Investing in our securities involves a high degree of
risk. You should consider the following risk factors, as well
as other information contained or incorporated by reference in this
report, before deciding to invest in our securities. The
following factors affect our business, our intellectual property,
the industry in which we operate and our securities. The risks
and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known
or which we consider immaterial as of the date hereof may also have
an adverse effect on our business. If any of the matters
discussed in the following risk factors were to occur, our
business, financial condition, results of operations, cash flows or
prospects could be materially adversely affected, the market price
of our securities could decline and you could lose all or part of
your investment in our securities.
Risks Related to Opexa’s Business
Opexa’s business to date has been almost entirely dependent
on the development of Tcelna for multiple sclerosis. In the fourth
quarter of 2016, Opexa announced that its Phase IIb clinical study,
known as the Abili-T study, failed to reach its primary efficacy
endpoint. Opexa has communicated that it will no longer continue
the development of Tcelna and is evaluating the viability of its
preclinical program for OPX-212 in NMO and the related T-cell
platform. It is possible that Opexa may ultimately decide not to
pursue any further drug development. Although Opexa has decreased
its cash burn substantially, Opexa’s cash needs over the next
few months may be unpredictable.
On
October 28, 2016, Opexa announced that the Phase IIb Abili-T
clinical trial designed to evaluate the efficacy and safety of
Tcelna (imilecleucel-T) in patients with SPMS did not meet its
primary endpoint of reduction in brain volume change, or atrophy,
nor did it meet the secondary endpoint of reduction of the rate of
sustained disease progression. Opexa had previously devoted
substantially all of its research, development, clinical efforts
and financial resources toward the development of Tcelna. Opexa
implemented a reduction in workforce of 40% of its then 20
full-time employees, announced on November 2, 2016, while it
reevaluated its programs and various strategic alternatives in
light of the disappointing Abili-T study data. On December 14,
2016, a further workforce reduction was implemented to conserve
cash, reducing the number of full-time employees by an additional
25% of the then 12 employees. In January 2017, an additional
workforce reduction of seven full-time employees was implemented to
conserve cash. As of June 30, 2017, Opexa had two full-time
employees. After further analysis of the data from the Abili-T
trial, Opexa has determined that it will not move forward with
further development of Tcelna. Opexa is conducting a review of its
preclinical program for OPX-212 in NMO and the related T-cell
platform to assess the viability of continuing to pursue this
program. Opexa cannot fully predict whether or to what extent it
will resume drug development activities, and Opexa cannot predict
its future cash needs for any such activities.
If Opexa decides to continue one or more of its development
programs, it will be required to raise additional capital. Given
the disappointing results from the Abili-T clinical study, raising
additional capital may be challenging. If sufficient capital is not
available, Opexa may not be able to continue its operations, which
may require it to suspend or terminate any ongoing development
activities, modify its business plan, curtail various aspects of
its operations, cease operations or seek relief under applicable
bankruptcy laws.
As of
June 30, 2017, Opexa had cash and cash equivalents of
$1.8 million as well as accounts payable, short-term notes
payable and accrued expenses aggregating $368,547. Opexa’s
operating cash burn rate during the three months ended June 30,
2017 was approximately $310,944 per month, consisting mainly of
general and administrative expenses.
Opexa
believes that it has sufficient liquidity to support its current
activities in winding down the Abili-T trial and for general
operations to sustain the Company and support such activities into
September 2017. However, if Opexa’s projections prove to be
inaccurate, or if it encounters additional costs to wind down the
trial or to sustain its operations, or if Opexa incurs other costs
such as those associated with pursuing further research and
development, it would need to raise additional capital to continue
its operations.
If
Opexa decides to continue research and development in one or more
of its programs, Opexa would expect to incur significant expenses
and increasing losses for the next several years. In this
situation, Opexa would need to raise additional capital. Given the
disappointing results of the Abili-T trial, Opexa believes its
ability to issue equity securities or obtain debt financing in the
future on favorable terms, or at all, has been substantially
impaired, particularly if the intended use of proceeds would be for
the continued development of Tcelna.
As
Opexa pursues the proposed Merger with Acer, it will continue to
explore potential opportunities and alternatives to preserve
options should the Merger not be consummated. Additional options
may include raising additional capital through either private or
public equity or debt financing as well as using its ATM facility
and cutting expenses where possible. If Opexa is unable to obtain
additional funding to support its current activities and
operations, or is not successful in attracting a development
partner, it may not be able to continue its operations as proposed,
which may require it to suspend or terminate any development
activities, modify its business plan, curtail various aspects of
its operations, cease operations or seek relief under applicable
bankruptcy laws. In such event, Opexa shareholders may lose a
substantial portion or even all of their investment.
Opexa
does not maintain any external lines of credit or have any sources
of debt or equity capital committed for funding, other than its ATM
facility. Should Opexa need any additional capital in the future
beyond these sources, management will be reliant upon “best
efforts” debt or equity financings. Opexa can provide no
assurance that it will be successful in any funding effort. The
timing and degree of any future capital requirements will depend on
many factors, including:
●
Opexa’s
ability to establish, enforce and maintain strategic arrangements
for research, development, clinical testing, manufacturing and
marketing;
●
the
accuracy of the assumptions underlying its estimates for capital
needs;
●
scientific
progress in its research and development programs;
●
the
magnitude and scope of its research and development
programs;
●
its
progress with preclinical development and clinical
trials;
●
the
time and costs involved in obtaining regulatory
approvals;
●
the
costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and
●
the
number and type of product candidates that it pursues.
If
Opexa raises additional funds by issuing equity securities,
shareholders may experience substantial dilution. Debt financing,
if available, may involve restrictive covenants that may impede
Opexa’s ability to operate its business. Any debt financing
or additional equity that Opexa raises may contain terms that are
not favorable to it or its shareholders. There is no assurance that
Opexa’s capital raising efforts will be able to attract the
capital needed to execute on its business plan and sustain its
operations.
There is substantial doubt as to Opexa’s ability to continue
as a going concern, which may make it more difficult for it to
raise capital.
The
report of Opexa’s independent auditors in respect of the 2016
fiscal year expressed substantial doubt about Opexa’s ability
to continue as a going concern. Specifically, it noted
Opexa’s recurring losses, negative operating cash flows and
accumulated deficit. Opexa’s consolidated financial
statements as of June 30, 2017 and for the six-month period then
ended were prepared assuming that it will continue as a going
concern, meaning that it will continue in operation for the
foreseeable future and will be able to realize assets and discharge
liabilities in the ordinary course of operations. While Opexa has
historically recognized revenue related to the $5 million and
$3 million payments from Merck Serono received in February
2013 and March 2015 in connection with the Option and License
Agreement and the Amendment over the exclusive option period based
on the expected completion term of the Abili-T clinical trial,
Opexa has never generated any commercial revenues, nor does it
expect to generate any commercial revenues for the foreseeable
future or other revenues in the near term that will result in cash
receipts. As of June 30, 2017, Opexa had cash and cash equivalents
of $1.8 million as well as accounts payable, short-term notes
payable and accrued expenses aggregating $368,547.
On
October 28, 2016, Opexa announced that the Abili-T trial did
not meet its primary or secondary endpoints, and, in order to
conserve cash resources while it reevaluated its programs and
explored various strategic alternatives, during the fourth quarter
of 2016 and the first quarter of 2017 Opexa implemented several
reductions in workforce totaling 90% of its then 20 full-time
employees. As of June 30, 2017, Opexa had two full time employees.
After further analysis of the data from the Abili-T trial, Opexa
has determined that it will not move forward with further studies
of Tcelna, and it is conducting a review of its preclinical program
for OPX-212 in NMO and the related T-cell platform to assess the
viability of continuing to pursue this program. Opexa believes that
it has sufficient liquidity to support its current activities in
winding down the Abili-T trial and for general operations to
sustain the company and support such activities into September
2017.
As
Opexa pursues the proposed Merger with Acer, it will continue to
explore potential opportunities and alternatives to preserve
options should the Merger not be consummated. Additional options
may include raising additional capital through either private or
public equity or debt financing as well as using its ATM facility
and cutting expenses where possible. In the absence of significant
additional funding to support Opexa’s operations, there is
substantial doubt about its ability to continue as a going concern.
Opexa’s financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Additionally, in
light of the disappointing Abili-T study results, there can be no
assurance that Opexa will be able to secure additional funds, or if
such funds are available, that the terms or conditions would be
acceptable. If Opexa is unable to obtain additional funding to
support its current activities and operations, it may not be able
to continue its operations as proposed, which may require it to
suspend or terminate any development activities, modify its
business plan, curtail various aspects of its operations, cease
operations or seek relief under applicable bankruptcy laws. In such
event, Opexa shareholders may lose a substantial portion or even
all of their investment.
Opexa has a history of operating losses and does not expect to be
profitable in the foreseeable future.
Opexa
has not generated any profits since its entry into the
biotechnology business and it has incurred significant operating
losses. Opexa expects to incur additional operating losses for the
foreseeable future. Opexa has not received, and it does not expect
to receive for at least the next several years, any revenues from
the commercialization of any potential products. Opexa does not
currently have any sources of revenues and may not have any in the
foreseeable future.
The employment agreement with Opexa’s President and Chief
Executive Officer may require it to pay severance benefits if he is
terminated under specified circumstances, including in connection
with a change of control of Opexa, which could harm its financial
condition or results.
The
employment agreement with Opexa’s President and Chief
Executive Officer contains change of control and severance
provisions providing for the payment of severance and other
benefits, including accelerated vesting of stock options, in the
event of a termination of employment under specified circumstances,
including in connection with a change of control of Opexa. The
accelerated vesting of options could result in dilution to
Opexa’s existing shareholders and harm the market price of
Opexa’s common stock. The payment of severance benefits could
harm Opexa’s financial condition and results of operation. In
addition, these potential severance payments and benefits may
discourage or prevent third parties from seeking a business
combination with Opexa.
Opexa’s business is at an early stage of development. To
date, Opexa has devoted substantially all of its resources to
research and development efforts relating to Tcelna.
Opexa’s
business is at an early stage of development. Opexa does not have
any products on the market. Opexa has discontinued further
development of its only clinical candidate, Tcelna, and is
evaluating whether to continue development of its preclinical
candidate, OPX-212 in NMO, and the related T-cell platform. If
Opexa decides to continue the development of its preclinical
program, it will need to commence and complete additional clinical
trials, manage clinical and manufacturing activities, and obtain
necessary regulatory approvals from the FDA in the United States
and from foreign regulatory authorities in other jurisdictions. Any
of Opexa’s potential products will require regulatory
approval prior to marketing in the United States and other
countries. Obtaining such approval requires significant research
and development and preclinical and clinical testing. Opexa may not
be able to develop any products, obtain regulatory approvals, enter
clinical trials (or any development activities) for any product
candidates, or commercialize any products. Any of Opexa’s
potential products may prove to have undesirable or unintended side
effects or other characteristics adversely affecting their safety,
efficacy or cost-effectiveness that could prevent or limit their
use. Any product using any of Opexa’s technology may fail to
provide the intended therapeutic benefits or to achieve therapeutic
benefits equal to or better than the standard of treatment at the
time of testing or production.
The Abili-T trial results cast doubt about the probative value of
the results in earlier clinical trials of Tcelna.
Trial
designs and results from previous trials are not necessarily
predictive of future clinical trial designs or results. For
example, although the results of prior clinical trials of Tcelna
for the treatment of MS included evidence of efficacy, the Abili-T
trial for the treatment of patients with SPMS failed to meet either
its primary or secondary endpoints.
There
is a high failure rate for drug candidates proceeding through
clinical trials. Data obtained from preclinical and clinical
activities are subject to varying interpretations, which may delay,
limit or prevent regulatory approval. In addition, regulatory
delays or rejections may be encountered as a result of many
factors, including changes in regulatory policy during the period
of product development.
Opexa will need regulatory approvals for any product candidate
prior to introduction to the market, which will require successful
testing in clinical trials. Clinical trials are subject to
extensive regulatory requirements, and are very expensive,
time-consuming and difficult to design and implement. Any product
candidate may fail to achieve necessary safety and efficacy
endpoints during clinical trials in which case Opexa will be unable
to generate revenue from the commercialization and sale of its
products.
Human
clinical trials are very expensive and difficult to design and
implement, in part because they are subject to rigorous FDA
requirements, and must otherwise comply with federal, state and
local requirements and policies of the medical institutions where
they are conducted. The clinical trial process is also
time-consuming. Failure can occur at any stage of the trials, and
problems could be encountered that would cause Opexa to be unable
to initiate a trial, or to abandon or repeat a clinical
trial.
The
commencement and completion of clinical trials may be delayed or
prevented by several factors, including:
●
FDA
or IRB objection to proposed protocols;
●
discussions
or disagreement with the FDA over the adequacy of trial design to
potentially demonstrate effectiveness, and subsequent design
modifications;
●
unforeseen
safety issues;
●
determination
of dosing issues, epitope profiles, and related
adjustments;
●
lack
of effectiveness during clinical trials;
●
slower
than expected rates of patient recruitment;
●
product
quality problems (e.g., sterility or purity);
●
challenges
to patient monitoring, retention and data collection during or
after treatment (e.g., patients’ failure to return for
follow-up visits or to complete the trial, detection of epitope
profiles in subsequent visits, etc.); and
●
failure
of medical investigators to follow Opexa’s clinical
protocols.
In
addition, Opexa or the FDA (based on its authority over clinical
studies) may delay a proposed investigation or suspend clinical
trials in progress at any time if it appears that the study may
pose significant risks to the study participants or other serious
deficiencies are identified. Prior to approval of any product
candidate, the FDA must determine that the data demonstrate safety
and effectiveness. The large majority of drug candidates that begin
human clinical trials fail to demonstrate the desired safety and
efficacy characteristics.
Furthermore,
changes in regulatory requirements and guidance may occur and Opexa
may need to amend clinical trial protocols, or otherwise modify its
intended course of clinical development, to reflect these changes.
This, too, may impact the costs, timing or successful completion of
a clinical trial. In light of widely publicized events concerning
the safety risk of certain drug products, regulatory authorities,
members of Congress, the U.S. Government Accountability Office,
medical professionals and the general public have raised concerns
about potential drug safety issues. These events have resulted in
the withdrawal of drug products, revisions to drug labeling that
further limit use of the drug products, and establishment of risk
management programs that may, for instance, restrict distribution
of drug products. The increased attention to drug safety issues may
result in a more cautious approach by the FDA to clinical trials.
Data from clinical trials may receive greater scrutiny with respect
to safety, which may make the FDA or other regulatory authorities
more likely to terminate clinical trials before completion or
require longer or additional clinical trials that may result in
substantial additional expense and a delay or failure in obtaining
approval or approval for a more limited indication than originally
sought.
Even if
regulatory approval is obtained for any product candidate, any such
approval may be subject to limitations on the indicated uses for
which it may be marketed. Opexa’s ability to generate
revenues from the commercialization and sale of any potential
products, whether directly or through any development arrangement,
will be limited by any failure to obtain or limitation on necessary
regulatory approvals.
As a result of the disappointing data from the Abili-T trial and
the reductions in Opexa’s workforce during 2016 and early
2017, Opexa’s workforce has been reduced substantially. If
Opexa is unable to retain its remaining employees, or rebuild its
workforce if it decides to continue one or more of its development
programs, Opexa’s business will be seriously jeopardized. It
will be difficult to grow or operate Opexa’s business with
the current limited number of employees.
On
November 2, 2016, Opexa announced a reduction of 40% of its
then full-time workforce of 20 employees as a result of the
disappointing data from the Abili-T study. Opexa’s Chief
Development Officer resigned in November 2016 after announcement of
the Abili-T trial results. On December 14, 2016, a further
workforce reduction was implemented to conserve cash, reducing the
number of full-time employees by an additional 25% of the then 12
employees. During January 2017, an additional workforce reduction
of seven full-time employees was implemented to conserve cash, and
the employment of Opexa’s Chief Scientific Officer was
terminated as part of the reduction. As of June 30, 2017,
Opexa had two full-time employees. Opexa has only one officer
remaining, who serves as the President, Chief Executive Officer and
Acting Chief Financial Officer.
Opexa’s
recent exploration of strategic alternatives and cash conservation
activities may yield unintended consequences, such as attrition
beyond Opexa’s planned reductions in workforce and reduced
employee morale which may cause Opexa’s remaining employees
to seek alternate employment. In such event, Opexa may be unable on
a timely basis to hire suitable replacements to operate its
business effectively. The loss of the services of any of
Opexa’s employees could have a material adverse effect on its
business and results of operations. Opexa’s restructuring
initiatives have caused disruption in its business operations, and
it may not be able to effectively realize the savings anticipated
by any restructuring initiative and reductions-in-force.
Additionally, there may be future changes in Opexa’s
workforce, including as a result of changes that may occur in its
operations or operating plan, or other reasons or events. There may
also be possible changes in the amount of charges and cash payments
associated with any workforce reduction, including the possibility
that Opexa may incur unanticipated charges or make cash payments
that are not contemplated.
Additionally, if
Opexa ultimately decides to pursue one or more of its development
programs, it will need to rebuild its workforce and management
team. Opexa may be unable on a timely basis to hire and train
suitable new employees to continue to operate its business and
further any such development programs. It will be difficult to grow
or operate Opexa’s business with the current small number of
employees it has.
Funding from Opexa’s ATM facility may be limited or be
insufficient to fund its operations or to implement its
strategy.
Opexa
will need to keep current its shelf registration statement and the
offering prospectus relating to the ATM facility with Brinson
Patrick (now a division of IFS Securities, Inc.) in order to use
the program to sell shares of Opexa’s common stock. The
number of shares and price at which Opexa may be able to sell
shares under its ATM facility may be limited due to market
conditions and other factors beyond its control.
Opexa may make changes to discretionary R&D investments that
may have an impact on costs.
Opexa
conducted an immune monitoring program on blood samples collected
over time to detect Tcelna-induced immune modulation. While certain
data has been analyzed to date, a correlation analysis of immune
monitoring T-cell phenotypes to MRTC bio-activity has not been
conducted. Expenses associated with the immune monitoring program
are incurred at Opexa’s discretion and are not required to
satisfy any FDA-mandated criteria. Consequently, Opexa may make
changes to the parameters that are being analyzed, or it may elect
not to proceed with certain analyses, and these changes may result
in either increased or decreased expenses for any such
study.
Opexa
may also incur discretionary expenses related to preclinical, Phase
I, Phase II and/or Phase III development programs, manufacturing
scale-up/automation and technology transfer, research on additional
indications and business development activities. There is no
assurance that any such future expenses would be recovered by
Opexa.
Opexa would need to rely on third parties to conduct its clinical
trials and perform data collection and analysis, which may result
in costs and delays that may hamper its ability to successfully
develop and commercialize any product candidate.
Although Opexa has
participated in the design and management of its past clinical
trials, Opexa does not have the ability to conduct clinical trials
directly for any product candidate. Opexa would need to rely on
contract research organizations, medical institutions, clinical
investigators and contract laboratories to conduct any clinical
trials and to perform data collection and analysis.
Any
clinical trials Opexa may conduct could be delayed, suspended or
terminated if:
●
any
third party upon whom Opexa relies does not successfully carry out
its contractual duties or regulatory obligations or meet expected
deadlines;
●
licenses
needed from third parties for manufacturing in order to conduct
Phase III trials or to conduct commercial manufacturing, if
applicable, are not obtained;
●
any
such third party needs to be replaced; or
●
the
quality or accuracy of the data obtained by the third party is
compromised due to its failure to adhere to clinical protocols or
regulatory requirements or for other reasons.
Failure
to perform by any third party upon whom Opexa relies may increase
the development costs, delay the ability to obtain regulatory
approval and prevent the commercialization of any product
candidate. While Opexa believes that there are numerous alternative
sources to provide these services, it might not be able to enter
into replacement arrangements without delays or additional
expenditures if Opexa were to seek such alternative
sources.
If Opexa fails to identify and license or acquire other product
candidates, it will not be able to expand its business over the
long term.
Opexa
has focused on MS as the first disease to be pursued off its T-cell
platform technology, and in 2014, Opexa initiated development
activities for OPX-212, its drug candidate for NMO, as the second
disease it is pursuing. As a platform technology, there exists the
potential to address other autoimmune diseases with the technology.
While preclinical development and manufacturing activities have
been conducted for OPX-212 in NMO, such work is modest compared to
the effort that has been committed to Tcelna for the lead MS
indication. However, inasmuch as the Abili-T study of Tcelna in
SPMS did not meet either its primary or secondary endpoints, Opexa
has determined that it will not move forward with further studies
of Tcelna and is assessing whether to continue its other
development activities. Opexa’s business over the long term
is substantially dependent on its ability to develop, license or
acquire product candidates and further develop them for
commercialization. The success of this strategy depends upon
Opexa’s ability to expand its existing platform or identify,
select and acquire the right product candidates. Opexa has limited
experience identifying, negotiating and implementing economically
viable product candidate acquisitions or licenses, which is a
lengthy and complex process. Also, the market for licensing and
acquiring product candidates is intensely competitive, and many of
Opexa’s competitors have greater resources than Opexa does.
Opexa may not have the requisite capital resources to consummate
product candidate acquisitions or licenses that it identifies to
fulfill its strategy.
Moreover, any
product candidate acquisition that Opexa does complete will involve
numerous risks, including:
●
difficulties
in integrating the development program for the acquired product
candidate into Opexa’s existing operations;
●
diversion
of financial and management resources from existing
operations;
●
risks
of entering new potential markets or technologies;
●
inability
to generate sufficient funding to offset acquisition costs;
and
●
delays
that may result from Opexa having to perform unanticipated
preclinical trials or other tests on the product
candidate.
If Opexa fails to meet its obligations under any license
agreements, Opexa may lose its rights to key technologies on which
Opexa’s business depends.
Opexa’s
business depends on licenses from third parties. These third-party
license agreements impose obligations on Opexa, such as payment
obligations and obligations diligently to pursue development of
commercial products under the licensed patents. If applicable,
Opexa may also need to seek additional licenses to move into
Phase III trials or the commercial stage of operations. These
licenses may require increased payments to the licensors. If a
licensor believes that Opexa has failed to meet its obligations
under a license agreement, the licensor could seek to limit or
terminate Opexa’s license rights, which could lead to costly
and time-consuming litigation and, potentially, a loss of the
licensed rights. During the period of any such litigation,
Opexa’s ability to carry out the development and
commercialization of potential products could be significantly and
negatively affected. If Opexa’s license rights were
restricted or ultimately lost, Opexa’s ability to continue
its business based on the affected technology platform could be
adversely affected.
Opexa no longer leases a research and manufacturing facility in
which to conduct development or manufacture product candidates for
its programs or clinical trial activities or, if any such clinical
trials were to be successful, commercial applications.
Through
January 2017, Opexa conducted its research and development in a
10,200 square foot facility in The Woodlands, Texas, which included
an approximately 1,200 square foot suite of three rooms for the
manufacture of T-cell therapies. On February 1, 2017, Opexa
assigned the facility lease to a third party, who assumed from
Opexa all of Opexa’s remaining rights and obligations under
the lease. In connection with the lease assignment, Opexa also sold
certain furniture, fixtures and equipment (including laboratory and
manufacturing equipment) as well as Opexa’s laboratory
supplies located at its corporate headquarters to the third party
for cash consideration. In light of the continuing evaluation of
Opexa’s strategic alternatives following the release of data
from the Abili-T clinical study, Opexa deemed it advisable to
reduce its office, R&D and manufacturing space and
corresponding rent obligations. As a result, Opexa is currently
using temporary office space in the same facility but no longer has
the capacity for any research and development or for any
manufacturing operations. If Opexa decides to continue to pursue
development of any of its product candidates, Opexa would need to
locate and obtain a new facility, arrange for R&D and
manufacturing staff, contract with corporate collaborators or other
third parties to assist with future drug production and
commercialization, or defer to a collaborative partner or third
party to address these needs.
In the
event that Opexa decides to again establish a R&D or
manufacturing facility, it would require substantial additional
funds and would be required to hire and train significant numbers
of employees and comply with applicable regulations, which are
extensive. Opexa does not have funds available for building an
R&D or manufacturing facility, and Opexa may not be able to
build a facility that both meets regulatory requirements and is
sufficient for its needs.
Opexa
may arrange with third parties for the manufacture of its future
products, if any. However, Opexa’s third-party sourcing
strategy may not result in a cost-effective means for manufacturing
its future products. If Opexa employs third-party manufacturers, it
will not control many aspects of the manufacturing process,
including compliance by these third parties with cGMP and other
regulatory requirements. Opexa further may not be able to obtain
adequate supplies from third-party manufacturers in a timely
fashion for development or commercialization purposes, and
commercial quantities of products may not be available from
contract manufacturers at acceptable costs.
Problems with
Opexa’s manufacturing process or with a manufacturing
facility (whether Opexa’s or a third party’s) could
result in the failure to produce, or a delay in producing, adequate
supplies of any of Opexa’s product candidates. A number of
factors could cause interruptions or delays, including equipment
malfunctions or failures, destruction or damage to a manufacturing
facility due to natural disasters or otherwise, contamination of
materials, changes in regulatory requirements or standards that
require modifications to Opexa’s manufacturing process,
action by a regulatory agency or by a manufacturer (whether Opexa
or a third party) that results in the halting or slowdown of
production due to regulatory issues, any third-party manufacturer
going out of business or failing to produce as contractually
required, or other similar factors.
Difficulties,
delays or interruptions in the manufacture and supply of any of
Opexa’s product candidates could require it to stop treating
patients in its clinical development of such product candidate
and/or require a halt to or suspension of, or otherwise adversely
affect, a clinical trial, thus increasing Opexa’s costs and
damaging its reputation. If a product candidate is approved,
difficulties, delays or interruptions in the manufacture and supply
of such product candidate could cause a delay in or even halt or
suspend the commercialization of such product candidate,
potentially causing a partial or complete loss of revenue or market
share.
Tcelna was manufactured using Opexa’s proprietary
ImmPath® technology for the production of an autologous T-cell
immunotherapy utilizing a patient’s own blood. Opexa’s
manufacturing process may raise development issues that may not be
resolvable, regulatory issues that could delay or prevent approval,
or personnel issues that may prevent the further development or
commercialization, if approved, of any product
candidate.
Tcelna
was based on Opexa’s novel T-cell immunotherapy platform,
ImmPath, which produces an autologous T-cell immunotherapy
utilizing a patient’s own blood. OPX-212 may be similarly
produced. The manufacture of living T-cell products requires
specialized facilities, equipment and personnel which are different
than the resources required for manufacturing chemical or biologic
compounds. Scaling-out the manufacture of living cell products to
meet demands for commercialization will require substantial amounts
of such specialized facilities, equipment and personnel, especially
where the products are personalized and must be made for each
patient individually. Because Opexa’s manufacturing processes
are complex, require facilities and personnel that are not widely
available in the industry, involve equipment and training with long
lead times, and the establishment of new manufacturing facilities
is subject to a potentially lengthy regulatory approval process,
alternative qualified production capacity may not be available on a
timely basis or on reasonably terms, if at all. In addition, not
many consultants or advisors in the industry have relevant
experience and can provide guidance or assistance because active
immune therapies are fundamentally a new category of product in two
major ways: (i) the product consists of living T-cells, not
chemical or biologic compounds; and (ii) the product is
personalized. There can be no assurance that manufacturing problems
will not arise in the future which Opexa may not be able to resolve
or which may cause significant delays in development or, if any
product candidate is approved, commercialization.
Regulatory approval
of product candidates that are manufactured using novel
manufacturing processes such as Opexa’s can be more expensive
and take longer than other, more well-known or extensively studied
pharmaceutical or biopharmaceutical products, due to a lack of
experience with them. FDA approval of personalized immunotherapy
products has been limited to date. This lack of experience and
precedent may lengthen the regulatory review process, require that
additional studies or clinical trials be conducted, increase
development costs, lead to changes in regulatory positions and
interpretations, delay or prevent approval and commercialization,
or lead to significant post-approval limitations or
restrictions.
In
addition, the novel nature of product candidates also means that
fewer people are trained in or experienced with product candidates
of this type, which may make it difficult to find, hire and retain
capable personnel for research, development and manufacturing
positions.
If any product Opexa may eventually have is not accepted by the
market or if users of any such product are unable to obtain
adequate coverage of and reimbursement for such product from
government and other third-party payors, Opexa’s revenues and
profitability will suffer.
Opexa’s
ability to successfully commercialize any product it may eventually
have, to the extent applicable, and/or its ability to receive any
revenue will depend in significant part on the extent to which
appropriate coverage of and reimbursement for such product and any
related treatments are obtained from governmental authorities,
private health insurers and other organizations, such as health
maintenance organizations, or HMOs. Third-party payors are
increasingly challenging the prices charged for medical products
and services. Opexa cannot provide any assurances that third-party
payors will consider any product cost-effective or provide coverage
of and reimbursement for such product, in whole or in
part.
Uncertainty exists
as to the coverage and reimbursement status of newly approved
medical products and services and newly approved indications for
existing products. Third-party payors may conclude that any product
is less safe, less clinically effective, or less cost-effective
than existing products, and third-party payors may not approve such
product for coverage and reimbursement. If adequate coverage of and
reimbursement for any product from third-party payors cannot be
obtained, physicians may limit how much or under what circumstances
they will prescribe or administer them. Such reduction or
limitation in the use of any such product would cause sales to
suffer. Even if third-party payors make reimbursement available,
payment levels may not be sufficient to make the sale of any such
product profitable.
In
addition, the trend towards managed health care in the United
States and the concurrent growth of organizations such as HMOs,
which could control or significantly influence the purchase of
medical services and products, may result in inadequate coverage of
and reimbursement for any product Opexa may eventually have. Many
third-party payors, including in particular HMOs, are pursuing
various ways to reduce pharmaceutical costs, including, for
instance, the use of formularies. The market for any product
depends on access to such formularies, which are lists of
medications for which third-party payors provide reimbursement.
These formularies are increasingly restricted, and pharmaceutical
companies face significant competition in their efforts to place
their products on formularies of HMOs and other third-party payors.
This increased competition has led to a downward pricing pressure
in the industry. The cost containment measures that third-party
payors are instituting could have a material adverse effect on
Opexa’s ability to operate profitably.
Any product candidate, if approved for sale, may not gain
acceptance among physicians, patients and the medical community,
thereby limiting Opexa’s potential to generate
revenues.
Even if
a product candidate is approved for commercial sale by the FDA or
other regulatory authorities, the degree of market acceptance of
any approved product candidate by physicians, healthcare
professionals and third-party payors, and Opexa’s
profitability and growth, will depend on a number of factors,
including:
●
demonstration
of efficacy;
●
relative
convenience and ease of administration;
●
the
prevalence and severity of any adverse side effects;
●
availability
and cost of alternative treatments, including cheaper generic
drugs;
●
pricing
and cost effectiveness, which may be subject to regulatory
control;
●
effectiveness
of sales and marketing strategies for the product and competition
for such product;
●
the
product labeling or product insert required by the FDA or
regulatory authority in other countries; and
●
the
availability of adequate third-party insurance coverage or
reimbursement.
If any
product candidate does not provide a treatment regimen that is as
beneficial as the current standard of care or otherwise does not
provide patient benefit, that product candidate, if approved for
commercial sale by the FDA or other regulatory authorities, likely
will not achieve market acceptance and Opexa’s ability to
generate revenues from that product candidate would be
substantially reduced.
Opexa has incurred, and expects to continue to incur, increased
costs and risks as a result of being a public company.
As a
public company, Opexa is required to comply with the Sarbanes-Oxley
Act of 2002, or SOX, as well as rules and regulations implemented
by the SEC and The NASDAQ Stock Market, or NASDAQ. Changes in the
laws and regulations affecting public companies, including the
provisions of SOX and rules adopted by the SEC and by NASDAQ, have
resulted in, and will continue to result in, increased costs as
Opexa responds to their requirements. Given the risks inherent in
the design and operation of internal controls over financial
reporting, the effectiveness of Opexa’s internal controls
over financial reporting is uncertain. If Opexa’s internal
controls are not designed or operating effectively, it may not be
able to conclude an evaluation of its internal control over
financial reporting as required or Opexa or its independent
registered public accounting firm may determine that Opexa’s
internal control over financial reporting was not effective. Opexa
currently has a very limited workforce, and it may be difficult to
adhere to appropriate internal controls over financial reporting or
disclosure controls with such limited staffing. In addition,
Opexa’s registered public accounting firm may either disclaim
an opinion as it relates to management’s assessment of the
effectiveness of its internal controls or may issue an adverse
opinion on the effectiveness of Opexa’s internal controls
over financial reporting, especially in light of the fact that
Opexa currently has a very limited workforce. Investors may lose
confidence in the reliability of Opexa’s financial
statements, which could cause the market price of Opexa’s
common stock to decline and which could affect its ability to run
its business as it otherwise would like to. New rules could also
make it more difficult or more costly for Opexa to obtain certain
types of insurance, including directors’ and officers’
liability insurance, and Opexa may be forced to accept reduced
policy limits and coverage or incur substantially higher costs to
obtain the coverage that is the same or similar to Opexa’s
current coverage. The impact of these events could also make it
more difficult for Opexa to attract and retain qualified persons to
serve on its board of directors, its board committees and as
executive officers. Opexa cannot predict or estimate the total
amount of the costs it may incur or the timing of such costs to
comply with these rules and regulations.
Under
the corporate governance standards of NASDAQ, a majority of
Opexa’s board of directors and each member of Opexa’s
Audit and Compensation Committees must be an independent director.
If any vacancies on Opexa’s Board or Audit or Compensation
Committees occur that need to be filled by independent directors,
Opexa may encounter difficulty in attracting qualified persons to
serve on its Board and, in particular, its Audit Committee. If
Opexa fails to attract and retain the required number of
independent directors, Opexa may be subject to SEC enforcement
proceedings and delisting of its common stock from the NASDAQ
Capital Market.
Any acquisitions that Opexa makes could disrupt its business and
harm its financial condition.
Opexa
expects to evaluate potential strategic acquisitions of
complementary businesses, products or technologies on a global
geographic footprint. Opexa may also consider joint ventures,
licensing and other collaborative projects. Opexa may not be able
to identify appropriate acquisition candidates or strategic
partners, or successfully negotiate, finance or integrate
acquisitions of any businesses, products or technologies.
Furthermore, the integration of any acquisition and management of
any collaborative project may divert Opexa’s
management’s time and resources from its core business and
disrupt its operations. Opexa does not have any experience with
acquiring companies, or with acquiring products outside of the
United States. Any cash acquisition Opexa pursues would potentially
divert the cash Opexa has on its balance sheet from its present
clinical development programs. Any stock acquisitions would dilute
Opexa’s shareholders’ ownership. While Opexa from time
to time evaluates potential collaborative projects and acquisitions
of businesses, products and technologies, and anticipate continuing
to make these evaluations, Opexa has no present agreements with
respect to any acquisitions or collaborative projects.
Risks Related to Opexa’s Intellectual Property
Patents obtained by other persons may result in infringement claims
against Opexa that are costly to defend and which may limit
Opexa’s ability to use the disputed technologies and prevent
it from pursuing research and development or commercialization of
potential products, such as Tcelna.
If
third party patents or patent applications contain claims infringed
by either Opexa’s licensed technology or other technology
required to make or use its potential products, such as Tcelna, and
such claims are ultimately determined to be valid, there can be no
assurance that Opexa would be able to obtain licenses to these
patents at a reasonable cost, if at all, or be able to develop or
obtain alternative technology. If Opexa is unable to obtain such
licenses at a reasonable cost, it may not be able to develop any
affected product candidate commercially. There can be no assurance
that Opexa will not be obliged to defend itself in court against
allegations of infringement of third-party patents. Patent
litigation is very expensive and could consume substantial
resources and create significant uncertainties. An adverse outcome
in such a suit could subject Opexa to significant liabilities to
third parties, require disputed rights to be licensed from third
parties, or require Opexa to cease using such
technology.
If Opexa is unable to obtain patent protection and other
proprietary rights, Opexa’s operations will be significantly
harmed.
Opexa’s
ability to compete effectively is dependent upon obtaining patent
protection relating to its technologies. The patent positions of
pharmaceutical and biotechnology companies, including
Opexa’s, are uncertain and involve complex and evolving legal
and factual questions. The coverage sought in a patent application
can be denied or significantly reduced before or after the patent
is issued. Consequently, Opexa does not know whether pending patent
applications for its technology will result in the issuance of
patents, or if any issued patents will provide significant
protection or commercial advantage or will be circumvented by
others. Since patent applications are secret until the applications
are published (usually 18 months after the earliest effective
filing date), and since publication of discoveries in the
scientific or patent literature often lags behind actual
discoveries, Opexa cannot be certain that the inventors of its
owned or licensed intellectual property rights were the first to
make the inventions at issue or that any patent applications at
issue were the first to be filed for such inventions. There can be
no assurance that patents will issue from pending patent
applications or, if issued, that such patents will be of commercial
benefit to Opexa, afford Opexa adequate protection from competing
products, or not be challenged or declared invalid.
Given
Opexa’s limited cash resources and the current priorities it
has set for its use of cash, certain costs related to intellectual
property, including those for continued prosecution of individual
patents, patent applications and patent counsel costs have been
reduced or have ceased. The focus on preservation of cash resulting
in reduced patent expenses may cause certain patents to become
abandoned and/or prosecution to be dropped. This could materially
affect Opexa’s patent estate and could jeopardize the ability
of Opexa to continue its development programs, secure a development
partner, protect its global patent position and its ability to
challenge future patent infringement.
Issued
U.S. patents require the payment of maintenance fees to continue to
be in force. Opexa relies on a third-party payor to do this and
their failure to do so could result in the forfeiture of patents
not timely maintained.
Many
foreign patent offices also require the payment of periodic
annuities to keep patents and patent applications in good standing.
As Opexa may not maintain direct control over the payment of all
such annuities, it cannot assure you that its third-party payor
will timely pay such annuities and that the granted patents and
pending patent applications will not become abandoned. In addition,
Opexa or its licensors may have selected a limited amount of
foreign patent protection, and therefore applications have not been
filed in, and foreign patents may not have been perfected in, all
commercially significant countries.
The
patent protection of product candidates, such as Tcelna, involves
complex legal and factual questions. To the extent that it would be
necessary or advantageous for any of Opexa’s licensors to
cooperate or lead in the enforcement of its licensed intellectual
property rights, Opexa cannot control the amount or timing of
resources such licensors devote on its behalf or the priority they
place on enforcing such rights. Opexa may not be able to protect
its intellectual property rights against third-party infringement,
which may be difficult to detect. Additionally, challenges may be
made to the ownership of Opexa’s intellectual property
rights, its ability to enforce them, or its underlying
licenses.
Opexa
cannot be certain that any of the patents issued to it or to its
licensors will provide adequate protection from competing products.
Opexa’s success will depend, in part, on whether it or its
licensors can:
●
obtain
and maintain patents to protect Opexa’s product candidates
such as Tcelna;
●
obtain
and maintain any required or desirable licenses to use certain
technologies of third parties, which may
be protected by patents;
●
protect
Opexa’s trade secrets and know-how;
●
operate
without infringing the intellectual property and proprietary rights
of others;
●
enforce
the issued patents under which Opexa holds rights; and
●
develop
additional proprietary technologies that are
patentable.
The
degree of future protection for Opexa’s proprietary rights
(owned or licensed) is uncertain. For example:
●
Opexa
or its licensor might not have been the first to make the
inventions covered by pending patent applications or issued patents
owned by, or licensed to, Opexa;
●
Opexa
or its licensor might not have been the first to file patent
applications for these inventions;
●
others
may independently develop similar or alternative technologies or
duplicate any of the technologies owned by, or licensed to,
Opexa;
●
it
is possible that none of the pending patent applications owned by,
or licensed to, Opexa will result in issued patents;
●
any
patents under which Opexa holds rights may not provide it with a
basis for commercially viable products, may not provide it with any
competitive advantages or may be challenged by third parties as
invalid, or unenforceable under U.S. or foreign laws;
●
inability
to continue supporting and funding patent prosecution costs;
or
●
any
of the issued patents under which Opexa holds rights may not be
valid or enforceable or may be circumvented successfully in light
of the continuing evolution of domestic and foreign patent
laws.
Confidentiality agreements with employees and others may not
adequately prevent disclosure of Opexa’s trade secrets and
other proprietary information and may not adequately protect its
intellectual property, which could limit its ability to
compete.
Opexa
relies in part on trade secret protection in order to protect its
proprietary trade secrets and unpatented know-how. However, trade
secrets are difficult to protect, and Opexa cannot be certain that
others will not develop the same or similar technologies on their
own. Opexa has taken steps, including entering into confidentiality
agreements with its employees, consultants, outside scientific
collaborators and other advisors, to protect its trade secrets and
unpatented know-how. These agreements generally require that the
other party keep confidential and not disclose to third parties all
confidential information developed by the party or made known to
the party by Opexa during the course of the party’s
relationship with Opexa. Opexa also typically obtains agreements
from these parties which provide that inventions conceived by the
party in the course of rendering services to Opexa will be its
exclusive property. However, these agreements may not be honored
and may not effectively assign intellectual property rights to
Opexa. Further, Opexa has limited control, if any, over the
protection of trade secrets developed by its licensors. Enforcing a
claim that a party illegally obtained and is using Opexa’s
trade secrets or know-how is difficult, expensive and time
consuming, and the outcome is unpredictable. In addition, courts
outside the United States may be less willing to protect trade
secrets or know-how. The failure to obtain or maintain trade secret
protection could adversely affect Opexa’s competitive
position.
A dispute concerning the infringement or misappropriation of
Opexa’s proprietary rights or the proprietary rights of
others could be time consuming and costly, and an unfavorable
outcome could harm Opexa’s business.
A
number of pharmaceutical, biotechnology and other companies,
universities and research institutions have filed patent
applications or have been issued patents relating to cell therapy,
T-cells, and other technologies potentially relevant to or required
by Opexa’s product candidates such as Tcelna. Opexa cannot
predict which, if any, of such applications will issue as patents
or the claims that might be allowed. Opexa is aware of a number of
patent applications and patents claiming use of modified cells to
treat disease, disorder or injury.
There
is significant litigation in Opexa’s industry regarding
patent and other intellectual property rights. While Opexa is not
currently subject to any pending intellectual property litigation,
and is not aware of any such threatened litigation, it may be
exposed to future litigation by third parties based on claims that
its product candidates, such as Tcelna, or their methods of use,
manufacturing or other technologies or activities infringe the
intellectual property rights of such third parties. If
Opexa’s product candidates, such as Tcelna, or their methods
of manufacture are found to infringe any such patents, Opexa may
have to pay significant damages or seek licenses under such
patents. Opexa has not conducted comprehensive searches of patents
issued to third parties relating to Tcelna or OPX-212.
Consequently, no assurance can be given that third-party patents
containing claims covering Tcelna or OPX-212, their methods of use
or manufacture do not exist or have not been filed and will not be
issued in the future. Because some patent applications in the
United States may be maintained in secrecy until the patents are
issued, and because patent applications in the United States and
many foreign jurisdictions are typically not published until 18
months after filing, Opexa cannot be certain that others have not
filed patent applications that will mature into issued patents that
relate to Opexa’s current or future product candidates that
could have a material effect in developing and commercializing one
or more of Opexa’s product candidates. A patent holder could
prevent Opexa from importing, making, using or selling the patented
compounds. Opexa may need to resort to litigation to enforce its
intellectual property rights or to determine the scope and validity
of third-party proprietary rights. Similarly, Opexa may be subject
to claims that it has inappropriately used or disclosed trade
secrets or other proprietary information of third parties. If Opexa
becomes involved in litigation, it could consume a substantial
portion of Opexa’s managerial and financial resources,
regardless of whether it wins or loses. Some of Opexa’s
competitors may be able to sustain the costs of complex
intellectual property litigation more effectively than Opexa can
because they have substantially greater resources. Opexa may not be
able to afford the costs of litigation. Any legal action against
Opexa or its collaborators could lead to:
●
payment
of actual damages, royalties, lost profits, potentially treble
damages and attorneys’ fees, if Opexa is found to have
willfully infringed a third party’s patent
rights;
●
injunctive
or other equitable relief that may effectively block Opexa’s
ability to further develop, commercialize and sell its
products;
●
Opexa
or its collaborators having to enter into license arrangements that
may not be available on commercially acceptable terms if at all;
or
●
significant
cost and expense, as well as distraction of Opexa’s
management from its business.
As a
result, Opexa could be prevented from commercializing current or
future product candidates.
Risks Related to Opexa’s Industry
Opexa is subject to stringent regulation of its product candidates,
which could delay development and commercialization.
Opexa,
its third-party contractors and suppliers, and its product
candidates are subject to stringent regulation by the FDA and other
regulatory agencies in the United States and by comparable
authorities in other countries. None of Opexa’s product
candidates can be marketed in the United States until it has been
approved by the FDA. No product candidate of Opexa’s has been
approved, and Opexa may never receive FDA approval for any product
candidate. Obtaining FDA approval typically takes many years and
requires substantial resources. Even if regulatory approval is
obtained, the FDA may impose significant restrictions on the
indicated uses, conditions for use and labeling of such products.
Additionally, the FDA may require post-approval studies, including
additional research and development and clinical trials. These
regulatory requirements may limit the size of the market for the
product or result in the incurrence of additional costs. Any delay
or failure in obtaining required approvals could substantially
reduce Opexa’s ability to generate revenues.
In
addition, both before and after regulatory approval, Opexa and its
product candidates are subject to numerous FDA requirements
covering, among other things, testing, manufacturing, quality
control, labeling, advertising, promotion, distribution and export.
The FDA’s requirements may change and additional government
regulations may be promulgated that could affect Opexa and its
product candidates. Given the number of recent high profile adverse
safety events with certain drug products, the FDA may require, as a
condition of approval, costly risk management programs, which may
include safety surveillance, restricted distribution and use,
patient education, enhanced labeling, special packaging or
labeling, expedited reporting of certain adverse events,
preapproval of promotional materials and restrictions on
direct-to-consumer advertising. Furthermore, heightened
Congressional scrutiny on the adequacy of the FDA’s drug
approval process and the agency’s efforts to assure the
safety of marketed drugs resulted in the enactment of legislation
addressing drug safety issues, the FDA Amendments Act of 2007. This
legislation provides the FDA with expanded authority over drug
products after approval and the FDA’s exercise of this
authority could result in delays or increased costs during the
period of product development, clinical trials and regulatory
review and approval, and increased costs to assure compliance with
new post-approval regulatory requirements. Opexa cannot predict the
likelihood, nature or extent of government regulation that may
arise from this or future legislation or administrative action,
either in the United States or abroad.
In
order to market any of Opexa’s products outside of the United
States, Opexa must establish and comply with numerous and varying
regulatory requirements of other countries regarding safety and
efficacy. Approval procedures vary among countries and can involve
additional product testing and additional administrative review
periods and the time required to obtain approval in other countries
might differ from that required to obtain FDA approval. The
regulatory approval process in other countries may include all of
the risks detailed above regarding FDA approval in the United
States. Approval by the FDA does not automatically lead to the
approval of authorities outside of the United States and,
similarly, approval by other regulatory authorities outside the
United States will not automatically lead to FDA approval. In
addition, regulatory approval in one country does not ensure
regulatory approval in another, but a failure or delay in obtaining
regulatory approval in one country may negatively impact the
regulatory process in others. Opexa’s product candidates may
not be approved for all indications that Opexa requests, which
would limit uses and adversely impact Opexa’s potential
royalties and product sales. Such approval may be subject to
limitations on the indicated uses for which any potential product
may be marketed or require costly, post-marketing follow-up
studies.
If
Opexa fails to comply with applicable regulatory requirements in
the United States and other countries, among other things, Opexa
may be subject to fines and other civil penalties, delays in
approving or failure to approve a product, suspension or withdrawal
of regulatory approvals, product recalls, seizure of products,
operating restrictions, interruption of manufacturing or clinical
trials, injunctions and criminal prosecution, any of which would
harm Opexa’s business.
Opexa may need to change its business practices to comply with
health care fraud and abuse regulations, and its failure to comply
with such laws could adversely affect Opexa’s business,
financial condition and results of operations.
If
Opexa is successful in achieving approval to market one or more of
its product candidates, its operations will be directly, or
indirectly through its customers, subject to various state and
federal fraud and abuse laws, including, without limitation, the
federal Anti-Kickback Statute and False Claims Act. These laws may
impact, among other things, Opexa’s proposed sales,
marketing, and education programs.
The
federal Anti-Kickback Statute prohibits persons from knowingly and
willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in exchange for or to induce
either the referral of an individual, or the furnishing or
arranging for a good or service, for which payment may be made
under a federal healthcare program such as the Medicare and
Medicaid programs. Several courts have interpreted the
statute’s intent requirement to mean that if any one purpose
of an arrangement involving remuneration is to induce referrals of
federal healthcare covered business, the statute has been violated.
The Anti-Kickback Statute is broad and prohibits many arrangements
and practices that are lawful in businesses outside of the
healthcare industry. Recognizing that the Anti-Kickback Statute is
broad and may technically prohibit many innocuous or beneficial
arrangements, Congress authorized the Department of Health and
Human Services, Office of Inspector General, or OIG, to issue a
series of regulations, known as the “safe harbors.”
These safe harbors set forth provisions that, if all their
applicable requirements are met, will assure healthcare providers
and other parties that they will not be prosecuted under the
Anti-Kickback Statute. The failure of a transaction or arrangement
to fit precisely within one or more safe harbors does not
necessarily mean that it is illegal or that prosecution will be
pursued. However, conduct and business arrangements that do not
fully satisfy each applicable safe harbor may result in increased
scrutiny by government enforcement authorities such as the OIG.
Penalties for violations of the federal Anti-Kickback Statute
include criminal penalties and civil sanctions such as fines,
imprisonment and possible exclusion from Medicare, Medicaid and
other federal healthcare programs. Many states have also adopted
laws similar to the federal Anti-Kickback Statute, some of which
apply to the referral of patients for healthcare items or services
reimbursed by any source, not only the Medicare and Medicaid
programs.
The
federal False Claims Act prohibits persons from knowingly filing or
causing to be filed a false claim to, or the knowing use of false
statements to obtain payment from, the federal government. Suits
filed under the False Claims Act, known as “qui tam”
actions, can be brought by any individual on behalf of the
government and such individuals, sometimes known as
“relators” or, more commonly, as
“whistleblowers,” may share in any amounts paid by the
entity to the government in fines or settlement. The frequency of
filing of qui tam actions has increased significantly in recent
years, causing greater numbers of healthcare companies to have to
defend a False Claims Act action. When an entity is determined to
have violated the federal False Claims Act, it may be required to
pay up to three times the actual damages sustained by the
government, plus civil penalties. Various states have also enacted
laws modeled after the federal False Claims Act.
In
addition to the laws described above, the Health Insurance
Portability and Accountability Act of 1996 created two new federal
crimes: healthcare fraud and false statements relating to
healthcare matters. The healthcare fraud statute prohibits
knowingly and willfully executing a scheme to defraud any
healthcare benefit program, including private payors. A violation
of this statute is a felony and may result in fines, imprisonment
or exclusion from government sponsored programs. The false
statements statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially
false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services.
A violation of this statute is a felony and may result in fines or
imprisonment.
Beginning
August 1, 2013, the Physician Payments Sunshine Act, or the
Sunshine Act, which is part of the Patient Protection and
Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010, or the Affordable Care Act, requires
manufacturers of drugs, medical devices, biologicals or medical
supplies that participate in U.S. federal health care programs to
track and then report certain payments and items of value given to
U.S. physicians and U.S. teaching hospitals (referred to as Covered
Recipients). The Sunshine Act requires that manufacturers collect
this information on a yearly basis and then report it to Centers
for Medicare & Medicaid Services by the 90th day of each
subsequent year.
If
Opexa’s operations are found to be in violation of any of the
laws described above and other applicable state and federal fraud
and abuse laws, Opexa may be subject to penalties, including civil
and criminal penalties, damages, fines, exclusion from government
healthcare programs, and the curtailment or restructuring of its
operations.
If Opexa’s competitors develop and market products that are
more effective than Opexa’s product candidates, they may
reduce or eliminate Opexa’s commercial
opportunities.
Competition in the
pharmaceutical industry, particularly the market for MS products,
is intense, and Opexa expects such competition to continue to
increase. Opexa faces competition from pharmaceutical and
biotechnology companies, as well as numerous academic and research
institutions and governmental agencies, in the United States and
abroad. Opexa’s competitors have products that have been
approved or are in advanced development and may succeed in
developing drugs that are more effective, safer and more affordable
or more easily administered than Opexa’s, or that achieve
patent protection or commercialization sooner than Opexa’s
products. Opexa’s most significant competitors are fully
integrated pharmaceutical companies and more established
biotechnology companies. These companies have significantly greater
capital resources and expertise in research and development,
manufacturing, testing, obtaining regulatory approvals, and
marketing than Opexa currently does. However, smaller companies
also may prove to be significant competitors, particularly through
proprietary research discoveries and collaboration arrangements
with large pharmaceutical and established biotechnology companies.
In addition to the competitors with existing products that have
been approved, many of Opexa’s competitors are further along
in the process of product development and also operate large,
company-funded research and development programs. As a result,
Opexa’s competitors may develop more competitive or
affordable products, or achieve earlier patent protection or
further product commercialization than Opexa is able to achieve.
Competitive products may render any products or product candidates
that Opexa develops obsolete.
Opexa’s
competitors may also develop alternative therapies that could
further limit the market for any products that Opexa may
develop.
Rapid technological change could make Opexa’s products
obsolete.
Biopharmaceutical
technologies have undergone rapid and significant change, and Opexa
expects that they will continue to do so. As a result, there is
significant risk that Opexa’s product candidates may be
rendered obsolete or uneconomical by new discoveries before it
recovers any expenses incurred in connection with their
development. If Opexa’s product candidates are rendered
obsolete by advancements in biopharmaceutical technologies,
Opexa’s prospects will suffer.
Consumers may sue Opexa for product liability, which could result
in substantial liabilities that exceed Opexa’s available
resources and damage its reputation.
Developing and
commercializing drug products entails significant product liability
risks. Liability claims may arise from Opexa’s and
Opexa’s collaborators’ use of products in clinical
trials and the commercial sale of those products.
In the
event that any of Opexa’s product candidates becomes an
approved product and is commercialized, consumers may make product
liability claims directly against Opexa and/or its partners, and
its partners or others selling these products may seek contribution
from Opexa if they incur any loss or expenses related to such
claims. Opexa has insurance that covers clinical trial activities.
Opexa believes its insurance coverage as of the date hereof is
reasonably adequate at this time. However, Opexa will need to
increase and expand this coverage as it commences additional
clinical trials, as well as larger scale trials, and if any product
candidate is approved for commercial sale. This insurance may be
prohibitively expensive or may not fully cover Opexa’s
potential liabilities. Opexa’s inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims could prevent or inhibit
the regulatory approval or commercialization of products that Opexa
or one of its collaborators develop. Product liability claims could
have a material adverse effect on Opexa’s business and
results of operations. Liability from such claims could exceed
Opexa’s total assets if it does not prevail in any lawsuit
brought by a third party alleging that an injury was caused by one
or more of Opexa’s products.
Government controls and health care reform measures could adversely
affect Opexa’s business.
The
business and financial condition of pharmaceutical and
biotechnology companies are affected by the efforts of governmental
and third-party payors to contain or reduce the costs of health
care. In the United States and in foreign jurisdictions, there have
been, and Opexa expects that there will continue to be, a number of
legislative and regulatory proposals aimed at changing the health
care system. For example, in some foreign countries, particularly
in Europe, the pricing of prescription pharmaceuticals is subject
to governmental control. In these countries, pricing negotiations
with governmental authorities can take considerable time after the
receipt of marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, Opexa may be
required to conduct additional clinical trials that compare the
cost-effectiveness of any product candidate to other available
therapies. If reimbursement of any product candidate is unavailable
or limited in scope or amount in a particular country, or if
pricing is set at unsatisfactory levels, Opexa may be unable to
achieve or sustain profitability in such country. In the United
States, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) changed the way Medicare covers and
pays for pharmaceutical products. The legislation established
Medicare Part D, which expanded Medicare coverage for outpatient
prescription drug purchases by the elderly but provided authority
for limiting the number of drugs that will be covered in any
therapeutic class. The MMA also introduced a new reimbursement
methodology based on average sales prices for
physician-administered drugs. Any negotiated prices for any product
candidate covered by a Part D prescription drug plan will likely be
lower than the prices that might otherwise be obtained outside of
the Medicare Part D prescription drug plan. Moreover, while
Medicare Part D applies only to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own payment rates. Any
reduction in payment under Medicare Part D may result in a similar
reduction in payments from non-governmental payors.
The
United States and several other jurisdictions are considering, or
have already enacted, a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect
Opexa’s ability to sell any product candidate. Among
policy-makers and payors in the United States and elsewhere, there
is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving
quality and/or expanding access to healthcare. In the United
States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major
legislative initiatives. There have been, and likely will continue
to be, legislative and regulatory proposals at the federal and
state levels directed at broadening the availability of healthcare
and containing or lowering the cost of healthcare. Opexa cannot
predict the initiatives that may be adopted in the future. The
continuing efforts of the government, insurance companies, managed
care organizations and other payors of healthcare services to
contain or reduce costs of healthcare may adversely affect: the
demand for any product candidate; the ability to set a price that
Opexa believes is fair for any product candidate; Opexa’s
ability to generate revenues and achieve or maintain profitability;
the level of taxes that Opexa is required to pay; and the
availability of capital.
Risks Related to Opexa’s Securities
There is currently a limited market for Opexa’s securities,
and any trading market that exists in Opexa’s securities may
be highly illiquid and may not reflect the underlying value of its
net assets or business prospects.
Although
Opexa’s common stock is traded on the NASDAQ Capital Market,
there is currently a limited market for its securities and there
can be no assurance that an active market will ever develop.
Investors are cautioned not to rely on the possibility that an
active trading market may develop.
Opexa’s stock may be delisted from NASDAQ, which could affect
its market price and liquidity, as well as Acer’s and
Opexa’s obligation to complete the Merger.
Opexa
is required to meet certain qualitative and financial tests
(including a minimum bid price for its common stock of $1.00 per
share and a minimum shareholders’ equity of $2.5 million), as
well as certain corporate governance standards, to maintain the
listing of its common stock on the NASDAQ Capital Market. While
Opexa is exercising diligent efforts to maintain the listing of its
common stock and warrants on NASDAQ, there can be no assurance that
it will be able to do so, and its securities could be
delisted.
For
example, as a consequence of Opexa’s announcement on
October 28, 2016 that the Abili-T trial did not meet either
its primary or secondary endpoints, Opexa’s stock has traded
below $1.00 per share at times. On April 10, 2017, Opexa
received a staff deficiency letter from NASDAQ indicating that
Opexa’s common stock failed to comply with the minimum bid
price requirement because it closed below the $1.00 minimum closing
bid price for 30 consecutive business days. The notice further
stated that Opexa will be provided a period of 180 calendar days to
regain compliance. If Opexa’s common stock maintains a
closing bid price of $1.00 per share or more for a minimum of 10
consecutive business days (or such longer period of time as the
NASDAQ staff may require in some circumstances, but generally not
more than 20 consecutive business days) before October 9,
2017, Opexa will achieve compliance with this listing standard. If
Opexa’s common stock does not achieve compliance with the
minimum bid price by October 9, 2017, Opexa may be eligible
for an additional 180-day grace period to regain compliance if it
meets the continued listing requirement for market value of
publicly held shares and all other initial listing standards, with
the exception of the bid price requirement, and provides timely
notice of its intention to cure the deficiency during the second
grace period by effecting a reverse stock split, if necessary.
However, if it appears to the NASDAQ staff that Opexa will not be
able to cure the deficiency, or if Opexa does not meet the other
listing standards, NASDAQ could provide notice that Opexa’s
stock will become subject to delisting. Opexa is actively
monitoring the closing bid price of its common stock and evaluating
available options to resolve this deficiency and regain compliance
with the minimum bid price rule.
Additionally, on
May 16, 2017, Opexa received a letter from the listing
qualifications department staff of the NASDAQ notifying Opexa that
the stockholders’ equity of $2,241,693 as reported in
Opexa’s Quarterly Report on Form 10-Q for the period ended
March 31, 2017 was below the minimum stockholders’ equity of
$2,500,000 required for continued listing on the NASDAQ Capital
Market as set forth in NASDAQ listing rule 5550(b)(1). Opexa was
provided 45 calendar days, or until June 30, 2017, to submit a plan
to regain compliance with the minimum stockholders’ equity
standard. Opexa timely submitted such plan. On July 18, 2017,
NASDAQ notified Opexa that its plan was acceptable to NASDAQ, and
Opexa was granted an extension to November 13, 2017 to evidence
compliance with the minimum stockholders’ equity standard.
Opexa’s stockholders equity as of June 30, 2017 was
$1,611,778. While Opexa is exercising diligent efforts to maintain
the listing of its common stock on NASDAQ, there can be no
assurance that Opexa will be able to regain or maintain compliance.
If Opexa does not regain compliance by November 13, 2017, or if
Opexa fails to satisfy another NASDAQ requirement for continued
listing, NASDAQ staff could provide notice that Opexa’s
common stock will become subject to delisting. In such event,
NASDAQ rules permit Opexa to appeal the decision to reject its
proposed compliance plan or any delisting determination to a NASDAQ
Hearings Panel.
It is
also possible that Opexa could fail to satisfy another NASDAQ
requirement for continued listing of its stock, such as the market
value or number of publicly held shares or number of shareholders,
or a corporate governance requirement. In addition to the minimum
bid price deficiency notice Opexa received on April 10, 2017
and the minimum stockholders’ equity deficiency notice Opexa
received on May 16, 2017, Opexa may receive additional future
notices from NASDAQ that it has failed to meet NASDAQ’s
requirements, and proceedings to delist Opexa’s stock could
be commenced. In such event, NASDAQ rules permit Opexa to appeal
any delisting determination to a NASDAQ Hearings Panel. If Opexa is
unable to maintain or regain compliance in a timely manner or if it
does not meet the other listing standards and its common stock is
delisted, it could be more difficult to buy or sell Opexa’s
common stock and obtain accurate quotations, and the price of
Opexa’s stock could suffer a material decline. Delisting may
also impair Opexa’s ability to raise capital or enter into a
potential strategic transaction.
In
addition, it is a condition precedent to both Acer’s and
Opexa’s obligation to complete the Merger that Opexa’s
shares of common stock remain continually listed on the NASDAQ
Capital Market from the date of the Merger through the date the
Merger is completed and that the shares of Opexa common stock to
Acer shareholders in the Merger shall have been approved for
listing. If Opexa’s common stock ceases to be listed on the
NASDAQ Capital Market and either or both of the parties to the
Merger Agreement decline to complete the Merger, the value of
Opexa’s common stock may decline.
Opexa’s share price is volatile, and you may not be able to
resell your shares at a profit or at all.
The
market prices for securities of biopharmaceutical and biotechnology
companies, and early-stage drug discovery and development companies
like Opexa in particular, have historically been highly volatile
and may continue to be highly volatile in the future. The following
factors, in addition to other risk factors described in this
section, may have a significant impact on the market price of
Opexa’s common stock:
●
the
disappointing results recently announced on October 28, 2016 for
the Abili-T clinical study of Tcelna in SPMS;
●
announcements
of significant changes in Opexa’s business or operations,
including the decision not to pursue one or more of Opexa’s
drug development programs or the decision to implement
restructurings such as reductions in its workforce;
●
the
development status of any drug candidates, such as Tcelna,
including clinical study results and determinations by regulatory
authorities with respect thereto;
●
the
initiation, termination or reduction in the scope of any
collaboration arrangements or any disputes or developments
regarding such collaborations;
●
Opexa’s
inability to obtain additional funding;
●
announcements
of technological innovations, new commercial products or other
material events by Opexa competitors or by Opexa;
●
disputes
or other developments concerning Opexa’s proprietary
rights;
●
changes
in, or failure to meet, securities analysts’ or
investors’ expectations of Opexa’s financial
performance;
●
additions
or departures of key personnel;
●
discussions
of Opexa’s business, products, financial performance,
prospects or stock price by the financial and scientific press and
online investor communities;
●
public
concern as to, and legislative action with respect to, the pricing
and availability of prescription drugs or the safety of drugs and
drug delivery techniques;
●
regulatory
developments in the United States and in foreign countries;
or
●
dilutive
effects of sales of shares of common stock by Opexa or
Opexa’s shareholders, and sales of common stock acquired upon
exercise or conversion by the holders of warrants, options or
convertible notes.
Broad
market and industry factors, as well as economic and political
factors, also may materially adversely affect the market price of
Opexa’s common stock.
Opexa
may be or become the target
of securities litigation, which is costly and time-consuming to
defend.
In the
past, following periods of market volatility in the price of a
company’s securities or the reporting of unfavorable news,
security holders have often instituted class action litigation.
This risk is especially relevant for Opexa because biotechnology
companies have experienced significant stock price volatility in
recent years. Moreover, following the announcement on
October 28, 2016 of disappointing results of the Abili-T
study, Opexa’s stock price decreased substantially, which may
portend securities class action litigation against Opexa. If Opexa
becomes involved in this type of litigation, regardless of the
outcome, Opexa could incur substantial legal costs and its
management’s attention could be diverted from the operation
of its business, causing its business to suffer.
Opexa’s “blank check” preferred stock could be
issued to prevent a business combination not desired by management
or its majority shareholders.
Opexa’s
charter authorizes the issuance of “blank check”
preferred stock with such designations, rights and preferences as
may be determined by Opexa’s board of directors without
shareholder approval. Opexa’s preferred stock could be
utilized as a method of discouraging, delaying, or preventing a
change in Opexa’s control and as a method of preventing
shareholders from receiving a premium for their shares in
connection with a change of control.
Future sales of Opexa’s securities could cause dilution, and
the sale of such securities, or the perception that such sales may
occur, could cause the price of Opexa’s stock to
fall.
On
March 25, 2016, Opexa entered into a new Sales Agreement with
IFS Securities, Inc. (doing business as Brinson Patrick, a division
of IFS Securities, Inc.) as sales agent, pursuant to which Opexa
can offer and sell shares of its common stock from time to time
depending upon market demand, in transactions deemed to be an
“at the market” offering. Opexa registered up to
1,000,000 shares of common stock for potential sale under the new
ATM facility. From August 17, 2016 through December 31,
2016, Opexa sold an aggregate of 66,184 shares of its common stock
under the ATM facility. Opexa generated gross and net proceeds,
including amortization of deferred offering costs, of $293,345 and
$276,912, respectively, with the average share price ranging from
$4.12 to $4.73 per share. During January 2017, Opexa further sold
an aggregate of 516,278 shares of common stock for gross and net
proceeds of $490,098 and $413,662 respectively, with the average
share price ranging from $0.90 to $0.97. Opexa will need to keep
current its shelf registration statement and the offering
prospectus relating to the ATM facility in order to use the program
to sell shares of common stock in the future.
Sales
of additional shares of Opexa’s common stock, as well as
securities convertible into or exercisable for common stock, could
result in substantial dilution to Opexa’s shareholders and
cause the market price of Opexa’s common stock to decline. An
aggregate of 7,657,332 shares of common stock were outstanding as
of June 30, 2017. As of such date, another (i) 228,455 shares of
common stock were issuable upon exercise of outstanding options and
(ii) 3,468,731 shares of common stock were issuable upon the
exercise of outstanding warrants. A substantial majority of the
outstanding shares of Opexa’s common stock and warrants (as
well as a substantial majority of the shares of common stock
issuable upon exercise of outstanding options and warrants) are
freely tradable without restriction or further registration under
the Securities Act of 1933.
Opexa
may sell additional shares of common stock, as well as securities
convertible into or exercisable for common stock, in subsequent
public or private offerings. Opexa may also issue additional shares
of common stock, as well as securities convertible into or
exercisable for common stock, to finance future acquisitions. Opexa
may need to raise additional capital in order to initiate or
complete additional development activities for Tcelna in MS and for
OPX-212 in NMO, or to pursue additional disease indications for its
T-cell technology, and this may require Opexa to issue a
substantial amount of securities (including common stock as well as
securities convertible into or exercisable for common stock). There
can be no assurance that Opexa’s capital raising efforts will
be able to attract the capital needed to execute on its business
plan and sustain its operations. Moreover, Opexa cannot predict the
size of future issuances of its common stock, as well as securities
convertible into or exercisable for common stock, or the effect, if
any, that future issuances and sales of its securities will have on
the market price of its common stock. Sales of substantial amounts
of Opexa’s common stock, as well as securities convertible
into or exercisable for common stock, including shares issued in
connection with an acquisition or securing funds to complete any
clinical trial plans, or the perception that such sales could
occur, may result in substantial dilution and may adversely affect
prevailing market prices for Opexa’s common
stock.
Opexa presently does not intend to pay cash dividends on its common
stock.
Opexa
currently anticipates that no cash dividends will be paid on the
common stock in the foreseeable future. While Opexa’s
dividend policy will be based on the operating results and capital
needs of the business, it is anticipated that all earnings, if any,
will be retained to finance the future expansion of its
business.
Opexa shareholders may experience substantial
dilution in the value of their investment if Opexa issues
additional shares of its capital stock.
Opexa’s
charter allows it to issue up to 150,000,000 shares of common
stock and to issue and designate the rights of, without shareholder
approval, up to 10,000,000 shares of preferred stock. In order
to raise additional capital, Opexa may in the future offer
additional shares of its common stock or other securities
convertible into or exchangeable for its common stock at prices
that may not be the same as the price per share paid by other
investors, and dilution to Opexa’s shareholders could result.
Opexa may sell shares or other securities in any other offering at
a price per share that is less than the price per share paid by
investors, and investors purchasing shares or other securities in
the future could have rights superior to existing shareholders. The
price per share at which Opexa sells additional shares of its
common stock, or securities convertible or exchangeable into common
stock, in future transactions may be higher or lower than the price
per share paid by other investors.
Opexa may issue debt and equity securities or securities
convertible into equity securities, any of which may be senior to
its common stock as to distributions and in liquidation, which
could negatively affect the value of Opexa’s common
stock.
In the
future, Opexa may attempt to increase its capital resources by
entering into debt or debt-like financing that is unsecured or
secured by up to all of its assets, or by issuing additional debt
or equity securities, which could include issuances of secured or
unsecured commercial paper, medium-term notes, senior notes,
subordinated notes, guarantees, preferred stock, hybrid securities,
or securities convertible into or exchangeable for equity
securities. In the event of Opexa’s liquidation, its lenders
and holders of its debt and preferred securities would receive
distributions of available assets before distributions to the
holders of Opexa’s common stock. Because Opexa’s
decision to incur debt and issue securities in future offerings may
be influenced by market conditions and other factors beyond its
control, Opexa cannot predict or estimate the amount, timing or
nature of its future offerings or debt financings. Further, market
conditions could require Opexa to accept less favorable terms for
the issuance of its securities in the future.
Opexa’s management has significant flexibility in using the
current available cash.
In
addition to general corporate purposes (including working capital,
research and development, business development and operational
purposes), Opexa currently intends to use its available cash to
continue to assess the viability of pursuing its preclinical
program for OPX-212 in NMO and the related T-cell platform and to
complete the strategic process that resulted in Opexa signing the
Merger Agreement with Acer. Opexa cannot fully predict its future
cash needs until it completes this analysis and process. However,
after further analysis of the data from the Abili-T trial, Opexa
has determined that it will not move forward with further studies
of Tcelna in SPMS at this time.
Depending on future
developments and circumstances, Opexa may use some of its available
cash for other purposes which may have the potential to decrease
its cash runway. Notwithstanding Opexa’s current intentions
regarding use of its available cash, Opexa’s management will
have significant flexibility with respect to such use. The actual
amounts and timing of expenditures will vary significantly
depending on a number of factors, including the amount and timing
of cash used in Opexa’s operations and its research and
development efforts. Management’s failure to use these funds
effectively would have an adverse effect on the value of
Opexa’s common stock and could make it more difficult and
costly to raise funds in the future.
An active trading market may never develop for Opexa’s Series
M warrants, which may limit the ability to resell the
warrants.
There
is no established trading market for the Series M warrants Opexa
issued in April 2015. While the warrants have been listed for
trading on NASDAQ under the symbol “OPXAW,” there can
be no assurance that that a market will develop for the
warrants. Even if a market for the warrants does develop, the
price of the warrants may fluctuate and liquidity may be limited.
If a market for the warrants does not develop, then holders of the
warrants may be unable to resell the warrants or be able to sell
them only at an unfavorable price. Future trading prices of the
warrants will depend on many factors, including Opexa’s
operating performance and financial condition, Opexa’s
ability to continue the effectiveness of the registration statement
covering the warrants and the common stock issuable upon exercise
of the warrants, the interest of securities dealers in making a
market and the market for similar securities.
The market price of Opexa’s common stock may not exceed the
exercise price of the Series M warrants.
The
Series M warrants issued in April 2015 will expire on April 9,
2018. The warrants entitle the holders to purchase shares of
common stock at an exercise price of $12.00 per share through their
expiration. There can be no assurance that the market price of
Opexa’s common stock will exceed the exercise price of the
warrants at any or all times prior to their expiration. Any
warrants not exercised by their expiration date will expire
worthless and Opexa will be under no further obligation to the
warrant holder.
The Series M warrants may be redeemed on short notice. This may
have an adverse impact on their price.
Opexa
may redeem the Series M warrants for $0.01 per warrant if the
closing price of Opexa’s common stock has equaled or exceeded
$20.00 per share, subject to adjustment, for 10 consecutive trading
days. If Opexa gives notice of redemption, holders will be forced
to sell or exercise their warrants or accept the redemption price.
The notice of redemption could come at a time when it is not
advisable or possible to exercise the warrants. As a result,
holders would be unable to benefit from owning the warrants being
redeemed.
Opexa’s ability to use net operating loss carryovers to
reduce future tax payments may be limited.
As of
December 31, 2016, Opexa had net operating loss carryforwards,
or NOLs, for federal income tax purposes of approximately
$74 million. These NOLs are generally carried forward to
reduce taxable income in future years. If unused, the NOLs will
begin to expire December 31, 2024. However, Opexa’s
ability to utilize the NOLs is subject to the rules under
Section 382 of the Internal Revenue code.
In
general, under Section 382 of the Internal Revenue Code of
1986, as amended, a corporation that undergoes an “ownership
change” is subject to limitations on its ability to utilize
its pre-change net operating losses, or NOLs, to offset future
taxable income. In general, an ownership change occurs if the
aggregate stock ownership of certain shareholders (generally 5%
shareholders, applying certain look-through and aggregation rules)
increases by more than 50 percentage points over such
shareholders’ lowest percentage ownership during the testing
period (generally three years). In the event of an ownership
change, Section 382 imposes an annual limitation on the amount
of taxable income a corporation may offset with NOL carryforwards.
This annual limitation is generally equal to the product of the
value of Opexa’s stock on the date of the ownership change,
multiplied by the long-term tax-exempt rate published monthly by
the Internal Revenue Service. Any unused annual limitation may be
carried over to later years until the applicable expiration date
for the respective NOL carryforwards.
The
rules of Section 382 are complex and subject to varying
interpretations. As a result of Opexa’s numerous capital
raises, which have included the issuance of various classes of
convertible securities and warrants, uncertainty exists as to
whether Opexa may have undergone an ownership change in the past.
Based on Opexa’s recent stock prices, Opexa believes any
ownership change would severely limit its ability to utilize the
NOLs. Limitations imposed on Opexa’s ability to utilize NOL
carryforward amounts could cause U.S. federal income taxes to be
paid earlier than if such limitations were not in effect and could
cause such NOL carryforward amounts to expire unused, in each case
reducing or eliminating the expected benefit to Opexa. Furthermore,
Opexa may not be able to generate sufficient taxable income to
utilize its NOL carryforward amounts before they expire. If any of
these events occur, Opexa may not derive some or all of the
benefits from its NOL carryforward amounts. Presently, impairment
tests have not been conducted to verify NOL preservation.
Accordingly, no assurance can be given that Opexa’s NOLs will
be fully available.
Risks Related to the Merger
The Exchange Ratio is not adjustable based on the market price of
Opexa common stock so the Merger consideration at the closing may
have a greater or lesser value than at the time the Merger
Agreement was signed.
It is
currently anticipated that, at the closing of the Merger, the
Exchange Ratio (as defined in the Merger Agreement) will be
approximately 10.4 pre-split shares of Opexa common stock for each
share of Acer common stock and is expected to be approximately one
post-split share of Opexa common stock for each share of Acer
common stock after giving effect to the proposed reverse stock
split of Opexa’s common stock in connection with the Merger.
These estimates are subject to adjustment prior to closing of the
Merger, including (i) adjustments to account for the issuance
of any additional shares of Acer or Opexa common stock, as
applicable, prior to the consummation of the Merger, (ii) an
upward adjustment to the extent that Opexa’s net cash at the
effective time of the Merger is less than negative $500,000 (and as
a result, Opexa securityholders could own less, and Acer
securityholders could own more, of the combined company), or
(iii) a downward adjustment to the extent that Opexa’s
net cash at the effective time of the Merger is greater than
negative $500,000 (and as a result, Opexa securityholders could own
more, and Acer securityholders could own less, of the combined
company). Any changes in the market price of Opexa common stock
before the completion of the Merger will not affect the number of
shares Acer securityholders will be entitled to receive pursuant to
the Merger Agreement. Therefore, if before the completion of the
Merger the market price of Opexa common stock declines from the
market price on the date of the Merger Agreement, then Acer
securityholders could receive Merger consideration with
substantially lower value. Similarly, if before the completion of
the Merger the market price of Opexa common stock increases from
the market price on the date of the Merger Agreement, then Acer
securityholders could receive Merger consideration with
substantially more value for their shares of Acer capital stock
than the parties had negotiated for in the establishment of the
Exchange Ratio. The Merger Agreement does not include a price-based
termination right. However, Acer’s obligation to consummate
the Merger is conditioned upon Opexa having “Net Cash”
that is greater than or equal to negative $1,250,000, as further
defined and described in the Merger Agreement. Because the Exchange
Ratio does not adjust as a result of changes in the value of Opexa
common stock, for each one percentage point that the market value
of Opexa common stock rises or declines, there is a corresponding
one percentage point rise or decline, respectively, in the value of
the total Merger consideration issued to Acer
securityholders.
Failure to complete the Merger may result in Opexa or Acer paying a
termination fee to the other party and could harm the common stock
price of Opexa and future business and operations of each
company.
If the
Merger is not completed, Opexa and Acer are subject to the
following risks:
●
if
the Merger Agreement is terminated under specified circumstances,
Acer may be required to pay Opexa a termination fee of $1,000,000
and/or up to $200,000 in expense reimbursements, or Opexa may be
required to pay Acer a termination fee of $250,000 and/or up to
$200,000 in expense reimbursements;
●
the
price of Opexa common stock may decline and remain
volatile;
●
costs
related to the Merger, such as legal and accounting fees, which
Opexa and Acer estimate will total approximately $850,000 and
$550,000, respectively, some of which must be paid even if the
Merger is not completed; and
●
Opexa
may be forced to cease its operations, dissolve and liquidate its
assets.
In
addition, if the Merger Agreement is terminated and the board of
directors of Opexa or Acer determines to seek another business
combination, there can be no assurance that either Opexa or Acer
will be able to find a partner willing to provide equivalent or
more attractive consideration than the consideration to be provided
by each party in the Merger.
If the conditions to the Merger are not met, the Merger may not
occur.
Even if
the Merger is approved by the shareholders of Acer and change of
control and related share issuance are approved by the shareholders
of Opexa, specified conditions must be satisfied or waived to
complete the Merger. These conditions are set forth in the Merger
Agreement. Opexa and Acer cannot assure you that all of the
conditions will be satisfied or waived. If the conditions are not
satisfied or waived, the Merger may not occur or will be delayed,
and Opexa and Acer each may lose some or all of the intended
benefits of the Merger.
The Merger may be completed even though material adverse changes
may result from the announcement of the Merger, industry-wide
changes and other causes.
In
general, either Opexa or Acer can refuse to complete the Merger if
there is a material adverse change affecting the other party
between June 30, 2017, the date of the Merger Agreement, and
the closing of the Merger. However, certain types of changes do not
permit either party to refuse to complete the Merger, even if such
change could be said to have a material adverse effect on Opexa or
Acer, including:
●
any
effect, change, event, circumstance or development in the
conditions generally affecting the industries in which Acer and
Opexa operate or the U.S. or global economy or capital markets as a
whole;
●
any
natural disaster or any acts of terrorism, sabotage, military
action or war or any escalation of worsening thereof;
●
any
change in accounting requirements or principles or any change in
applicable laws, rules or regulations or the interpretation
thereof;
●
any
effect resulting from the announcement or pendency of the Merger or
any related transactions;
●
any
failure by Opexa or Acer to meet internal projections or forecasts
or third-party revenue or earnings predictions for any period
ending on or after June 30, 2017;
●
with
respect to Opexa, any change in the price or trading volume of
Opexa common stock;
●
any
rejection by a governmental body of a registration or filing by
Acer or Opexa relating to specified intellectual property rights;
or
●
any
change in the cash position of Acer or Opexa which results from
operations in the ordinary course of business.
If
adverse changes occur and Opexa and Acer still complete the Merger,
the stock price of the combined company may suffer. This in turn
may reduce the value of the Merger to the shareholders of Opexa,
Acer or both.
Some Opexa and Acer executive officers and directors have interests
in the Merger that are different from yours and that may influence
them to support or approve the Merger without regard to your
interests.
Some
officers and directors of Opexa and Acer participate in
arrangements that provide them with interests in the Merger that
are different from yours, including, among others, the continued
service as an officer or director of the combined company,
severance and retention benefits, the acceleration of stock option
vesting, continued indemnification and the potential ability to
sell an increased number of shares of common stock of the combined
company in accordance with Rule 144 under the Securities Act of
1933, as amended, or the Securities Act.
The market price of Opexa common stock following the Merger may
decline as a result of the Merger.
The
market price of Opexa common stock may decline as a result of the
Merger for a number of reasons, including if:
●
investors
react negatively to the prospects of the combined company’s
business and prospects from the Merger;
●
the
effect of the Merger on the combined company’s business and
prospects is not consistent with the expectations of financial or
industry analysts; or
●
the
combined company does not achieve the perceived benefits of the
Merger as rapidly or to the extent anticipated by financial or
industry analysts.
Acer and Opexa securityholders will have a reduced ownership and
voting interest in, and will exercise less influence over the
management of, the combined company as compared to their current
ownership and voting interest in the respective companies following
the completion of the Merger.
After
the completion of the Merger, the current shareholders of Acer and
Opexa will own a smaller percentage of the combined company than
their ownership of their respective companies prior to the Merger.
Immediately after the Merger, Acer securityholders will own
approximately 88.8% of the common stock of Opexa, with Opexa
securityholders, whose shares of Opexa common stock will remain
outstanding after the Merger, owning approximately 11.2% of the
common stock of the combined company, each assuming that Acer
closes its concurrent financing immediately prior to the effective
time of the Merger. If the concurrent financing does not close and
the Merger is consummated, then Acer securityholders would own
approximately 85.1% of the common stock of the combined company and
Opexa’s securityholders would own approximately 14.9% of the
common stock of the combined company. These estimates are based on
the anticipated pre-split Exchange Ratio and post-split Exchange
Ratios and are subject to adjustment. In addition, the seven-member
board of directors of the combined company will initially consist
of Chris Schelling, Stephen J. Aselage, Hubert Birner, Michelle
Griffin, John M. Dunn, Luc Marengere and one additional independent
director to be identified by Acer. Consequently, securityholders of
Acer and Opexa will be able to exercise less influence over the
management and policies of the combined company than they currently
exercise over the management and policies of their respective
companies.
During the pendency of the Merger, Opexa and Acer may not be able
to enter into a business combination with another party at a
favorable price because of restrictions in the Merger Agreement,
which could adversely affect their respective
businesses.
Covenants in the
Merger Agreement impede the ability of Opexa and Acer to make
acquisitions, subject to specified exceptions relating to fiduciary
duties or complete other transactions that are not in the ordinary
course of business pending completion of the Merger. As a result,
if the Merger is not completed, the parties may be at a
disadvantage to their competitors during that period. In addition,
while the Merger Agreement is in effect, each party is generally
prohibited from soliciting, initiating, encouraging or entering
into specified extraordinary transactions, such as a merger, sale
of assets or other business combination, with any third party,
subject to specified exceptions. Any such transactions could be
favorable to such party’s shareholders.
Certain provisions of the Merger Agreement may discourage third
parties from submitting competing proposals, including proposals
that may be superior to the arrangements contemplated by the Merger
Agreement.
The
terms of the Merger Agreement prohibit each of Opexa and Acer from
soliciting competing proposals or cooperating with persons making
unsolicited takeover proposals, except in limited circumstances
when such party’s board of directors determines in good
faith, after consultation with its independent financial advisor,
if any, and outside counsel, that an unsolicited competing proposal
constitutes, or would reasonably be expected to result in, a
superior competing proposal and that failure to take such action
would be reasonably likely to result in a breach of the fiduciary
duties of the board of directors. In addition, if Opexa or Acer
terminate the Merger Agreement under specified circumstances,
including terminating because of a decision of a board of directors
to recommend a superior competing proposal, Acer may be required to
pay Opexa a termination fee of $1,000,000 and/or up to $200,000 in
expense reimbursements, or Opexa may be required to pay Acer a
termination fee of $250,000 and/or up to $200,000 in expense
reimbursements. This termination fee may discourage third parties
from submitting competing proposals to Opexa or Acer or their
shareholders, and may cause the respective boards of directors to
be less inclined to recommend a competing proposal.
Because the lack of a public market for Acer’s capital stock
makes it difficult to evaluate the fairness of the Merger, the
shareholders of Acer may receive consideration in the Merger that
is less than the fair market value of Acer’s capital stock
and/or Opexa may pay more than the fair market value of
Acer’s capital stock.
The
outstanding capital stock of Acer is privately held and is not
traded in any public market. The lack of a public market makes it
extremely difficult to determine the fair market value of
Acer’s capital stock. Because the percentage of Opexa equity
to be issued to Acer shareholders was determined based on
negotiations between the parties, it is possible that the value of
the Opexa common stock to be received by Acer shareholders will be
less than the fair market value of Acer’s capital stock, or
Opexa may pay more than the aggregate fair market value for
Acer’s capital stock.
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Item
6.
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Exhibits
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Exhibit
No.
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Description
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2.1^
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Agreement
and Plan of Merger, dated as of June 30, 2017, by and among
Opexa Therapeutics, Inc., Opexa Merger Sub, Inc. and Acer
Therapeutics Inc. (incorporated by reference to Exhibit 2.1 to
Opexa’s Current Report on Form 8-K (File No. 001-33004),
as filed with the SEC on July 3, 2017).
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2.2^
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Form
of Support Agreement, by and between Opexa Therapeutics, Inc. and
certain directors, officers and shareholders of Acer Therapeutics
Inc. (incorporated by reference to Exhibit 2.2 to Opexa’s
Current Report on Form 8-K (File No. 001-33004), as filed with
the SEC on July 3, 2017).
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2.3^
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Form
of Support Agreement, by and between Acer Therapeutics Inc. and
certain directors, officers and shareholders of Opexa Therapeutics,
Inc. (incorporated by reference to Exhibit 2.3 to Opexa’s
Current Report on Form 8-K (File No. 001-33004), as filed with
the SEC on July 3, 2017).
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2.4^
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Subscription
Agreement, dated as of June 30, 2017, by and among Acer
Therapeutics Inc. and each purchaser listed on Annex A thereto
(incorporated by reference to Exhibit 2.4 to Opexa’s Form S-4
(File No. 333-219358), as filed with the SEC on July 19,
2017).
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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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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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Financial
statements from the Quarterly Report on Form 10-Q of the Company
for the period ended June 30, 2017, formatted in Extensible
Business Reporting Language (XBRL): (i) Consolidated Balance
Sheets; (ii) Consolidated Statements of Operations;
(iii) Consolidated Statements of Changes in
Stockholders’ Equity; (iv) Consolidated Statements of Cash
Flows; and (v) Notes to Consolidated Financial
Statements.
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_______________
^
The
schedules and exhibits to this exhibit have been omitted pursuant
to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule
and/or exhibit will be furnished to the SEC upon
request.