensation cost related to non-vested options as of June 30, 2018 of $192,360
over the weighted average remaining recognition period of 0.92 years.
As of
June
30, 2018
, there have been no material changes to our uncertain tax positions disclosures as provided
in Note 9 of the Annual Report. The tax returns for all years in the Company’s major tax jurisdictions are not settled as
of January 1, 2018; no changes in settled tax years have occurred through June 30, 2018. Due to the existence of tax attribute
carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as
unsettled due to the taxing authorities’ ability to modify these attributes.
|
5.
|
Fair Value Measurements
|
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.
As of June 30, 2018 and December 31, 2017,
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 $662,764 and $181,708, respectively, using Level 1 inputs. Our December 31, 2017 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 6). Previously we evaluated the derivative liability embedded in
the series of convertible notes using the Black-Scholes model to determine if an adjustment to the carrying value of the liability
was required each reporting period. Given the conditions surrounding the trading of the Company’s equity securities, the
Company had valued its derivative instruments related to embedded conversion features from the issuance of convertible debentures
in accordance with the Level 3 guidelines. Our June 30, 2018 balance sheet no longer reflects these liabilities pursuant
to the adoption ASU 2017-11,
Distinguishing Liabilities from Equity (Topic 480)
. As a result, the December 31, 2017
qualifying liabilities were reclassified as equity.
For the six months ended June 30, 2018,
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
|
|
|
|
|
|
June 30,
|
|
|
|
2017
|
|
|
Issuances
|
|
|
Fair Values
|
|
|
Reclassifications
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion features
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013
|
|
$
|
412,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(412,500
|
)
|
|
$
|
-
|
|
July 2013
|
|
|
183,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(183,334
|
)
|
|
|
-
|
|
September 2013
|
|
|
588,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(588,500
|
)
|
|
|
-
|
|
January 2014
|
|
|
100,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,835
|
)
|
|
|
-
|
|
Derivative instruments
|
|
$
|
1,285,169
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,285,169
|
)
|
|
$
|
-
|
|
2012 Convertible
Notes
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 to mature after twenty-four (24) months from issuance. The 2012 Notes bore interest at a rate of
five percent (5%) per annum and were 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 were 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. The outstanding principal and all accrued interest
on the 2012 Notes would accelerate and automatically become immediately due and payable upon the occurrence of certain events of
default.
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.
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. has historically
been affiliated with 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
Advisor.
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 interest until 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.
The 2012 Notes matured, and the holders elected to convert the note balances and accrued interest into common stock and also exercise
the associated warrants in October 2017.
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 bore interest at a rate of five percent (5%) per annum, mature sixty (60) months after their date
of issuance and were 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 were 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. The outstanding principal
and all accrued interest on the March 2013 Notes would accelerate and automatically become immediately due and payable upon the
occurrence of certain events of default.
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 March 2013 Notes
contained 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
prior to the adoption of ASU 2017-11. 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 was accreted back to debt through the maturity
of the notes. The March 2013 Notes matured, and the holders elected to convert the note balances and accrued interest into common
stock in March 2018.
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. The outstanding principal
and all accrued interest on the July 2013 Notes will accelerate and automatically become immediately due and payable upon the occurrence
of certain events of default.
The investors in the
offering included four directors of the Company, Mr. Finkelstein, Dr. Goldstein, Mr. McNay and L. Thompson Bowles, a former 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 July 2013 Notes 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 prior to the
adoption of ASU 2017-11. 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. The July 2013 Notes matured, and the holders elected to convert the note balances and accrued interest into common
stock in July 2018.
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. The outstanding
principal and all accrued interest on the September 2013 Notes will accelerate and automatically become immediately due and payable
upon the occurrence of certain events of default.
The investors in the
offering included an affiliate and four 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 September 2013 Notes
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
prior to the adoption of ASU 2017-11. 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 will pay 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. The outstanding
principal and all accrued interest on the January 2014 Notes will accelerate and automatically become immediately due and payable
upon the occurrence of certain events of default.
The Investors in the
offering included three 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 January 2014 Notes
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
prior to the adoption of ASU 2017-11. 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 Company recorded
interest expense and discount accretion as set forth below:
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Notes
|
|
$
|
-
|
|
|
$
|
3,737
|
|
|
$
|
-
|
|
|
$
|
7,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
|
-
|
|
|
|
14,024
|
|
|
|
14,192
|
|
|
|
27,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
4,644
|
|
|
|
4,571
|
|
|
|
9,092
|
|
|
|
9,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
17,633
|
|
|
|
17,340
|
|
|
|
34,489
|
|
|
|
34,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
3,489
|
|
|
|
3,428
|
|
|
|
6,819
|
|
|
|
6,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,766
|
|
|
$
|
43,100
|
|
|
$
|
64,592
|
|
|
$
|
85,730
|
|
The fair value of the
derivative liability is as follows:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
-
|
|
|
$
|
412,500
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
-
|
|
|
|
183,334
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
-
|
|
|
|
588,500
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
-
|
|
|
|
100,835
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivative liability
|
|
$
|
-
|
|
|
$
|
1,285,169
|
|
As of January 1, 2018,
the Company early adopted ASU 2017-11, which revised the guidance for instruments with down round provisions. In accordance with
the guidance presented in the ASU, the fair value of the derivative liability balance as of December 31, 2017 of $1,285,169 was
reclassified by means of a cumulative-effect adjustment to equity as of January 1, 2018.
The change in fair value
of derivative liability is as follows:
|
|
For the three months
ended
|
|
|
For the six months ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013 Notes
|
|
$
|
-
|
|
|
$
|
(75,000
|
)
|
|
$
|
-
|
|
|
$
|
(187,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013 Notes
|
|
|
-
|
|
|
|
(33,334
|
)
|
|
|
-
|
|
|
|
(83,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2013 Notes
|
|
|
-
|
|
|
|
(107,000
|
)
|
|
|
-
|
|
|
|
(267,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2014 Notes
|
|
|
-
|
|
|
|
(9,166
|
)
|
|
|
-
|
|
|
|
(45,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
-
|
|
|
|
(90,000
|
)
|
|
|
-
|
|
|
|
(280,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights liability
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
(140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in fair value of derivative
|
|
$
|
-
|
|
|
$
|
(464,500
|
)
|
|
$
|
-
|
|
|
$
|
(1,004,167
|
)
|
Joint Venture Agreement - ReGenTree
On January 28, 2015, the Company entered
into the Joint Venture Agreement with GtreeBNT, a stockholder in the Company. The Joint Venture Agreement provides for the creation
of the Joint Venture, jointly owned by the Company and GtreeBNT, which is commercializing RGN-259 for treatment of dry eye and
neurotrophic keratopathy in the United States and Canada.
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 was reduced to 38.5% when
the Clinical Study Report was filed for the Phase 2/3 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 38.5% and 25%, with
25% being the final equity ownership upon approval of an NDA for DES 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 ReGenTree is acquired or there is a change of control that occurs following achievement
of an NDA, RegeneRx shall be entitled to a minimum of 40% of all 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.
On April 6, 2016, we received $250,000 from ReGenTree in connection with the amendment of the License Agreement in April 2016 to
expand the territorial rights to include Canada. The Company is accounting for the License Agreement with the Joint Venture as
a revenue arrangement. Since participation in the joint development committee is required it was deemed to be a material promise.
Management has concluded that the participation in the joint development committee is not distinct from other promised goods and
services. The Company assessed the license agreements in accordance with ASC 606. The Company evaluated the promised goods and
services under the license agreements and determined that there was one combined performance obligation representing a series of
distinct goods and services including the license to research, develop and commercialize RGN-259 and participation in the joint
development committee. Revenue is being recognized on a straight-line basis over a period of 30 years, which, in management’s
judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best
estimate of the period of the obligation. Revenue will be recognized for future royalty payments as they are earned.
GtreeBNT.
We are a party to a license agreement with
GtreeBNT for the license of RGN-259 related to certain development and commercialization rights for RGN-259, in Asia (excluding
China, Hong Kong, Macau and Taiwan). Separately, we licensed GtreeBNT the rights to RGN-137 which was recently amended in exchange
for a series of payments the last of which was received in June 2018. GtreeBNT is currently our second largest stockholder. GtreeBNT
filed an investigational new drug application (“IND”) with the Korean Ministry of Food and Drug Safety to conduct a
Phase 2/3 study with RGN-259 in patients with dry eye syndrome and in July 2015 received approval to conduct the trial. In late
2016 GtreeBNT informed us that it believes marketing approval in the U.S. will allow expedited marketing in Korea, possibly without
the need for a clinical trial.
Under the license agreement, the Company
received a series of non-refundable payments and is entitled to receive royalties on the future sales of products. The Company
is accounting for the license agreement as a revenue arrangement. Since participation in the joint development committee is required
it was deemed to be a material promise. Management has concluded that the participation in the joint development committee is not
distinct from other promised goods and services. The Company assessed the license agreement in accordance with ASC 606. The Company
evaluated the promised goods and services under the license agreement and determined that there was one combined performance obligation
representing a series of distinct goods and services including the license to research, develop and commercialize RGN-137 and participation
in the joint development committee. Revenue is being recognized on a straight-line basis over a period of 23 years, which, in management’s
judgment, is the best measure of progress towards satisfying the performance obligation and represents the Company’s best
estimate of the period of the obligation. Revenue will be recognized for future royalty payments as they are earned.
Lee’s Pharmaceutical.
We are a party to 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
(the “Lee’s License Agreement”). Lee’s previously filed an IND with the Chinese FDA (‘CFDA”)
to conduct a Phase 2, randomized, double-masked, dose-response clinical trial with RGN-259 in China for dry-eye syndrome. Lee's
subsequently informed us that it received notice from CFDA declining its 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. However, in mid-2016, we were informed by Lee’s that the CFDA modified its manufacturing regulations and will
now allow Chinese companies to utilize API manufactured outside of China for Phase 1 and 2 clinical trials. We have not yet been
informed of a projected starting date for Phase 2 trials.
Under the license agreement, the Company
received $400,000 in non-refundable payments and is entitled to receive royalties on the future sales of products. The Company
is accounting for the license agreement as a revenue arrangement. Since participation in the joint development committee is required
it was deemed to be a material promise. Management has concluded that the participation in the joint development committee is not
distinct from other promised goods and services. The Company assessed the license agreement in accordance with ASC 606. The Company
evaluated the promised goods and services under the license agreement and determined that there was one combined performance obligation
representing a series of distinct goods and services including the license to research, develop and commercialize RGN-259 and participation
in the joint development committee. To-date, management has not been able to reasonably measure the outcome of the performance
obligation, but still expects to recover the costs incurred in satisfying the performance obligation. Accordingly, the Company
has deferred all revenue until such time that it can reasonably measure the outcome of the performance obligation or until the
performance obligation becomes onerous. Revenue will be recognized for future royalty payments as they are earned.
On March 2, 2018, we entered into the Reprice
Agreement with Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master Fund, Ltd. (collectively, “Sabby”).
In connection with that certain securities purchase agreement between the Company and Sabby dated June 27, 2016 (the “Purchase
Agreement”) we also issued to Sabby warrants to purchase 5,147,059 shares of common stock (the “Warrant Shares”)
at an exercise price of $0.51 per share (the “Sabby Warrants”). Under the terms of the Reprice Agreement, in consideration
of Sabby exercising in full all of the Sabby Warrants (the “Warrant Exercise”), the exercise price per share of the
Sabby Warrants was reduced to $0.20 per share. In addition, and as further consideration, we issued to Sabby warrants to purchase
up to 3,860,294 shares of common stock at an exercise price of $0.2301 per share, the closing bid price for the Company’s
Common Stock on February 28, 2018 (the “New Warrants”). We received gross proceeds of approximately $1,029,000 from
the warrant reprice transaction.
The Reprice Agreement was accounted for
as an inducement and consequently, we recognized a non-operating expense of $582,904 equal to the fair value of the New Warrants
calculated using a customized Monte Carlo simulation. The repricing of the Warrant Shares did not result in any incremental fair
value and consequently did not result in any additional expense.
In conjunction with the Reprice Agreement
we incurred $101,110 of expenses comprised of: (i) 102,947 warrants valued at $15,545 issued to an outside third party as a fee
for the transaction and (ii) $85,565 of expenses for professional fees. Such expenses were netted against the proceeds from the
transaction. The warrants contained the same terms and conditions as the New Warrants and were valued using the Black-Scholes model.
On March 29, 2018, the March 2013 Convertible
Notes matured, and the holders elected to convert the note balances and accrued interest into common stock. As a result, we issued
4,700,520 shares of common stock.
On July 5, 2018, the July 2013 Convertible
Notes matured, and the holders elected to convert the note balances and accrued interest into common stock. As a result, we issued
2,089,120 shares of common stock.
In February 2017, we
amended our office lease agreement and the term was extended through July 2020. During the extended term our rental payments will
average approximately $4,000 per month.
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ITEM 2.
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Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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This Quarterly Report on Form 10-Q,
including this Part I., Item 2., “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, our clinical
development programs and schedules, our future capital resources and funding requirements, our expectations regarding future licenses
of our technology, our anticipated growth and trends in our business 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 Part II., Item 1A. In addition, any forward-looking statements
we make in this document 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.
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:
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•
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RGN-259, a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury,
disease or other pathology;
|
|
•
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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
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•
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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.
Current Financial Status
On March 2, 2018, we entered into the Reprice
Agreement with the holders of the warrants issued in June 2016 as part of the offering we completed at that time. Under the terms
of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering warrants, the exercise price
per share of the warrants was reduced to $0.20 per share. In addition, and as further consideration, we issued to the holders of
the 2016 Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. We received gross proceeds of just
over $1,000,000 pursuant the exercise and issued 5,147,059 shares of common stock. In August 2017 we amended the RGN-137 License
Agreement with GtreeBNT Co. Ltd.’s, a Korean pharmaceutical company (“GtreeBNT”) in exchange for a series of
payments the last of which was received in June 2018. The amendment payments and warrant reprice proceeds, plus our year end cash
balance, will fund planned operations into the first quarter of 2019. We continuously monitor our cash use as well as the clinical
timelines. We continue to evaluate options including the licensing of additional rights to commercialize our clinical products
as well as raising capital through the capital markets.
Current Clinical Status
In January 2015, we entered into a Joint
Venture Agreement with GtreeBNT whereby we created ReGenTree LLC, (“ReGenTree” or “Joint Venture”, 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. We are entitled to royalties as a percentage of net sales ranging from single digits to 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 of ReGenTree and certain major decisions and transactions within ReGenTree, such as
commercialization strategy, mergers, and acquisitions, require RegeneRx’s board designee’s consent. We currently hold
a 38.5% ownership interest in ReGenTree. This ownership interest may be further reduced to as low as 25% once ReGenTree obtains
FDA approval of an NDA for Dry Eye Syndrome in the U.S. In the event ReGenTree is acquired, or a change of control occurs following
achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will forgo any future
royalties.
To date ReGenTree has sponsored a Phase
2/3 clinical trial (“ARISE-1”) and Phase 3 clinical trials in patients with dry eye syndrome (“DES”) (“ARISE-2”)
and in patients with neurotrophic keratopathy (“NK”) (“SEER-1”), all in the U.S. In May 2016, we reported
the results of the 317-patient ARISE-1 trial and in October 2017, we reported the results of the ARISE-2 trial. The ARISE-2 study,
which was sponsored by ReGenTree and managed by Ora, Inc., demonstrated a number of statistically significant improvements in both
signs and symptoms of dry eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability
profiles. The ocular discomfort symptom showed a statistically significant reduction in the RGN-259-treated group at day 15 as
compared to placebo (p=0.0149) in the change from baseline. For sign, RGN-259 also improved the dry eye patient’s ability
to withstand an exacerbated condition in a patient subgroup with both compromised corneal fluorescein staining and Schirmer’s
test at baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the change
from baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome and
fast onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the pooled
data, although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited and less
diversified. ReGenTree is proceeding with its RGN-259 development plan according to the parameters discussed with the FDA in April
2018.
The NK trial (SEER-1), a smaller study
in an orphan population, has enrolled seventeen patients thus far, and has several additional patients being screened, with a goal
of forty-six. There are currently ten clinical sites for the study. ReGenTree has expanded its efforts to accelerate patient enrollment
by offering incentives to each site based on numbers of enrollees as well as payments to referral sites. Recently, ReGenTree disclosed
that 7 of 17 patients enrolled SEER-1 have completely healed. To participate in the trial the patients were required to have a
persistent epithelial defect (non-healing corneal wound). While these preliminary observations are encouraging, it should be noted
that the patients and treating physicians remain masked while the trial is on-going, so it is not known whether the healed patients
are in the RGN-259 group, placebo group, or distributed among both.
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.
In February 2017, our licensee for RGN-137,
GtreeBNT, received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using RGN-137 to treat patients with epidermolysis
bullosa (EB), a genetic disease that causes severe blistering of the skin and internal organs. In August 2017, the Company amended
the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory was expanded to include Europe, Canada, South
Korea, Australia and Japan. GtreeBNT is planning to initiate a small open trial in patients with EB this year to evaluate RGN-137
in such patients prior to sponsoring a larger Phase 3 trial.
Currently, we have active partnerships
in four major territories: North America, Europe, 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 still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS
disorders) in the U.S., most of Asia, and Europe; RGN-259 in the EU. In August 2017 we amended the RGN-137 License Agreement with
GtreeBNT, expanding the territory to include Europe, Canada, South Korea, Australia and Japan. Regarding RGN-259, our goal is to
wait until satisfactory results are obtained from the current ophthalmic clinical program in the U.S. before moving into the EU.
This should allow us to obtain a higher value for the asset at that time. However, we intend to continue to develop RGN-352, our
injectable systemic product candidate for cardiac and central nervous system indications, 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 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 “Strategic Partnerships” below) where our partners are responsible for advancing
development of our product candidates with multiple clinical trials.
Development of 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. 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.
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.
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 published
Cornea
in 2015.
In September 2015, ReGenTree
began the Phase 2/3 ARISE-1 clinical trial in patients with dry eye syndrome (and the Phase 3 SEER-1 clinical trial in patients
with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results of the 317-patient ARISE-1
dry eye trial. In the trial, RGN-259 demonstrated statistically significant improvements in both signs and symptoms of dry eye
with 0.05% and 0.1% RGN-259 compared to placebo in a dose dependent manner during a 28-day dosing period. While the primary outcome
measures were not met, several key related pre-specified endpoints and subgroups of patients with more severe dry eye showed statistically
significant treatment effects. These results confirm the findings from the previous Phase 2 trial providing clear direction for
the clinical regulatory pathway and remaining registration trials for RGN-259. Shortly following the ARISE-1 trial, the FDA approved
ReGenTree’s Phase 3 ARISE-2 dry eye protocol and we initiated the ARISE-2 trial that enrolled approximately 600 patients.
The ARISE-2 study, which
was sponsored by ReGenTree and managed by Ora, Inc., demonstrated a number of statistically significant improvements in both signs
and symptoms of dry eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability profiles.
The ocular discomfort symptom showed a statistically significant reduction in the RGN-259-treated group at day 15 as compared to
placebo (p=0.0149) in the change from baseline. For sign, RGN-259 also improved the dry eye patient’s ability to withstand
an exacerbated condition in a patient subgroup with both compromised corneal fluorescein staining and Schirmer’s test at
baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the change from
baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome and fast
onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the pooled
data, although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited and less
diversified. ReGenTree has discussed its future development plans for RGN-259 with the FDA and is planning to initiate an ARISE-3
trial in patients with DES later this year to confirm the results in ARISE-2.
Strategic Partnerships
Lee’s Pharmaceuticals.
We are a party to a license agreement with
Lee’s Pharmaceutical 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 previously filed an 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 subsequently
informed us that it received notice from China's FDA declining its IND application for a Phase 2b dry eye clinical trial because
the API 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. However, in mid-2016, we were informed by
Lee’s that the CFDA modified its manufacturing regulations and will now allow Chinese companies to utilize API manufactured
outside of China for Phase 1 and 2 clinical trials. We have not yet been informed of a projected starting date for Phase 2 trials.
GtreeBNT.
We are a party to a license agreement with
GtreeBNT for the license of RGN-259 related to certain development and commercialization rights for RGN-259, in Asia (excluding
China, Hong Kong, Macau and Taiwan). Separately, we licensed GtreeBNT the rights to RGN-137 which was recently amended as discussed
above. GtreeBNT is currently our second largest stockholder. GtreeBNT filed an IND with the Korean Ministry of Food and Drug Safety
to conduct a Phase 2/3 study with RGN-259 in patients with dry eye syndrome and in July 2015 received approval to conduct the trial.
In late 2016 GtreeBNT informed us that it believes marketing approval in the U.S. will allow expedited marketing in Korea, possibly
without the need for a clinical trial.
U.S. Joint Venture (ReGenTree, LLC).
We are a party to the ReGenTree Joint Venture discussed above in this report.
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. The manufacturer has since 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).
Starting in 2005, we began conducting 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. We closed the Phase 2 trial in late 2011 and we submitted the final report to the FDA in 2014.
Clinical Development —
Pressure Ulcers.
In late 2005, we began conducting 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 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. 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% Tβ4
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 conducting 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 2009, we reported final data from that trial. Those results were both clinically and statistically
significant.
In February 2017, GtreeBNT received permission
from the U.S. FDA to sponsor a Phase 3 clinical trial using RGN-137 to treat patients with epidermolysis bullosa, a genetic disease
that causes severe blistering of the skin and internal organs. GtreeBNT is planning to initiate a small open trial in patients
with EB in 2018 to evaluate RGN-137 in such patients prior to sponsoring a larger Phase 3 trial.
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 the licensing and joint ventures discussed above.
In 2004, we entered into a strategic partnership
for development and marketing of RGN-137 and RGN-352 for specified fields of use in Europe and other contiguous countries with
Sigma-Tau Group, which was subsequently acquired by Alfa Wassermann S.p.A., both Italian pharmaceutical companies. Pursuant to
the terms of the license, we notified Alfa Wassermann that the license expired by its terms and we, therefore, reacquired rights
to our Tß4-based products in the licensed territory. In August 2017, the Company amended the License Agreement for RGN-137
held by GtreeBNT. Under the amendment the Territory was expanded to include Europe, Canada, South Korea, Australia and Japan. Further,
we now control the cardiovascular and neurovascular assets (RGN-352) in the EU and are able to consolidate them with similar assets
in the U.S. and other territories in Asia to create a worldwide portfolio that we believe will be more attractive to multi-national
pharmaceutical companies.
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. 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 where our
partners are responsible for advancing development of our product candidates with multiple clinical trials.
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, payroll taxes, travel and other
miscellaneous costs of our internal R&D personnel, three persons in total, who are dedicated on a part-time hourly 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, 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
In Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December
31, 2017, which was filed with the SEC on March 29, 2018, which we refer to as the Annual Report, we included a discussion of the
most significant accounting policies and estimates used in the preparation of our financial statements. There has been no material
change in the policies and estimates used in the preparation of our financial statements since the filing of our Annual Report.
Results of Operations
Comparison of the three months ended June 30, 2018 and
2017
Revenues.
For
the three months ended June 30, 2018 we recorded revenue in the amount of $13,000 versus $13,000 recorded in the comparable 2017
period. The 2018 revenue amount reflects revenue related to the amendment of the RGN-137 License Agreement held by GtreeBNT and
license fees received from ReGenTree.
R&D Expenses
.
For the three months ended June 30, 2018, our R&D expenses decreased by approximately $15,000, or 44% to $19,000 from $34,000
for the same period in 2017. The 2018 decrease relate primarily to a $4,000 decrease in stock option expense from the 2017 period.
The balance of the decrease relates to the absence of consulting expense in 2018 (decrease of $12,000).
G&A Expenses.
For the three months ended June 30, 2018, our G&A expenses increased by approximately $54,000, or 19% to $336,000, from $282,000
for the same period in 2017. The changes in the G&A expenses are reflected in several areas. Increases in tax expense (increase
of $16,000), stock option compensation expense (increase of $9,000), professional services (increase of $28,000) and allocation
(increase $20,000) were partially offset by decreases in, insurance expense (decrease of $13,000) and personnel related (decrease
of $5,000).
Net Income and
Net Loss.
Our Statements of Operations reflects a net loss of
$367,874
for the
quarter ended June 30, 2018, as opposed to net income of $118,379 for the quarter ended June 30, 2017. The 2017 period net income
reflects the change in the value of the conversion feature related to the derivative liability component of our convertible debt
as well as the reduction of the value of the investor rights associated with the 2016 Offering which expired in August 2017. The
value of this conversion feature is indexed to the share price of our common stock. The share price of our common stock decreased
from $0.29 on March 31, 2017
to $0.27 on June
30, 2017, which resulted in an increase
in valuation of our convertible debt derivative component and the recording of an unrealized gain of $464,500 which includes an
unrealized gain related to the investor rights associated with the 2016 Offering. Effective January 1, 2018 we adopted new accounting
guidance for financial instruments that contain down round features. Upon the adoption of the new guidance, the derivative liabilities
were transferred to equity since the presence of these down round features no longer precluded equity treatment. Accordingly, no
unrealized gains or losses were recorded for the quarter ended June 30, 2018.
Comparison of the six months ended June 30, 2018 and 2017
Revenues.
For
the six months ended June 30, 2018, we recorded revenue in the amount
of $31,000 relat
ed
to the recognition of the license fees received from ReGenTree and GtreeBNT. For the six months ended June 30, 2017, we recorded
revenue in the amount of $25,000, related to the recognition of the license fees received from ReGenTree. The 2018 revenue amount
reflects an adjustment to the remaining unearned revenue pursuant to the 2018 adoption of ASC 606 after receipt of the final payment
under the RGN-137 license amendment.
R&D Expenses
.
For the six months ended June 30, 2018, our R&D expenses decreased by approximately $31,000 or 45%, to $38,000
from
$69,000 for the same period in 2017. The decrease results from the absence of
consulting expenses (decrease of $26,000)
and allocated overhead (decrease of $5,000) which reflects the transfer of development responsibility and expenses to the ReGenTree
joint venture.
G&A Expenses.
For the six months ended June 30, 2018, our G&A expenses increased by approximately $52,000, or 8%, to $700,000 from $647,000
for the same period in 2017. The changes in the G&A expenses are reflected in several areas. Increases in tax expense (increase
of $32,000), stock option compensation expense (increase of $7,000), professional services (increase of $22,000), faciality and
related (increase of $6,000) and allocation (increase $34,000) were partially offset by decreases in, insurance expense (decrease
of $9,000), investor relations (decrease of $18,000), travel (decrease of $3,000), personnel related (decrease of $13,000) and
sponsorship (decrease of $5,000).
Net Income and
Net Loss.
Our Statements of Operations reflects a net loss of
$1,353,738
for the
six months ended June 30, 2018, a significant change from the net income of $227,718 recorded in the six months ended June 30,
2017. The 2018 period net loss reflects inducement expense of $582,904 related to the new warrant component of the March 2018 warrant
reprice and exercise agreement (see Note 8). The 2017 period net income reflects the change in the value of the conversion feature
related to the derivative liability related to our convertible debt as well as the reduction of the value of the investor rights
associated with the 2016 Offering. The value of this conversion feature is indexed to the share price of our common stock and increases
as our share price increases. The share price of our common stock decreased from $0.32 on December 31, 2016 to $0.27 on June 30,
2017, which resulted in a decrease in valuation of our convertible debt derivative component and the recording of an unrealized
gain of $1,004,167 which includes an unrealized gain related to the investor rights associated with the 2016 Offering in the amount
$420,000. Effective January 1, 2018 we adopted new accounting guidance for financial instruments that contain down round features.
Upon the adoption of the new guidance, the derivative liabilities were transferred to equity since the presence of these down round
features no longer precluded equity treatment. Accordingly, no unrealized gains or losses were recorded for the quarter ended June
30, 2018.
Liquidity and Capital Resources
Overview
We have not commercialized
any of our product candidates to date and have incurred significant losses since inception. Over the past couple of years, we have
primarily financed our operations through the sale of a series of convertible promissory notes through private placements with
accredited investors and the March and August 2014 private placements of common stock with GtreeBNT as well as our entry into the
joint venture with ReGenTree in early 2015. The report of our independent registered public accounting firm regarding our financial
statements for the year ended December 31, 2017 contained 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 had cash and cash equivalents of $662,764
at June 30, 2018. Our current cash should be sufficient to fund our planned operations into the first quarter of 2019. We will
need to secure additional funding in order to advance operations beyond the first quarter of 2019. We may also receive funds from
grants, new partnerships or the raising of additional capital if the market climate warrants. 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.
Cash Flows for the Six Months Ended June 30, 2018 and
2017
Net cash used in operating activities was
approximately $463,000 for the six months ended June 30, 2018 compared to approximately $542,000 used in operating activities for
the six months ended June 30, 2017. In 2018, we received gross proceeds of $1,029,000 pursuant to the March 2018 warrant reprice
and exercise transaction. We received proceeds of approximately $15,000 from the exercise of stock options during the six-month
period ended June 30, 2017.
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, top line data from the U.S. dry eye trial was released in October and data from
the NK study in 2018 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 capital resources remain limited therefore we will need to secure additional operating capital to continue operations
beyond the first quarter of 2019. 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 regulatory 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 regulatory 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 June of 2016, we raised $1,520,000 by selling 5,147,059 shares of common stock and warrants to purchase 5,147,059
shares of common stock to Sabby. Most recently, on March 2, 2018 we entered into a warrant reprice and exercise and issuance agreement
with Sabby, which, in consideration of the holders exercising in full all of the 2016 Offering warrants the exercise price per
share of the warrants was reduced to $0.20 per share. In addition, and as further consideration, we issued to the holders of the
2016 Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. We received gross proceeds of approximately
$1,029,000 pursuant to the exercise and issued 5,147,059 of common stock. In August 2017 we amended the RGN-137 License Agreement
with GtreeBNT in exchange for a series of payments, the last of which was received in June 2018. The amendment payments and warrant
reprice proceeds plus our year end cash balance will fund planned operations into the 2019. We continuously monitor our cash use
as well as the clinical timelines. We continue to evaluate options including the licensing of additional rights to commercialize
our clinical products as well as raising capital through the capital markets.
We have various strategic
agreements and license agreements with: GtreeBNT, ReGenTree and Lee’s. These 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.
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.
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Item 3.
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Quantitative and Qualitative Disclosures about Market
Risk.
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Our cash equivalents,
which are generally comprised of Federally-insured bank deposits, are subject to default, changes in credit rating and changes
in market value. These investments are also subject to interest rate risk and will decrease in value if market interest rates increase.
As of June 30, 2018, these cash equivalents were $662,764. Due to the short-term nature of these investments, if market interest
rates differed by 10% from their levels as of June 30, 2018, the change in fair value of our financial instruments would not have
been material.
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Item 4.
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Controls and Procedures
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a) Evaluation of
Disclosure Controls and Procedures
Our management, under the supervision and
with the participation of our President and Chief Executive Officer, in his capacity as our principal executive officer and our
principal financial officer, performed an evaluation 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) of the Securities Exchange Act of 1934, as amended)
as of June 30, 2018. Based upon this evaluation, management has concluded that, as of June 30, 2018, our disclosure controls and
procedures were effective to provide reasonable assurance that the information required to be disclosed is recorded, processed,
summarized and reported within the time periods specified under applicable rules of the SEC, and that such information is accumulated
and communicated to management, including our President and Chief Executive Officer, as appropriate, to allow timely decisions
regarding required disclosures.
b) Changes in Internal
Controls
There
were no changes in our internal control over financial reporting during the three months ended June 30, 2018 that have materially
affected, or which are reasonably likely to materially affect, our internal control over financial reporting.
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 will only be sufficient to fund our operations
into the first quarter of 2019.
Even though we entered into the Reprice
Agreement the result of which was the receipt of net proceeds of approximately $1,029,000, these proceeds, coupled with payments
received under the amendment of the RGN-137 are only projected to fund our operations at the current level into first quarter of
2019. We will need to secure additional operating capital to continue operations beyond the first quarter of 2019. We continuously
monitor our cash use as well as the clinical timelines. We will need to secure additional operating capital in 2018 or early 2019
and are evaluating options including the licensing of additional rights to commercialize our clinical products as well as raising
capital through the capital markets which may cause a reduction in the trading price of our common stock.
We will need substantial additional
capital for the continued development of product candidates through marketing approval and for our longer-term future operations.
We anticipate that substantial new capital
resources will be required to continue our longer-term 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, or our partners’,
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, or our partners,
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, or our partners’, 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. At this time
we will need to secure additional operating capital to continue operations beyond the first quarter of 2019.
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 June 30,
2018, 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, 2017 contains explanatory language that substantial
doubt exists about our ability to continue as a going concern, without raising additional capital. As described in this report
in August 2017 we amended the RGN-137 License Agreement with GtreeBNT in exchange for a series of payments the last of which was
received in June 2018. On March 2, 2018, we received gross proceeds of approximately $1,029,000 under a Reprice Agreement These
proceeds, plus our year end cash balance, will fund planned operations into the first quarter of 2019. We will need to secure additional
operating capital to continue operations beyond the first quarter of 2019. 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 partners, 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 partner 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, or
our partners’, 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 or our partners do not achieve our
objectives under our collaboration agreements;
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we or our partners are unable to obtain
patent protection for the products or proprietary technologies we develop in our partnerships;
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we are unable to manage multiple simultaneous
product development partnerships;
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our partners become competitors of ours
or enter into agreements with our competitors;
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we or our partners encounter regulatory
hurdles that prevent commercialization of our product candidates; or
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we develop products and processes or enter
into additional partnerships that conflict with the business objectives of our other partners.
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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, and our partners, 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.
We are a party to several license agreements
and a Joint Venture with GtreeBNT. 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, which was the only commercially available and FDA-approved eye drop to treat dry eye. Shire PLC recently received FDA
approval to market Xiidra™ for the treatment of dry eye and has launched the product in the U.S. Restasis, and other products,
have been approved for marketing in certain other countries where we have licensed RGN-259.
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.
We are also developing potential cosmeceutical
products, which are loosely defined as products that bridge the gap between cosmetics and pharmaceuticals, for example, by improving
skin texture and reducing the appearance of aging. This industry is intensely competitive, with potential competitors ranging from
large multinational companies to very small specialty companies. New cosmeceutical products often have a short product life and
are frequently replaced with newer products developed to address the latest trends in appearance and fashion. We may not be able
to adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies. Further, larger cosmetics
companies have the financial and marketing resources to effectively compete with smaller companies like us in order to sell products
aimed at larger markets.
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, or our partners’, 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;
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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, or our partners’, 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 must be overcome if we, or our partners, 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 Co., Ltd. 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 has 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, or our partners, 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.
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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, or our partners, 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
is an employee of Lee’s Pharmaceuticals a relationship which could give rise to a conflict of interest for Mr. Bove.
Mauro Bove is a member of our Board of
Directors and is currently working with the Lee’s Pharmaceuticals Group in Hong Kong. There can be no assurance that
we will ever receive any further payments from Lee’s under the current agreement established between RegeneRx and Lee's.
As a result of Mr. Bove’s relationship with Lee’s, Mr. Bove may have interests that are different from our other
stockholders in connection with this agreement and circumstances that may require the exercise of the Board’s discretion
with respect to Lee’s.
Risks Related to
Our Intellectual Property
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,
or our partners’ 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 beyond the first quarter of 2019 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, or our partners, 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, or our partners’, abilities 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 partners, that the scope of any patent protection will be sufficient to provide us with
competitive advantages, that any patents obtained by us or our partners 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 partners 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 partners’ 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, or our partners, may not have
adequate protection for our unpatented proprietary information, which could adversely affect our competitive position.
In addition to our patents, we, and our
partners, 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, 2017
through August 7, 2018 the closing price of our common stock has ranged from $0.15 to $0.37, with an average daily trading volume
of approximately 57,000 shares. Considering 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 47.5% of our outstanding common stock. Included in this group is Sigma-Tau (merged with Alfa Wassermann
S.p.A.) and its affiliates, which together hold outstanding shares representing approximately 26.6% of our outstanding common stock
and GtreeBNT which owns approximately 16.4% 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 June 30, 2018, there were outstanding options to purchase an aggregate of 8,058,788 shares of our common stock under our 2000
and 2010 incentive equity plans at exercise prices ranging from $0.14 per share to $0.64 per share and outstanding warrants to
purchase 4,220,594 shares of our common stock at a weighted average exercise price of $0.24 per share. In addition to the outstanding
options and warrants we have also issued three series of convertible promissory notes which are presently convertible into an aggregate
of 7,933,333 shares of our common stock. 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.
The first of these series of note, the March 2013 Notes, matured on March 29, 2018 and were converted along with accrued interest
into common stock. The remaining two series issued in 2013 are convertible into 7,016,667 shares of our common stock. 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. If we experience this sort of volatility, 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.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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None.
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Item 3.
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Defaults Upon Senior Securities
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None.
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Item 4.
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Mine Safety Disclosures
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Not applicable.
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Item 5.
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Other Information
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None.
Item 6.
Exhibit
No.
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Description of Exhibit
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31.1
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Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
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32.1
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Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
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101
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The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets at June 30, 2018 and December 31, 2017; (ii) Condensed Statements of Operations for the three and six months ended June 30, 2018 and 2017; (iii) Condensed Statements of Cash Flows for the six months ended June 30, 2018 and 2017; and (iv) Notes to Condensed Financial Statements.
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*
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Filed herewith. Except where noted, the exhibits referred to in this column have heretofore been filed with the Securities and Exchange Commission as exhibits to the documents indicated and are hereby incorporated by reference thereto.
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**
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Furnished herewith. This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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