As
filed with the Securities and Exchange Commission on January 13,
2021
Registration
No.
333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AzurRx
BioPharma, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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2834
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46-4993860
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(State
or other jurisdiction of incorporation or
organization)
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(Primary Standard
Industrial Classification Code Number)
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(I.R.S.
Employer Identification No.)
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1615
South Congress Avenue, Suite 103
Delray
Beach, Florida 33445
Telephone:
(646)
699-7855
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
James
Saperstein
Chief
Executive Officer
AzurRx
BioPharma, Inc.
1615
South Congress Avenue, Suite 103
Delray
Beach, Florida 33445
Telephone:
(646)
699-7855
(Address, including zip code, and telephone
number,
including area code, of agent for service)
Copy to:
James
O’Grady, Esq.
Michael
J. Lerner, Esq.
Lowenstein
Sandler LLP
1251
Avenue of the Americas
New
York, New York 10020
Telephone:
(212) 262-6700
Approximate date of commencement of proposed
sale to the public: As soon as practicable after this
Registration Statement is declared effective.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective
registration statement for the same offering.
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2
under the Securities Exchange Act of 1934. (Check
one):
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Large
Accelerated Filer
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☐
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Accelerated
Filer
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☐
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Non-accelerated
Filer
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☒
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Smaller
Reporting Company
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☒
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Emerging Growth
Company
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☒
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act.
☒
CALCULATION
OF REGISTRATION FEE
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Title
of Each Class of Securities to be Registered
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Amount
to be Registered (1)
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Proposed Maximum Offering Price
per Share (2)
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Proposed
Maximum Aggregate Offering Price (2)
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Amount
of Registration Fee
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Common
stock, $0.0001 par value per share
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16,000,002(3)
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$0.8175
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$13,080,001
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$1,427.02
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(1)
Pursuant to Rule
416 under the Securities Act, there is also being registered hereby
such indeterminate number of additional shares of Common Stock as
may be issued or issuable because of stock splits, stock dividends
stock distributions, and similar transactions.
(2)
Estimated solely
for the purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933, as amended. The
proposed maximum offering price per share and proposed maximum
aggregate offering price are based upon the average of the high
$0.8490 and low $0.79 sale prices of our Common Stock on January 7,
2021, as reported on the Nasdaq Capital Market.
(3)
Represents (i)
5,333,334 shares of Common Stock issuable upon conversion of
outstanding shares of Series C Preferred Stock, and (ii) 10,666,668
shares of Common Stock issuable upon exercise of outstanding
warrants.
The
Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment that specifically states
that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective
on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 13, 2021
PRELIMINARY
PROSPECTUS
16,000,002 Shares of Common Stock
Issuable
upon Conversion of Outstanding Series C Preferred Stock
and
Exercise
of Outstanding Warrants
This
prospectus relates to the resale from time to time, by the selling
stockholder identified in this prospectus under the caption
“Selling Stockholder,” of up to 16,000,002 shares of our common
stock, par value $0.0001 per share (“Common Stock”), it may acquire
upon (i) the conversion of outstanding Series C 9.00% Convertible
Junior Preferred Stock, par value $0.0001 per share (the “Series C
Preferred Stock”), (ii) upon the exercise of outstanding warrants
(“Investor Warrants”) and (iii) upon the exercise of any pre-funded warrants
(“Pre-funded Warrants”) issued or issuable upon the conversion of
the Series C Preferred Stock. Up to 5,333,334 shares of our
Common Stock are issuable upon conversion of the Series C Preferred
Stock (or any Pre-funded Warrants, as applicable), and up to
10,666,668 shares of our Common Stock are issuable upon exercise of
the Investor Warrants.
We
issued the Series C Preferred Stock and the Investor Warrants to
the selling stockholder in a private placement (the “Private
Placement”) concurrent with a registered direct offering (the
“Registered Direct Offering,” and together with the Private
Placement, the “Offerings”) of additional shares of Series C
Preferred Stock convertible into an additional 5,333,334 shares of
Common Stock (or Pre-funded Warrants, as applicable), which was
completed on January 6, 2021.
The
certificate of designations for the Series C Preferred Stock (the
“Series C Certificate of Designations”) contains limitations that
prevent the holders thereof from acquiring shares of Common Stock
upon conversion that would result in the number of shares
beneficially owned by any such holder and its affiliates exceeding
9.99% of the total number of shares of Common Stock outstanding
immediately after giving effect to the conversion (the “Beneficial
Ownership Limitation”). As a result, the Series C Certificate of
Designation provides for the issuance of Pre-funded Warrants to
purchase shares of our Common Stock, with an exercise price of
$0.001 per share and with no expiration date, if necessary to
comply with the Beneficial Ownership Limitation. Accordingly, this
offering also relates to the Pre-funded Warrants issuable upon
conversion of the Series C Preferred Stock being offered by this
prospectus and to the shares of Common Stock issuable upon exercise
of such Pre-funded Warrants.
Except
to the extent effective stockholder approval has been obtained to
amend our certificate of incorporation to increase the number of
authorized shares of Common Stock above 150,000,000 and to comply
with the applicable stockholder approval rules and regulations of
the Nasdaq Stock Market (the “Stockholder Approval”), our
outstanding Series C Preferred Stock will not be convertible into
shares of Common Stock (or any Pre-funded Warrants exercisable into
shares of Common Stock, as applicable) in excess of 6,186,966
shares in the aggregate (the “Issuable Maximum”), which amount
equals 19.99% of the shares of Common Stock outstanding as of
December 30, 2020, the date prior to the date of this prospectus.
Any conversions of Series C Preferred Stock will be processed in
the order in which we receive such conversion request from the
holders of Series C Preferred Stock, and not on a pro rata basis.
The Issuable Maximum shall be applied collectively, when any
conversions of Series C Preferred Stock are aggregated together
with all shares of Common Stock issuable in respect of certain
Related Transactions described herein, including the Registered
Direct Offering. See “Description
of Capital Stock– Series C Preferred Stock” for additional
information. As a result of the conversion, immediately upon
consummation of the Registered Direct Offering, of 5,333.3333
shares of Series C Preferred Stock into Common Stock and Pre-funded
Warrants, 853,632 shares of Common Stock remained available for
issuance below the Issuable Maximum as of January 11,
2021.
Upon
receipt of the Stockholder Approval, we anticipate to convert
immediately all shares of Series C Preferred Stock into shares of
Common Stock (or Pre-Funded Warrants, as applicable).
In addition, until
the Stockholder Approval has been obtained, the Investor Warrants
and any Pre-funded Warrants held by the selling stockholder named
herein may not be exercised for any shares of our Common
Stock.
The
selling stockholder may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of Common Stock or
interests in their shares of Common Stock on any stock exchange,
market or trading facility on which the shares of Common Stock are
traded or in private transactions. These dispositions may be at
fixed prices, at prevailing market prices at the time of sale, at
prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices. See “Plan
of Distribution” in this prospectus for more information. We will
not receive any proceeds from the resale or other disposition of
the Common Stock by the selling stockholder. However, we will
receive the proceeds of any cash exercise of the Warrants. See “Use
of Proceeds” beginning on page 39 and “Plan of Distribution”
beginning on page 8 of this prospectus for more
information.
Our
Common Stock is listed on the Nasdaq Capital Market under the
symbol “AZRX.” On January 12, 2021, the last reported sale price of
our Common Stock as reported on the Nasdaq Capital Market was
$0.9090 per share.
We are
an “emerging growth company” as that term is used in the Jumpstart
Our Business Startups Act of 2012, and, as such, we have elected to
take advantage of certain reduced public company reporting
requirements for this prospectus and future filings.
You
should read this prospectus, together with additional information
described under the headings “Information Incorporated by
Reference” and “Where You Can Find More Information,” carefully
before you invest in any of our securities.
This
prospectus contains or incorporates by reference summaries of
certain provisions contained in some of the documents described
herein, but reference is made to the actual documents for complete
information. All the summaries are qualified in their entirety by
the actual documents. Copies of some of the documents referred to
herein have been filed or have been incorporated by reference as
exhibits to the registration statement of which this prospectus
forms a part, and you may obtain copies of those documents as
described in this prospectus under the heading “Where You Can Find
More Information.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The
date of this Prospectus is ,
2021
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1
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2
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8
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37
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39
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40
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40
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41
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50
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74
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77
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80
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91
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93
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94
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104
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105
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107
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107
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107
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107
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F-1
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II-1
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II-6
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II-9
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ABOUT
THIS PROSPECTUS
We have
not authorized anyone to provide you with information that is
different from that contained in this prospectus or in any free
writing prospectus we may authorize to be delivered or made
available to you. When you make a decision about whether to invest
in our securities, you should not rely upon any information other
than the information in this prospectus or in any free writing
prospectus that we may authorize to be delivered or made available
to you. Neither the delivery of this prospectus nor the sale of our
securities means that the information contained in this prospectus
or any free writing prospectus is correct after the date of this
prospectus or such free writing prospectus. This prospectus is not
an offer to sell or the solicitation of an offer to buy our
securities in any circumstances under which the offer or
solicitation is unlawful.
For
investors outside the United States: We have not taken any action
that would permit this offering or possession or distribution of
this prospectus in any jurisdiction where action for that purpose
is required, other than in the United States. Persons outside the
United States who come into possession of this prospectus must
inform themselves about, and observe any restrictions relating to,
the offering of the securities covered hereby and the distribution
of this prospectus outside the United States.
This
prospectus contains summaries of certain provisions contained in
some of the documents described herein, but reference is made to
the actual documents for complete information. All of the summaries
are qualified in their entirety by the full text of the actual
documents, some of which have been filed or will be filed and
incorporated by reference herein. See “Information Incorporated by
Reference” and “Where You Can Find More Information” in this
prospectus. We further note that the representations, warranties
and covenants made by us in any agreement that is filed as an
exhibit to any document that is incorporated by reference into this
prospectus were made solely for the benefit of the parties to such
agreement, including, in some cases, for the purpose of allocating
risk among the parties to such agreements, and should not be deemed
to be a representation, warranty or covenant to you. Moreover, such
representations, warranties or covenants were accurate only as of
the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing
the current state of our affairs.
This
prospectus contains and incorporates by reference certain market
data and industry statistics and forecasts that are based on
studies sponsored by us, independent industry publications and
other publicly available information. Although we believe these
sources are reliable, estimates as they relate to projections
involve numerous assumptions, are subject to risks and
uncertainties, and are subject to change based on various factors,
including those discussed under “Risk Factors” in this prospectus
and under similar headings in the documents incorporated by
reference herein and therein. Accordingly, investors should not
place undue reliance on this information.
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This summary highlights
information contained elsewhere in this prospectus. This summary
does not contain all of the information that you should consider
before deciding to invest in our securities. You should read this
entire prospectus carefully, including the “Risk Factors” section
in this prospectus and under similar captions in the documents
incorporated by reference into this prospectus. In this prospectus,
unless otherwise stated or the context otherwise requires,
references to “AzurRx”, “Company”, “we”, “us”, “our” or similar
references mean AzurRx BioPharma, Inc. and its subsidiaries on a
consolidated basis. References to “AzurRx BioPharma” refer to
AzurRx BioPharma, Inc. on an unconsolidated basis. References to
“AzurRx SAS” refer to AzurRx SAS, AzurRx BioPharma’s wholly-owned
subsidiary through which we conduct our European
operations.
Overview
We
are engaged in the research and development of targeted,
non-systemic therapies for the treatment of patients with
gastrointestinal (“GI”) diseases. Non-systemic therapies are
non-absorbable drugs that act locally, i.e. the intestinal lumen,
skin or mucosa, without reaching an individual’s systemic
circulation.
We
are currently focused on developing our pipeline of three
gut-restricted GI clinical drug candidates. The lead therapeutic
candidate is MS1819, a recombinant lipase for the treatment of
exocrine pancreatic insufficiency (“EPI”) in patients with cystic
fibrosis and chronic pancreatitis, currently in two Phase 2
clinical trials. We plan to launch two clinical programs using
proprietary formulations of niclosamide, a pro-inflammatory pathway
inhibitor; FW-420, for grade 1 Immune Checkpoint
Inhibitor-Associated Colitis (“ICI-AC”) and diarrhea in oncology
patients and FW-1022, for Severe Acute Respiratory Syndrome
Coronavirus 2 (“COVID-19” or “COVID”) gastrointestinal infections.
Each drug candidate is described below:
MS1819
MS1819 is a recombinant lipase enzyme for the
treatment of exocrine pancreatic insufficiency (“EPI”) associated
with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”).
MS1819, supplied as an oral non-systemic biologic capsule, is
derived from the Yarrowia
lipolytica yeast lipase
and breaks up fat molecules in the digestive tract of EPI patients
so that they can be absorbed as nutrients. Unlike the standard of
care, the MS1819 synthetic lipase does not contain any animal
products.
EPI
is a condition characterized by deficiency of the
exocrine pancreatic enzymes, resulting in a patient’s
inability to digest food properly, or maldigestion. The deficiency
in this enzyme can be responsible for greasy diarrhea, fecal urge
and weight loss. There are more than 30,000 patients with EPI
caused by CF according to the Cystic Fibrosis Foundation
approximately and approximately 90,000 patients in the U.S. with
EPI caused by CP according to the National Pancreas Foundation.
Patients are currently treated with porcine pancreatic enzyme
replacement pills (“PERT”).
MS1819 – Phase 2b OPTION 2 Cystic Fibrosis Monotherapy
Studies
On October 17, 2019, we announced that the Cystic
Fibrosis Foundation Data Safety Monitoring Board (the “CFF DSMB”)
completed its review of our final results of the OPTION Cross-Over
Study and had found no safety concerns for MS1819, and that the CFF
DSMB supported our plan to proceed to a higher 4.4 gram dose of
MS1819 with enteric capsules in the multi-center dose escalation
Phase 2b OPTION clinical trial (the “OPTION 2 Trial”). In December
2019, the Company submitted the clinical trial protocol to the
existing IND at the FDA. The clinical trial protocol has been
reviewed by the FDA with no comments. In April 2020, the Company
received approval to conduct the OPTION 2 Trial in Therapeutics
Development Network (“TDN”) clinical sites in the U.S. as well as
Institutional Review Board (“IRB”) approval to commence the OPTION 2
Trial.
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The OPTION 2 Trial is designed to investigate the
safety, tolerability and efficacy of MS1819 (2.2 gram and 4.4 gram
doses in enteric capsules) in a head-to-head manner versus the
current standard of care, porcine pancreatic enzyme replacement
therapy (“PERT”) pills. The OPTION 2 Trial will be an
open-label, crossover study, conducted in 15 sites in the
U.S. and Europe. A total of 30 CF patients 18 years or
older will be enrolled. MS1819 will be administered in
enteric capsules to provide gastric protection and allow optimal
delivery of enzyme to the duodenum. Patients will first be
randomized into two cohorts: to either the MS1819 arm, where they
receive a 2.2 gram daily oral dose of MS1819 for three weeks; or to
the PERT arm, where they receive their pre-study dose of PERT pills
for three weeks. After three weeks, stools will be collected for
analysis of coefficient of fat absorption (“CFA”). Patients will then be crossed over for
another three weeks of the alternative treatment. After three weeks
of cross-over therapy, stools will again be collected for analysis
of CFA. A parallel group of patients will be randomized and studied
in the same fashion, using a 4.4 gram daily dose of
MS1819. All patients will be followed for an additional two
weeks after completing both crossover treatments for post study
safety observation. Patients will be assessed using
descriptive methods for efficacy, comparing CFA between MS1819 and
PERT arms, and for safety.
We initiated
the OPTION 2 Trial in July 2020 with the first patient screened and
three clinical trial sites activated in the U.S. In August 2020,
the Company dosed the first patients and initiated the European arm
of the OPTION 2 Trial. Topline data is anticipated in the first
quarter of 2021; however, this timeline may be further delayed due
to the COVID-19 pandemic.
In November 2020, we submitted a protocol amendment for the OPTION
2 Trial to add a study arm that uses an immediate release MS1819
capsule to compare data from the existing arm, that uses
delayed-release enteric capsules with data from the new arm, that
uses immediate release capsules, in order to determine the optimal
dose and delivery method. We plan to initiate the OPTION 2 study
extension in early first quarter 2021.
MS1819 – Phase 2 Combination Therapy Study
In
addition to the monotherapy studies, we launched a Phase 2
multi-center clinical trial (the “Combination Trial”) in Europe to
investigate MS1819 in combination with PERT, for CF patients who
suffer from severe EPI but continue to experience clinical symptoms
of fat malabsorption despite taking the maximum daily dose of
PERTs. The Combination Trial is designed to investigate the safety,
tolerability and efficacy of escalating doses of MS1819 (700 mg,
1120 mg and 2240 mg per day, respectively), in conjunction with a
stable dose of PERTs, in order to increase CFA and relieve
abdominal symptoms in uncontrolled CF patients. A combination
therapy of PERT and MS1819 has the potential to: (i) correct
macronutrient and micronutrient maldigestion; (ii) eliminate
abdominal symptoms attributable to maldigestion; and (iii) sustain
optimal nutritional status on a normal diet in CF patients with
severe EPI.
We
dosed the first patients in its Combination Trial in Hungary in
October 2019. Planned enrollment is expected to include
approximately 24 CF patients with severe EPI, at clinical trial
sites in Hungary and additional countries in Europe, including
Turkey. Topline data is currently expected in the first half of
2021; however, this timeline may be further delayed due to the
COVID-19 pandemic.
We
announced positive interim data on the first five patients in the
Combination Trial in August 2020. The primary efficacy endpoint was
met, with CFAs greater than 80% for all patients across all visits.
For secondary efficacy endpoints, we observed that stool weight
decreased, the number of stools per day decreased, steatorrhea
improved, and body weight increased. Additionally, no serious
adverse events were reported.
We
opened a total of five clinical sites for the Combination
Trial in Turkey in October 2020 and announced that its first
patients were dosed in November 2020. We currently have a
total of nine of the expected ten sites in Europe active and
recruiting patients.
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We
do not expect to generate revenue from drug candidates that we
develop until we obtain approval for one or more of such drug
candidates and commercialize our product or enter into a
collaborative agreement with a third party. We do not have any
products approved for sale at the present and have never generated
revenue from product sale.
Recent
Developments
License Agreement with First Wave Bio, Inc.
On
December 31, 2020, we entered into a License Agreement (the “First
Wave License Agreement”) with First Wave Bio, Inc. (“First Wave”).
Pursuant to the First Wave License Agreement, First Wave granted us
a worldwide, exclusive right to develop, manufacture, and
commercialize First Wave’s proprietary immediate release and enema
formulations of niclosamide for the fields of treating ICI-AC and
COVID in humans (the “Product”). The Product uses First Wave’s
proprietary formulations of niclosamide, a pro-inflammatory pathway
inhibitor. We plan to commence in 2021 both a Phase 2 trial of the
Product for COVID in GI and a Phase 1b/2a trial for
ICI-AC.
In
consideration of the license and other rights granted by First
Wave, we paid First Wave a $9.0 million upfront cash payment and
are obligated to make an additional payment of $1.25 million due on
June 30, 2021. In addition, we are obligated to pay potential
milestone payments to First Wave totaling up to $37.0 million for
each indication, based upon the achievement of specified
development and regulatory milestones. Under the First Wave License
Agreement we are obligated to pay First Wave royalties as a
mid-single digit percentage of net sales of the Product, subject to
specified reductions.
In
addition,
on January 8, 2021, pursuant to the First Wave License Agreement we
entered into a securities purchase agreement with First Wave (the
“First Wave Purchase Agreement”) pursuant to which we issued to
First Wave, on that same day, 3,290.1960 shares of Series C
Preferred Stock, initially convertible into an aggregate of
3,290,196 shares of Common Stock, at an initial stated value of
$750.00 per share and a conversion price of $0.75 per share, which
was the equivalent of $3.0 million based upon the volume weighted
average price of our Common Stock for the five-day period
immediately preceding the date of the First Wave License Agreement,
or $0.9118 per share. The First Wave Purchase Agreement contains
demand and piggyback registration rights with respect to the Common
Stock issuable upon conversion.
Pursuant
to the First Wave Purchase Agreement, the shares of Series C
Preferred Stock issued to First Wave are not convertible prior to
the Stockholder Approval.
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Registered Direct Offering and Private Placement
On
December 31, 2020, we entered into a securities purchase agreement
(the “Series C Purchase Agreement”) with the selling stockholder
named herein, pursuant to which we agreed to sell in the Registered
Direct Offering 5,333.333 shares of Series C Preferred Stock, at a
price of $750 per share, initially convertible into an aggregate of
5,333,334 shares of Common Stock, which is equivalent to the
Issuable Maximum, at an initial stated value of $750.00 per share
and a conversion price of $0.75 per share. The Registered Direct
Offering closed on January 6, 2020.
Upon
the closing of the Registered Direct Offering, the selling
stockholder converted all of its Series C Preferred Stock issued in
the Registered Direct Offering, effective immediately upon the
closing. Upon such conversion, in lieu of the issuance of shares of
Common Stock, the Series C Certificate of Designation provides for
the issuance of Pre-funded Warrants to purchase shares of Common
Stock, with an exercise price of $0.001 per share and no expiration
term, if necessary to comply with the Beneficial Ownership
Limitation contained therein. Accordingly, the investor received
upon the closing of the Registered Direct Offering, an aggregate of
3,400,000 shares of Common stock and Pre-funded Warrants to
purchase up to 1,933,334 shares of Common stock.
Concurrently
with the Registered Direct Offering, in the Private Placement
pursuant to the Series C Purchase Agreement, we also sold to the
selling stockholder named herein, an additional 5,333.333 shares of
Series C Preferred Stock at the same price as the Series C
Preferred Stock offered in the Registered Direct Offering, which
shares are convertible into an aggregate of 5,333,334 shares of our
Common stock, together with Investor Warrants to purchase up to an
aggregate of 10,666,668 shares of Common Stock, with an exercise
price of $0.80 per share and an expiration term of five and a half
years from the date of issuance. The Private Placement closed on
January 6, 2020.
The
aggregate gross proceeds from the Offerings, excluding the net
proceeds, if any, from the exercise of the Investor Warrants, were
$8.0 million and we estimate that the net proceeds will be
approximately $6.8 million. We intend to use the net proceeds from
the Offerings to fund the payment of the cash consideration payable
to First Wave under the First Wave License Agreement, and for other
general corporate purposes.
Until we
have obtained the Stockholder Approval, we may not issue, upon
conversion of the Series C Preferred Stock and certain related
transactions, a number of shares of Common Stock which would exceed
6,186,966 shares of Common Stock in the aggregate, which amount is
equal to the Issuable Maximum. The Issuable Maximum shall be
applied collectively, when any conversions of Series C Preferred
Stock are aggregated together with all shares of Common Stock
issuable upon conversion or exchange of any securities issued in
certain transactions related to the Offerings, including (i) any
shares of Series C Preferred Stock issued to First Wave as
consideration for the First Wave License Agreement, (ii) any
warrants issued as compensation to the placement agent in the
Offerings and (iii) any securities issuable to holders of the
Exchange Rights (as defined and further described below) as a
result of the Offerings. Any conversions of Series C Preferred
Stock will be processed in the order in which we receive such
conversion request from the holders of Series C Preferred Stock,
and not on a pro rata basis. As a result of the conversion,
immediately upon consummation of the Registered Direct Offering, of
5,333.3333 shares of Series C Preferred Stock into Common Stock and
Pre-funded Warrants, 853,632 shares of Common Stock remained
available for issuance below the Issuable Maximum as of January 11,
2021.
Upon
receipt of the Stockholder Approval, we anticipate to convert
immediately all shares of Series C Preferred Stock into shares of
Common Stock (or Pre-Funded Warrants, as applicable).
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In
connection with the Offerings, we issued to H.C. Wainwright &
Co. LLC (“Wainwright”) and its designees certain warrants (the
“Placement Agent Warrants”) exercisable for up to 746,667 shares of
Common Stock, which is equal to 7.0% of the amount determined by
dividing the gross proceeds of the Offerings by the offering price
per share of Common Stock, or $0.75. The Placement Agent Warrants
have substantially the same terms as the Investor Warrants, except
an exercise price of $0.9375, or 125% of the per share price of the
Series C Preferred Stock issued in the Offerings. The Placement
Agent Warrants are not exercisable until the Stockholder Approval
is obtained.
Pursuant
to the Series C Purchase Agreement, we must hold a meeting of our
stockholders not later than March 31, 2021 to seek such approval as
may be required from our stockholders, in accordance with
applicable law, the applicable rules and regulations of the Nasdaq
Stock Market, our certificate of incorporation and bylaws and the
General Corporate Law of the State of Delaware with respect to the
issuance of shares of Common Stock upon conversion or exercise of
the Series C Preferred Stock and the Warrants sold in the Private
Placement and the related transactions described herein, including
(x) an increase in the number of authorized shares of Common Stock
above 150,000,000 and (y) the potential issuance of shares of
Common Stock in excess of the Issuable Maximum. We have scheduled a
special meeting (the “Special Meeting”) of our stockholders to be
held on February 24, 2021 at 9:00 A.M., Eastern Time in order to
obtain the Stockholder Approval. Only holders of record of our
Common Stock as of the close of business on January 4, 2021 are
entitled to notice of and to vote at the Special
Meeting.
The
terms of the Offerings were previously reported in our Current
Reports on Form 8-K filed on January 4, 2021 and January 8,
2021.
Registration Rights Agreement
In
connection with the Offerings, we entered into a registration
rights agreement, dated as of December 31, 2020 (the “Registration
Rights Agreement”), with the selling stockholder, pursuant to which
we undertook to file, within 30 days following the closing of the
Offerings, this registration statement to register the shares of
Common Stock issuable upon (i) the conversion of the Series C
Preferred Stock sold in the Private Placement, (ii) the exercise of
the Investor Warrants sold in the Private Placement and (iii) the
exercise of any Pre-funded Warrants issued or issuable upon the
conversion of the Series C Preferred Stock sold in the Private
Placement (collectively, the “Registrable Securities”). We are
filing this registration statement, of which this prospectus forms
a part, to register the resale of the Registerable Securities by
the selling stockholder named herein in compliance with our
obligations under the Registration Rights Agreement.
Corporate
Information
We were
incorporated on January 30, 2014 in the State of
Delaware. In June 2014, we acquired 100% of the issued
and outstanding capital stock of AzurRx SAS. Our principal
executive offices are located at 1615 South Congress Avenue, Suite
103, Delray Beach, Florida 33445. Our telephone number is (646)
699-7855. We maintain a website at www.azurrx.com. The information
contained on our website is not, and should not be interpreted to
be, a part of this prospectus.
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THE
OFFERING
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Securities to be
Offered by the Selling Stockholder
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Up
to
16,000,002 shares of Common Stock issuable upon conversion of the
Series C Preferred Stock (or Pre-funded Warrants, as applicable)
and exercise of the Investor Warrants.
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Use of
Proceeds
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The
Common Stock to be offered and sold using this prospectus will be
offered and sold by the selling stockholder named in this
prospectus. Accordingly, we will not receive any proceeds from any
sale of shares of our Common Stock in this offering. A portion
of the shares covered by this prospectus may be issued upon
exercise of the Warrants. Upon any cash exercise of the
Warrants, the selling stockholder will pay us the applicable
exercise price. We anticipate that proceeds that we receive from
the cash exercise of such warrants, if any, will be used for
working capital and general corporate purposes, including, without
limitation, development of our product candidates, and general and
administrative expenses. It is possible that, pending their use, we
may invest the net proceeds in a way that does not yield a
favorable, or any, return for us. See the section entitled “Use of
Proceeds” in this prospectus.
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Risk
Factors
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You
should read the section entitled “Risk Factors” in this prospectus
for a discussion of the factors to consider carefully before
deciding to invest in shares of our Common Stock.
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Nasdaq
Capital Market Symbol
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Our
Common Stock is listed on the Nasdaq Capital Market under the
symbol “AZRX.”
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Investing in our securities involves a high degree of risk. You
should carefully consider the risks and uncertainties described
below, together with the other information in this prospectus,
including our consolidated financial statements and the related
notes appearing at the end of this prospectus and in the section
titled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” before deciding whether to invest in
our securities. The occurrence of one or more of the events or
circumstances described in these risk factors, alone or in
combination with other events or circumstances, may have a material
adverse effect on the our business, reputation, revenue, financial
condition, results of operations and future prospects, in which
event the market price of our Common Stock could decline, and you
could lose part or all of your investment. Unless otherwise
indicated, reference in this section and elsewhere in this
prospectus to our business being adversely affected, negatively
impacted or harmed will include an adverse effect on, or a negative
impact or harm to, the business, reputation, financial condition,
results of operations, revenue and our future prospects. The
material and other risks and uncertainties summarized above and
described below are not intended to be exhaustive and are not the
only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair
our business operations. This prospectus also contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of a number of
factors, including the risks described below. See the section
titled “Cautionary Note Regarding Forward-Looking
Statements.”
Summary of Risk Factors
●
We have
never generated any product revenues.
●
We
expect to incur significant losses for the foreseeable future and
may never achieve or maintain profitability.
●
We will
need substantial additional funding, and certain terms included in
our financing transactions may restrict our ability to raise such
capital at the times and in the manner we may require.
●
To
date, most of our development activities have been focused on our
MS1819 product candidate, which is still under clinical
development, and if MS1819 does not receive regulatory approval or
is not successfully commercialized, our business will be
harmed.
●
The
COVID-19 outbreak and global pandemic could adversely impact our
business, including our clinical trials.
●
We will
require additional capital to fund our operations, and if we fail
to obtain necessary financing, we may not be able to complete the
development and commercialization of our product
candidates.
●
Clinical trials are
very expensive, time-consuming, difficult to design and implement
and involve an uncertain outcome.
●
We face
significant competition from other biotechnology and pharmaceutical
companies, and our operating results will suffer if we fail to
compete effectively.
●
We do
not have our own manufacturing capabilities and will rely on third
parties to produce clinical and commercial supplies of our product
candidates.
●
We
intend to rely on third parties to conduct, supervise and monitor
our clinical trials, and if those third parties perform in an
unsatisfactory manner, it may harm our business.
●
If we
are unable to obtain and maintain patent protection for our
technology and products or if the scope of the patent protection
obtained is not sufficiently broad, we may not be able to compete
effectively in our markets.
●
We are
an emerging growth company within the meaning of the Securities Act
and have taken advantage of certain exemptions from disclosure
requirements available to emerging growth companies; this could
make our securities less attractive to investors and may make it
more difficult to compare our performance with other public
companies.
●
We do
not currently intend to pay dividends on our Common Stock in the
foreseeable future, and consequently, any gains from an investment
in our Common Stock will likely depend on appreciation in the price
of our Common Stock.
Risks
Related to Our Business and Industry
We are a clinical stage biopharmaceutical company and have a
limited operating history upon which to base an investment
decision.
We are
a clinical stage biopharmaceutical company. Since inception, we
have engaged primarily in research and development activities of
MS1819 and our other product candidates. We have not generated any
revenue from product sales and have incurred significant net
losses. We have not demonstrated our ability to perform the
functions necessary for the successful commercialization of any
product candidates. The successful commercialization of any of our
products will require us to perform a variety of functions,
including:
●
continuing to
undertake pre-clinical development and clinical
trials;
●
participating in
regulatory approval processes;
●
formulating and
manufacturing products; and
●
conducting sales
and marketing activities.
Our
operations to date
have been limited to organizing and staffing, acquiring, developing
and securing the proprietary rights for, and undertaking
pre-clinical development and clinical trials of MS1819, the
acquisition of rights to niclosamide and our other product
candidates. These operations provide a limited basis for our
stockholders and prospective investors to assess our ability to
complete development of or commercialize MS1819, niclosamide or any
other product candidates and the advisability of investing in our
securities.
We have
incurred significant operating losses and negative cash flows from
operations since inception. As of September 30, 2020, we had
accumulated deficit of approximately $78.0 million. While we had
positive working capital as of September 30, 2020, based on our
historical and anticipated rate of cash expenditures, we do not
anticipate our working capital will be sufficient to sustain our
business through the successful commercialization of our product
candidates. Therefore, we are dependent on obtaining, and are
continuing to pursue, the necessary funding from outside sources,
including obtaining additional funding from the sale of securities
in order to continue our operations. We are actively working to
obtain additional funding. We cannot make any assurances that
additional financings will be available to us and, if available,
completed on a timely basis, on acceptable terms or at all. If we
are unable to complete an equity and/or debt offering, or otherwise
obtain sufficient financing when and if needed, it would negatively
impact our business and operations, which would likely cause the
price of our Common Stock to decline or ultimately force us to
cease our operations.
Our product candidates are at an early stage of development and may
not be successfully developed or commercialized.
We have no products
approved for sale. MS1819, our lead product candidate, and
niclosamide , which we recently acquired, are in the early stages
of clinical development and our other product candidates are still
in preclinical phase. Our product candidates will require
substantial further capital expenditures, development, testing, and
regulatory clearances prior to commercialization. The development
and regulatory approval process take several years, and it is not
likely that any such products, even if successfully developed and
approved by the U.S. Food and Drug Administration (“FDA”) or any
comparable foreign regulatory authority, would be commercially
available until at least 2022 or beyond. Of the large number of
drugs in development, only a small percentage successfully
completes the regulatory approval process and is commercialized.
Accordingly, even if we are able to obtain the requisite financing
to fund our development programs, we cannot assure you that our
product candidates will be successfully developed or
commercialized. Our failure to develop, manufacture or receive
regulatory approval for or successfully commercialize any of our
product candidates, could result in the failure of our business and
a loss of all of your investment in our
company.
Any product candidates we advance into and through clinical
development are subject to extensive regulation, which can be
costly and time consuming, cause unanticipated delays or prevent
the receipt of the required approvals to commercialize our product
candidates.
The
clinical development, manufacturing, labeling, storage,
record-keeping, advertising, promotion, import, export, marketing
and distribution of our product candidates are subject to extensive
regulation by the FDA in the United States and by comparable health
authorities in foreign markets, including Health Canada’s
Therapeutic Products Directorate, or the TPD, and the European
Medicines Agency, or the EMA. In the United States, we are not
permitted to market our product candidates until we receive
approval of an NDA (New Drug Application) or BLA (Biologic License
Application) from the FDA. The process of obtaining such approval
is expensive, often takes many years and can vary substantially
based upon the type, complexity and novelty of the products
involved. In addition to the significant clinical testing
requirements, our ability to obtain marketing approval for these
product candidates depends on obtaining the final results of
required non-clinical testing, including characterization of the
manufactured components of our product candidates and validation of
our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities are
insufficient to justify approval. Approval policies or regulations
may change, and the FDA has substantial discretion in the
pharmaceutical approval process, including the ability to delay,
limit or deny approval of a product candidate for many reasons.
Despite the time and expense invested in clinical development of
product candidates, regulatory approval is never
guaranteed.
The
FDA, the TPD and/or the EMA can delay, limit or deny approval of a
product candidate for many reasons, including, but not limited
to:
●
disagreement with
the design or implementation of our clinical trials;
●
failure to
demonstrate to their satisfaction that a product candidate is safe
and effective for any indication;
●
failure to accept
clinical data from trials which are conducted outside their
jurisdiction;
●
the results of
clinical trials may not meet the level of statistical significance
required for approval;
●
we may be unable to
demonstrate that a product candidate’s clinical and other benefits
outweigh its safety risks;
●
such agencies may
disagree with our interpretation of data from preclinical studies
or clinical trials;
●
failure to approve
the manufacturing processes or facilities of third-party
manufacturers with which we or our collaborators contract for
clinical and commercial supplies; or
●
changes in the
approval policies or regulations of such agencies may significantly
change in a manner rendering our clinical data insufficient for
approval.
Any
delay in obtaining, or inability to obtain, applicable regulatory
approvals would prevent us from commercializing our product
candidates.
If we encounter difficulties enrolling patients in our clinical
trials, our clinical development activities could be delayed or
otherwise adversely affected.
We may
experience difficulties in patient enrollment in our clinical
trials for a variety of reasons. The timely completion of
clinical trials in accordance with their protocols depends, among
other things, on our ability to enroll a sufficient number of
patients who remain in the trial until its conclusion. The
enrollment of patients depends on many factors,
including:
●
the patient
eligibility criteria defined in the protocol;
●
the size of the
patient population;
●
the proximity and
availability of clinical trial sites for prospective
patients;
●
the design of the
trial;
●
our ability to
recruit clinical trial investigators with the appropriate
competencies and experience;
●
our ability to
obtain and maintain patient consents; and
●
the risk that
patients enrolled in clinical trials will drop out of the trials
before completion.
Our
clinical trials will compete with other clinical trials for product
candidates that are in the same therapeutic areas as our product
candidates. This competition will reduce the number and types
of patients and qualified clinical investigators available to us,
because some patients who might have opted to enroll in our trials
may instead opt to enroll in a trial being conducted by one of our
competitors or clinical trial sites may not allow us to conduct our
clinical trial at such site if competing trials are already being
conducted there. Since the number of qualified clinical
investigators is limited, we expect to conduct some of our clinical
trials at the same clinical trial sites that some of our
competitors use, which will reduce the number of patients who are
available for our clinical trials in such clinical trial
site. We may also encounter difficulties finding a clinical
trial site at which to conduct our trials.
Delays
in patient enrollment may result in increased costs or may affect
the timing or outcome of our planned clinical trials, which could
prevent completion of these clinical trials and adversely affect
our ability to advance the development of our product
candidates.
Because the results of preclinical studies and early clinical
trials are not necessarily predictive of future results, any
product candidate we advance into clinical trials may not have
favorable results in later clinical trials, if any, or receive
regulatory approval.
Pharmaceutical
development has inherent risk. We will be required to demonstrate
through well-controlled clinical trials that our product candidates
are effective with a favorable benefit-risk profile for use in
their target indications before we can seek regulatory approvals
for their commercial sale. Our lead product candidate, MS1819, has
only completed two Phase 2 clinical trials in two separate
indications (one Phase 2 in CF patients and one Phase 2 in CP
patients). Niclosamide has completed a Phase 1b/2a study,
conducted by First Wave, in patients with mild-to-moderate
ulcerative colitis but has not completed a study in an indication
that we intend on pursuing (ICI-AC and COVID-19 GI). Success in
pre-clinical studies or early clinical trials does not mean that
later clinical trials will be successful, as product candidates in
later-stage clinical trials may fail to demonstrate sufficient
safety or efficacy despite having progressed through initial
clinical testing. We also may need to conduct additional clinical
trials that are not currently anticipated. Companies frequently
suffer significant setbacks in advanced clinical trials, even after
earlier clinical trials have shown promising
results.
Any product candidate we advance into and through clinical trials
may cause unacceptable adverse events or have other properties that
may delay or prevent their regulatory approval or commercialization
or limit their commercial potential.
Unacceptable
adverse events caused by MS1819, niclosamide and our other product
candidates in clinical trials could cause us or regulatory
authorities to interrupt, delay or halt clinical trials and could
result in the denial of regulatory approval by the FDA or other
regulatory authorities for any or all targeted indications and
markets. This, in turn, could prevent us from commercializing the
affected product candidate and generating revenues from its
sale. We have not yet completed testing of any of our product
candidates for the treatment of the indications for which we intend
to seek product approval in humans, and we currently do not know
the extent of adverse events, if any, that will be observed in
patients who receive any of our product candidates. If any of
our product candidates cause unacceptable adverse events in
clinical trials, we may not be able to obtain regulatory approval
or commercialize such product or, if such product candidate is
approved for marketing, future adverse events could cause us to
withdraw such product from the market.
Delays in the commencement or completion of our clinical trials
could result in increased costs and delay our ability to pursue
regulatory approval and commercialization of our product
candidates.
Although we
commenced the ongoing Combination Trial in 2019 and the OPTION 2
Trial in 2020, the commencement and completion of clinical trials
can be delayed for a variety of reasons, including delays
in:
●
obtaining
regulatory clearance to commence a clinical trial;
●
identifying,
recruiting and training suitable clinical
investigators;
●
reaching agreement
on acceptable terms with prospective clinical research
organizations (“CROs”) and trial sites, the terms of which can be
subject to extensive negotiation, may be subject to modification
from time to time and may vary significantly among different CROs
and trial sites;
●
obtaining
sufficient quantities of investigational product (“IP”) for our
product candidates for use in clinical trials;
●
obtaining
Institutional Review Board (“IRB”) or ethics committee approval to
conduct a clinical trial at a prospective site;
●
identifying, recruiting and enrolling patients to
participate in a clinical trial, including delays and/or
interruptions resulting
from geo-political actions, disease or public health epidemics,
such as the coronavirus, or natural disasters;
●
retaining patients
who have initiated a clinical trial but may withdraw due to adverse
events from the therapy, insufficient efficacy, changing clinical
protocols, fatigue with the clinical trial process, or personal
issues;
●
retaining patients
who may not follow the clinical trial protocols due to factors
including the coronavirus epidemic; and
Any
delays in the commencement of our clinical trials will delay our
ability to pursue regulatory approval for our product candidates.
In addition, many of the factors that cause, or lead to, a delay in
the commencement of clinical trials may also ultimately lead to the
denial of regulatory approval of a product candidate.
If we encounter difficulties enrolling patients in our clinical
trials, our clinical development activities could be delayed or
otherwise adversely affected.
The
timely completion of clinical trials in accordance with their
protocols depends, among other things, on our ability to enroll a
sufficient number of patients who remain in the trial until its
conclusion. We may experience difficulties in patient enrollment in
our clinical trials for a variety of reasons, including the size
and nature of the patient population and the patient eligibility
criteria defined in the protocol, competition from competing
companies, and natural disasters or public health epidemics, such
as the coronavirus impacting the U.S., Europe and
elsewhere.
Our
clinical trials will likely compete with other clinical trials for
drug candidates that are in the same therapeutic areas as our drug
candidates, and this competition will reduce the number and types
of patients available to us, because some patients who might have
opted to enroll in our trials may instead opt to enroll in a trial
being conducted by one of our competitors. Because the number of
qualified clinical investigators and clinical trial sites is
limited, we expect to conduct some of our clinical trials at the
same clinical trial sites that some of our competitors may use,
which will reduce the number of patients who are available for our
clinical trials at such clinical trial sites. Even if we are able
to enroll a sufficient number of patients in our clinical trials,
delays in patient enrollment may result in increased costs or may
affect the timing or outcome of the planned clinical trials, which
could delay or prevent completion of these trials and adversely
affect our ability to advance the development of MS1819,
niclosamide and our other product candidates.
A pandemic, epidemic, or outbreak of an infectious disease, such as
COVID-19, or coronavirus, may materially and adversely affect our
business and our financial results.
The
spread of COVID-19 has affected segments of the global economy and
may affect our operations, including the potential interruption of
our clinical trial activities and our supply chain. The continued
spread of COVID-19 may result in a period of business disruption,
including delays in our clinical trials or delays or disruptions in
our supply chain. In addition, there could be a potential effect of
COVID-19 to the business at FDA or other health authorities, which
could result in delays of reviews and approvals, including with
respect to our drug candidates.
The
continued spread of COVID-19 globally could adversely affect our
clinical trial operations in the United States and Europe and other
jurisdictions where we may decide to conduct clinical trials,
including our ability to recruit and retain patients and principal
investigators and site staff who, as healthcare providers, may have
heightened exposure to COVID-19 if an outbreak occurs in their
geography. We have already experienced certain delays of our
clinical trials and may experience further delays as the pandemic
continues. In March and April of 2020, shutdowns in Europe hindered
recruitment for certain clinical trials, due to (among other
factors) travel restrictions, home confinement and diversions of
resources by hospitals and other healthcare professionals away from
normal operations and toward the COVID-19 response. Potential
enrollees for our clinical trials of MS1819 are among patient
populations that are more likely to be considered to be at
high-risk for a severe illness from a COVID-19 infection, which may
affect their willingness to participate. Further, some patients may
be unable to comply with clinical trial protocols if quarantines or
travel restrictions impede patient movement or interrupt healthcare
services, or if the patients become infected with COVID-19
themselves. While we have sufficient supply of MS1819 on hand to
meet any needs for our ongoing clinical trials through completion,
disruptions in national or international shipments and deliveries
could impede our ability to distribute product to trial sites in a
timely manner. Any of the foregoing factors could delay our ability
to conduct clinical trials or release clinical trial results.
COVID-19 may also affect employees of third-party CROs located in
affected geographies that we rely upon to carry out our clinical
trials, which could result in inefficiencies due to reductions in
staff and disruptions to work environments.
The
spread of COVID-19, or another infectious disease, could also
negatively affect the operations at our third-party manufacturers,
which could result in delays or disruptions in the supply of our
product candidates. In addition, we have taken temporary
precautionary measures intended to help minimize the risk of the
virus to our employees, including temporarily requiring all
employees to work remotely, suspending all non-essential travel
worldwide for our employees, and discouraging employee attendance
at industry events and in-person work-related meetings, which could
negatively affect our business.
We
cannot presently predict the scope and severity of any potential
business shutdowns or disruptions. If we or any of the third
parties with whom we engage, however, were to experience shutdowns
or other business disruptions, our ability to conduct our business
in the manner and on the timelines presently planned could be
materially and negatively affected, which could have a material
adverse impact on our business and our results of operation and
financial condition.
In
addition, the global spread of COVID-19 has created significant
volatility and uncertainty in global financial markets and may
materially affect us economically and such conditions continue to
persist. While the potential economic impact brought by, and the
duration of, COVID-19 may be difficult to assess or predict, a
widespread pandemic could result in significant disruption of
global financial markets, reducing our ability to access capital,
which could in the future negatively affect our liquidity. A
recession or market correction resulting from the spread of
COVID-19 could materially affect our business and the value of our
Common Stock.
We may be required to suspend, repeat or terminate our clinical
trials if they are not conducted in accordance with regulatory
requirements, the results are negative or inconclusive or the
trials are not well designed.
Regulatory
agencies, IRBs or data safety monitoring boards may at any time
recommend the temporary or permanent discontinuation of our
clinical trials or request that we cease using investigators in the
clinical trials if they believe that the clinical trials are not
being conducted in accordance with applicable regulatory
requirements, or that they present an unacceptable safety risk to
participants. Clinical trials must be conducted in accordance
with current cGCPs or other applicable foreign government
guidelines governing the design, safety monitoring, quality
assurance and ethical considerations associated with clinical
studies. Clinical trials are subject to oversight by the FDA,
other foreign governmental agencies and IRBs at the study sites
where the clinical trials are conducted. In addition, clinical
trials must be conducted with product candidates produced in
accordance with applicable cGMPs, which are the FDA’s regulations
governing the design, monitoring and control of manufacturing
processes and facilities. Clinical trials may be suspended by
the FDA, other foreign governmental agencies, or us for various
reasons, including:
●
deficiencies in the
conduct of the clinical trials, including failure to conduct the
clinical trial in accordance with regulatory requirements or
clinical protocols;
●
deficiencies in the
clinical trial operations or trial sites;
●
the product
candidate may have unforeseen adverse side effects;
●
deficiencies in the
trial design necessary to demonstrate efficacy;
●
fatalities or other
adverse events arising during a clinical trial due to medical
problems that may not be related to clinical trial
treatments;
●
the product
candidate may not appear to be more effective than current
therapies; or
●
the quality or
stability of the product candidate may fall below acceptable
standards.
If we
elect or are forced to suspend or terminate a clinical trial for
MS1819, niclosamide or of any other product candidates, the
commercial prospects for that product candidate will be harmed and
our ability to generate product revenue from that product candidate
may be delayed or eliminated. Furthermore, any of these events
could prevent us or our partners from achieving or maintaining
market acceptance of the affected product candidate and could
substantially increase the costs of commercializing our product
candidates, and impair our ability to generate revenue from the
commercialization of these product candidates either by us or by
our collaboration partners.
The approval processes of regulatory authorities are lengthy, time
consuming, expensive and inherently unpredictable. If we are unable
to obtain approval for our product candidates from applicable
regulatory authorities, we will not be able to market and sell
those product candidates in those countries or regions and our
business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign
authorities is unpredictable, but typically takes many years
following the commencement of clinical trials and depends upon
numerous factors, including the substantial discretion of the
regulatory authorities. We have not submitted an NDA or similar
filing or obtained regulatory approval for any product candidate in
any jurisdiction and it is possible that none of our existing
product candidates or any product candidates we may seek to develop
in the future will ever obtain regulatory approval.
MS1819,
niclosamide and our other product candidates could fail to receive
regulatory approval for many reasons, including any one or more of
the following:
●
the FDA or
comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
●
we may be unable to
demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that a product candidate is safe and
effective for its proposed indication;
●
the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval;
●
we may be unable to
demonstrate that a product candidate’s clinical and other benefits
outweigh its safety risks;
●
the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials;
●
the data collected
from clinical trials of our product candidates may not be
sufficient to support the submission of an NDA, BLA or other
submission or to obtain regulatory approval in the United States or
elsewhere;
●
the FDA or
comparable foreign regulatory authorities may fail to hold to
previous agreements or commitments;
●
the FDA or
comparable foreign regulatory authorities may fail to approve the
manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial
supplies;
●
the FDA or
comparable foreign regulatory authorities may fail to approve our
product candidates;
●
invest significant
additional cash in each of the above activities; and;
●
the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval.
The
time and expense of the approval process, as well as the
unpredictability of clinical trial results and other contributing
factors, may result in our failure to obtain regulatory approval to
market, in one or more jurisdictions, MS1819, niclosamide or future
product candidates, which would significantly harm our business,
results of operations and prospects.
We intend to rely on third-party collaborators to market and sell
our products. Our third-party collaborators may not have the
resources to pursue approvals, which in turn could severely limit
our potential markets and ability to generate revenue.
In
order to market and sell our products in any jurisdiction, we or
our third-party collaborators must obtain separate marketing
approvals in that jurisdiction and comply with its regulatory
requirements. The approval procedure can vary drastically among
countries, and each jurisdiction may impose different testing and
other requirements to obtain and maintain marketing approval.
Further, the time required to obtain those approvals may differ
substantially among jurisdictions. Approval by the FDA or an
equivalent foreign authority does not ensure approval by regulatory
authorities in any other countries or jurisdictions. As a result,
the ability to market and sell a product candidate in more than one
jurisdiction can involve significant additional time, expense and
effort to undertake separate approval processes, and could subject
us and our collaborators to the numerous and varying post-approval
requirements of each jurisdiction governing commercial sales,
manufacturing, pricing and distribution of MS1819, niclosamide and
our other product candidates. We or any third parties with whom we
may collaborate may not have the resources to pursue those
approvals, and we or they may not be able to obtain any approvals
that are pursued. The failure to obtain marketing approval for
MS1819, niclosamide and our other product candidates in foreign
jurisdictions could severely limit their potential markets and our
ability to generate revenue.
In
addition, even if we were to obtain regulatory approval in one or
more jurisdictions, regulatory authorities may approve MS1819,
niclosamide and our other product candidates for fewer or more
limited indications than we request, may not approve the prices we
may propose to charge for our products, may grant approval
contingent on the performance of costly post-marketing clinical
trials, or may approve a product candidate with labeling that does
not include the claims necessary or desirable for the successful
commercialization of that product candidate. Any of the foregoing
circumstances could materially harm the commercial prospects for
MS1819, niclosamide and our other product candidates.
Our product candidates may cause undesirable side effects or have
other properties that could delay or prevent their regulatory
approval, limit the commercial profile of the approved labeling, or
result in significant negative consequences following marketing
approval, if any.
Results
of current and future clinical trials of MS1819, niclosamide and
our other product candidates could reveal a high and/or
unacceptable severity and frequency of these or other side effects.
In such an event, our trials could be suspended or terminated, and
the FDA or comparable foreign regulatory authorities could order us
to cease further development of, or deny approval of, our product
candidates for any or all targeted indications. Further, any
observed drug-related side effects could affect patient recruitment
or the ability of enrolled patients to complete the trial or result
in potential product liability claims. Any of these occurrences
could materially harm our business, financial condition and
prospects.
Additionally, if
MS1819, niclosamide and our other product candidates receive
marketing approval, and we or others later identify undesirable
side effects caused by our products, a number of potentially
significant negative consequences could result,
including:
●
regulatory
authorities may withdraw approvals of such product;
●
regulatory
authorities may require additional warnings in the product’s
labeling;
●
we may be required
to create a medication guide for distribution to patients that
outlines the risks of such side effects;
●
we could be sued
and held liable for harm caused to patients; and;
●
our reputation may
suffer.
Any of
these events could prevent us from achieving or maintaining market
acceptance of the particular product, if approved, and could
significantly harm our business, results of operations and
prospects
If we are unable to execute our sales and marketing strategy for
our products and are unable to gain market acceptance, we may be
unable to generate sufficient revenue to sustain our
business.
We are
a clinical-stage biopharmaceutical company and have yet to begin to
generate revenue from MS1819, niclosamide or any of our other
product candidates. Our product candidates are in an early stage of
clinical development, and, if we obtain marketing approval for any
of products in the future, which we anticipate would not occur for
several years, if at all.
Although we believe
that MS1819 and niclosamide represent promising commercial
opportunities, we may never gain significant market acceptance and
therefore may never generate substantial revenue or profits for us.
We will need to establish a market for MS1819, niclosamide and our
other product candidates and build that market through physician
education, awareness programs and the publication of clinical data.
Gaining acceptance in medical communities requires, among other
things, publication in leading peer-reviewed journals of results
from our studies. The process of publication in leading medical
journals is subject to a peer review process and peer reviewers may
not consider the results of our studies sufficiently novel or
worthy of publication. Failure to have our studies published in
peer-reviewed journals could limit the adoption of MS1819,
niclosamide or our other product candidates. Our ability to
successfully market our product candidates that we may develop will
depend on numerous factors, including:
●
the FDA or
comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical trials;
●
the inability to
demonstrate that the clinical and other benefits of a product
candidate outweigh any safety or other perceived
risks;
●
conducting clinical
utility studies of our product candidates to demonstrate economic
usefulness to providers and payers;
●
whether our current
or future partners, support our offerings;
●
the success of the
sales force and marketing effort;
●
whether healthcare
providers believe our product candidates provide clinical utility;
and
●
whether private
health insurers, government health programs and other third-party
payers will cover our product candidates.
We currently have no commercial organization. If we are unable to
establish satisfactory sales and marketing capabilities or secure a
sales and marketing partner, we may not successfully commercialize
any of our product candidates.
We
have no commercial infrastructure. In order to commercialize
products that are approved for marketing, we must either establish
our own sales and marketing infrastructure or collaborate with
third parties that have such commercial
infrastructure.
We
may not be able to enter into collaboration agreements on terms
acceptable to us or at all. In addition, even if we enter into such
relationships, we may have limited or no control over the sales,
marketing and distribution activities of these third parties. Our
future revenues may depend heavily on the success of the efforts of
these third parties. If we elect to establish a sales and marketing
infrastructure, we may not realize a positive return on this
investment. In addition, we will have to compete with established
and well-funded pharmaceutical and biotechnology companies to
recruit, hire, train and retain sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our product
candidates without strategic partners or licensees
include:
●
our
inability to recruit and retain adequate numbers of effective sales
and marketing personnel;
●
the
inability of sales personnel to obtain access to or persuade
adequate numbers of physicians to prescribe our future
products;
●
the
lack of complementary products to be offered by sales personnel,
which may put us at a competitive disadvantage relative to
companies with more extensive product lines; and
●
unforeseen
costs and expenses associated with creating an independent sales
and marketing organization.
If we
are not successful in recruiting sales and marketing personnel or
in building a sales and marketing infrastructure, or if we do not
successfully enter into appropriate collaboration arrangements, we
will have difficulty successfully commercializing our product
candidates and any we may develop or acquire, which would adversely
affect our business, operating results and financial condition.
Outside the United States, we may commercialize our product
candidates by entering into collaboration agreements with
pharmaceutical partners. We may not be able to enter into such
agreements on terms acceptable to us or at all. In addition, even
if we enter into such relationships, we may have limited or no
control over the sales, marketing and distribution activities of
these third parties. Our future revenues may depend heavily on the
success of the efforts of these third parties.
Because we license some of our product candidates from third
parties, including First Wave, any dispute with our licensors or
non-performance by us or by our licensors may adversely affect our
ability to develop and commercialize the applicable product
candidates.
Some of
our product candidates, including MS1819 and niclosamide, including
related intellectual property rights, were licensed from third
parties. Under the terms of our license agreements, the licensors
generally have the right to terminate such agreements in the event
of a material breach by us. Our licenses require us to make annual,
milestone or other payments prior to commercialization of any
product and royalties on net sales following commercialization and
our ability to make these payments depends on our ability to
generate cash in the future. These agreements generally require us
to use diligent and reasonable efforts to develop and commercialize
the product candidate.
If
there is any conflict, dispute, disagreement or issue of
non-performance between us and our licensing partner regarding our
rights or obligations under the license or other agreements,
including any conflict, dispute or disagreement arising from our
failure to satisfy payment obligations under such agreement, our
ability to develop and commercialize the affected product candidate
may be adversely affected. Any loss of our rights under our license
agreements could delay or completely terminate our product
development efforts for the affected product
candidate.
We may form or seek strategic alliances or enter into additional
licensing arrangements in the future, and we may not realize the
benefits of such alliances or licensing arrangements.
From
time to time, we may form or seek strategic alliances, create joint
ventures or collaborations or enter into additional licensing
arrangements with third parties that we believe will complement or
augment our development and commercialization efforts with respect
to MS1819, niclosamide and our other product candidates and any
future product candidates that we may develop. Any of these
relationships may require us to incur non-recurring and other
charges, increase our near and long-term expenditures, issue
securities that dilute our existing stockholders or disrupt our
management and business. These relationships also may result
in a delay in the development of MS1819, niclosamide and our other
product candidates if we become dependent upon the other party and
such other party does not prioritize the development of our product
candidates relative to its other development activities. In
addition, we face significant competition in seeking appropriate
strategic partners and the negotiation process is time-consuming
and complex. Moreover, we may not be successful in our efforts
to establish a strategic partnership or other alternative
arrangements for our product candidates because they may be deemed
to be at too early of a stage of development for collaborative
effort and third parties may not view our product candidates as
having the requisite potential to demonstrate safety and
efficacy. If we license products or businesses, we may not be
able to realize the benefit of such transactions if we are unable
to successfully integrate them with our existing operations and
company culture. We cannot be certain that, following a
strategic transaction or license, we will achieve the revenue or
specific net income that justifies such transaction. We rely
completely on third parties to manufacture our preclinical and
clinical pharmaceutical supplies and expect to continue to rely on
third parties to produce commercial supplies of our product
candidates, and our dependence on third party suppliers could
adversely impact our business.
We rely completely on third parties to manufacture our preclinical
and clinical pharmaceutical supplies and expect to continue to rely
on third parties to produce commercial supplies of any approved
product candidate, and our dependence on third party suppliers
could adversely impact our business.
We rely
on third parties to manufacture our lead product candidate, MS1819
and niclosamide. The proprietary yeast strain used to manufacture
MS1819 active pharmaceutical ingredient (“API“) is located in a
storage facility maintained by Charles River Laboratories in
Malvern, Pennsylvania. The drug substance manufacturing for MS1819
is conducted by DSM Capua SPA in Italy and we intend to use
Delpharm SAS to make the drug product for MS1819 for the OPTION 2
Trial and beyond. Niclosamide API is obtained by chemical
synthesis and is currently manufactured by Olon at a facility in
Murcia, Spain. The drug substance manufacturing for niclosamide is
currently conducted at a contract facility located in Milan, Italy
owned by Moteresearch. We are completely dependent on these third
parties for product supply and our MS1819 development programs
would be adversely affected by a significant interruption in our
ability to receive such materials. We have not yet entered
into long-term manufacturing or supply agreements with any third
parties. Furthermore, our third-party suppliers will be required to
maintain compliance with cGMPs and will be subject to inspections
by the FDA or comparable regulatory authorities in other
jurisdictions to confirm such compliance. In the event that the FDA
or such other authorities determine that our third-party suppliers
have not complied with cGMP, our clinical trials could be
terminated or subjected to a clinical hold until such time as we
are able to obtain appropriate replacement material. Any
delay, interruption or other issues that arise in the manufacture,
packaging, or storage of our products as a result of a failure of
the facilities or operations of our third-party suppliers to pass
any regulatory agency inspection could significantly impair our
ability to develop and commercialize our products.
We do
not expect to have the resources or capacity to commercially
manufacture any of our proposed products, if approved, and will
likely continue to be dependent upon third party manufacturers. Our
dependence on third parties to manufacture and supply us with
clinical trial materials and any approved products may adversely
affect our ability to develop and commercialize our products on a
timely basis or at all.
We rely on third parties to conduct our clinical trials. If these
third parties do not meet our deadlines or otherwise conduct the
trials as required, our clinical development programs could be
delayed or unsuccessful and we may not be able to obtain regulatory
approval for or commercialize our product candidates when expected
or at all.
We do
not have the ability to conduct all aspects of our preclinical
testing or clinical trials ourselves. We use contract research
organizations (CROs) to conduct our planned clinical trials and
will rely upon such CROs, as well as medical institutions, clinical
investigators and consultants, to conduct our trials in accordance
with our clinical protocols. Our CROs, investigators and other
third parties will play a significant role in the conduct of these
trials and the subsequent collection and analysis of data from the
clinical trials.
There
is no guarantee that any CROs, investigators and other third
parties upon which we rely for administration and conduct of our
clinical trials will devote adequate time and resources to such
trials or perform as contractually required. If any of these third
parties fail to meet expected deadlines, fail to adhere to our
clinical protocols or otherwise perform in a substandard manner,
our clinical trials may be extended, delayed or terminated. If any
of our clinical trial sites terminate for any reason, we may
experience the loss of follow-up information on patients enrolled
in our ongoing clinical trials unless we are able to transfer the
care of those patients to another qualified clinical trial site. In
addition, principal investigators for our clinical trials may serve
as scientific advisors or consultants to us from time to time and
receive cash or equity compensation in connection with such
services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity
of the data generated at the applicable clinical trial site may be
jeopardized.
We will face intense competition and may not be able to compete
successfully.
We
operate in highly competitive segments of the biotechnology and
biopharmaceutical markets. We face competition from many different
sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies, and
private and public research institutions. MS1819, niclosamide and
our other product candidates, if successfully developed and
approved, will compete with established therapies, as well as new
treatments that may be introduced by our competitors. Many of our
competitors have significantly greater financial, product
development, manufacturing and marketing resources than us. Large
pharmaceutical companies have extensive experience in clinical
testing and obtaining regulatory approval for drugs. We also may
compete with these organizations to recruit management, scientists
and clinical development personnel. Smaller or early-stage
companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and
established companies. New developments, including the development
of other biological and pharmaceutical technologies and methods of
treating disease, occur in the pharmaceutical and life sciences
industries at a rapid pace. Developments by competitors may render
our product candidates obsolete or noncompetitive. We will also
face competition from these third parties in recruiting and
retaining qualified personnel, establishing clinical trial sites
and patient registration for clinical trials and in identifying and
in-licensing new product candidates. In the case of
niclosamide, we may also face competition from other companies
developing different formulation of niclosamide for the same
indications for which we intend to develop niclosamide, or from
off-label uses of niclosamide approved for other
indications.
Our success will depend upon intellectual property, proprietary
technologies and regulatory market exclusivity periods, and we may
be unable to protect our intellectual property.
Our
success will depend, in large part, on obtaining and maintaining
patent protection and trade secret protection for MS1819,
niclosamide and our other product candidates and their formulations
and uses, as well as successfully defending these patents against
third-party challenges. If we or our licensors fail to
appropriately prosecute and maintain patent protection for our
product candidates, our ability to develop and commercialize these
product candidates may be adversely affected and we may not be able
to prevent competitors from making, using and selling competing
products. This failure to properly protect the intellectual
property rights relating to these product candidates could have a
material adverse effect on our financial condition and results of
operations.
The
patent application process is subject to numerous risks and
uncertainties, and there can be no assurance that we or our
partners will be successful in protecting our product candidates by
obtaining and defending patents. These risks and uncertainties
include the following:
●
patent applications
may not result in any patents being issued;
●
patents that may be
issued or in-licensed may be challenged, invalidated, modified,
revoked, circumvented, found to be unenforceable, or otherwise may
not provide any competitive advantage;
●
our competitors,
many of which have substantially greater resources than we or our
partners and many of which have made significant investments in
competing technologies, may seek, or may already have obtained,
patents that will limit, interfere with, or eliminate our ability
to make, use, and sell our potential products;
●
there may be
significant pressure on the United States government and other
international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease
treatments that prove successful as a matter of public policy
regarding worldwide health concerns;
●
countries other
than the United States may have patent laws less favorable to
patentees than those upheld by United States courts, allowing
foreign competitors a better opportunity to create, develop, and
market competing products; and
●
we may be involved
in lawsuits to protect or enforce our patents or the patents of our
licensors, which could be expensive, time consuming and
unsuccessful.
In
addition to patents, we and our partners also rely on trade secrets
and proprietary know-how. Although we have taken steps to protect
our trade secrets and unpatented know-how, including entering into
confidentiality agreements with third parties, and confidential
information and inventions agreements with employees, consultants
and advisors, third parties may still obtain this information or
come upon this same or similar information independently. We may
become subject to claims that we or consultants, advisors or
independent contractors that we may engage to assist us in
developing MS1819, niclosamide, and our other product candidates
have wrongfully or inadvertently disclosed to us or used trade
secrets or other proprietary information of their former employers
or their other clients.
We intend to rely on market exclusivity periods that may not be or
remain available to us.
We intend to rely
on our ability to obtain and maintain a regulatory period of market
exclusivity for any of our biologic product candidates, including
MS1819 and niclosamide that are successfully developed and approved
for commercialization. Although this period in the United States is
currently 12 years from the date of marketing approval, reductions
to this period have been proposed. This exclusivity period in
Europe is currently 10 years from the date of marketing
approval by the EMA. Once any regulatory period of exclusivity
expires, depending on the status of our patent coverage and the
nature of the product, we may not be able to prevent others from
marketing products that are biosimilar to or interchangeable with
our products, which would materially adversely affect
us.
Because
niclosamide is a small molecule it would be subject either to three
or five year exclusivity, depending on the regulatory pathway of
any clinical trials. niclomsaside is not entitled to the same 12
year exclusivity as our biologic product candidates.
If we are unable to establish sales and marketing capabilities or
fail to enter into agreements with third parties to market,
distribute and sell any products we may successfully develop, we
may not be able to effectively market and sell any such products
and generate product revenue.
We do
not currently have the infrastructure for the sales, marketing and
distribution of any of our product candidates, and must build this
infrastructure or arrange for third parties to perform these
functions in order to commercialize any products that we may
successfully develop. The establishment and development of a sales
force, either by us or jointly with a partner, or the establishment
of a contract sales force to market any products we may develop
will be expensive and time-consuming and could delay any product
launch. If we, or our partners, are unable to establish sales and
marketing capability or any other non-technical capabilities
necessary to commercialize any products we may successfully
develop, we will need to contract with third parties to market and
sell such products. We may not be able to establish arrangements
with third-parties on acceptable terms, if at all.
If any product candidate that we successfully develop does not
achieve broad market acceptance among physicians, patients,
healthcare payors and the medical community, the revenues that it
generates from their sales will be limited.
Even if
MS1819, niclosamide and our other product candidates receive
regulatory approval, they may not gain market acceptance among
physicians, patients, healthcare payors and the medical community.
Coverage and reimbursement of our product candidates by third-party
payors, including government payors, generally is also necessary
for commercial success. The degree of market acceptance of any
approved products will depend on a number of factors,
including:
●
the efficacy and
safety as demonstrated in clinical trials;
●
the clinical
indications for which the product is approved;
●
acceptance by
physicians, major operators of hospitals and clinics and patients
of the product as a safe and effective treatment;
●
acceptance of the
product by the target population;
●
the potential and
perceived advantages of product candidates over alternative
treatments;
●
the safety of
product candidates seen in a broader patient group, including its
use outside the approved indications;
●
the cost of
treatment in relation to alternative treatments;
●
the availability of
adequate reimbursement and pricing by third parties and government
authorities;
●
relative
convenience and ease of administration;
●
the prevalence and
severity of adverse events;
●
the effectiveness
of our sales and marketing efforts; and
●
unfavorable
publicity relating to the product.
If any
product candidate is approved but does not achieve an adequate
level of acceptance by physicians, hospitals, healthcare payors and
patients, we may not generate sufficient revenue from these
products and may not become or remain profitable.
The First Wave License Agreement requires us to make significant
developmental milestone and other payments which will require
additional financing and, in the event we do commercialize
niclosamide, we will be required to make royalty payments on net
sales of the product which will decrease the revenues we may
ultimately receive on sales. To the extent that such milestone,
royalty and other payments are not timely made, First Wave, in
certain cases, may terminate the First Wave License
Agreement.
Under
the First Wave License Agreement, we must pay to First Wave
significant milestone payments, and royalties on net sales (as
defined in the First Wave Agreement). In order to make the various
milestone payments that are required, we will need to raise
additional funds. In addition, our royalty obligations will reduce
the economic benefits to us of any future sales of niclosamide if
we do receive regulatory approval and seek to commercialize
niclosamide. To the extent that such milestone payments and
royalties are not timely made, under the First Wave License
Agreement, First Wave has certain termination rights relating to
our license of niclosamide.
We may incur substantial product liability or indemnification
claims relating to the use of our product candidates.
We face
an inherent risk of product liability exposure based on the use of
MS1819, niclosamide and our other product candidates in human
clinical trials, or, if obtained, following marketing approval and
commercialization. Claims could be brought against us if use or
misuse of one of our product candidates causes, or merely appears
to have caused, personal injury or death. Although we have and
intend to maintain product liability insurance relating to our
clinical trials, our coverage may not be sufficient to cover claims
that may be made against us and we may be unable to maintain such
insurance. Any claims against us, regardless of their merit, could
severely harm our financial condition, strain our management and
other resources or destroy the prospects for commercialization of
the product which is the subject of any such claim. We are unable
to predict if we will be able to obtain or maintain product
liability insurance for any products that may be approved for
marketing. Additionally, we have entered into various agreements
where we indemnify third parties for certain claims relating to the
testing and use of our product candidates. These indemnification
obligations may require us to pay significant sums of money for
claims that are covered by these indemnifications.
We
cannot predict all of the possible harms or side effects that may
result from the use of our products and, therefore, the amount of
insurance coverage we currently hold, or that we or our
collaborators may obtain, may not be adequate to protect us from
any claims arising from the use of our products that are beyond the
limit of our insurance coverage. If we cannot protect against
potential liability claims, we or our collaborators may find it
difficult or impossible to commercialize our products, and we may
not be able to renew or increase our insurance coverage on
reasonable terms, if at all. The marketing, sale and use of our
products and our planned future products could lead to the filing
of product liability claims against us if someone alleges that our
products failed to perform as designed. A product liability or
professional liability claim could result in substantial damages
and be costly and time-consuming for us to defend.
Any
product liability or professional liability claim brought against
us, with or without merit, could increase our insurance rates or
prevent us from securing insurance coverage. Additionally, any
product liability lawsuit could damage our reputation, result in
the recall of products, or cause current partners to terminate
existing agreements and potential partners to seek other partners,
any of which could impact our results of operations.
If we use biological and hazardous materials in a manner that
causes injury, we could be liable for damages.
Our
activities may require the controlled use of potentially harmful
biological materials, hazardous materials and chemicals and may in
the future require the use of radioactive compounds. We cannot
eliminate the risk of accidental contamination or injury to
employees or third parties from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for any resulting damages, and any
liability could exceed our resources or any applicable insurance
coverage we may have. Additionally, we are subject on an
ongoing basis to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these
materials and specified waste products. The cost of compliance
with these laws and regulations might be significant and could
negatively affect our operating results. In the event of an
accident or if we otherwise fail to comply with applicable
regulations, we could lose our permits or approvals or be held
liable for damages or penalized with fines.
We have benefited from certain non-reimbursable subsidies from the
French government that if terminated or reduced may restrict our
ability to successfully develop, manufacture and commercialize our
drug candidates.
We have benefited
from certain tax advantages, including, for example, the research
tax credit (Crédit d'Impôt Recherche, the “CIR”). The CIR is a
French tax credit aimed at stimulating research and development.
The CIR can be offset against French corporate income tax due and
the portion in excess (if any) may be refunded at the end of a
three fiscal-year period (or, sooner, for smaller companies such as
ours). The CIR is calculated based on our claimed amount of
eligible research and development expenditures in France. The
French tax authority with the assistance of the Research and
Technology Ministry may audit each research and development program
in respect of which a CIR benefit has been claimed and assess
whether such program qualifies in its view for the CIR benefit. The
French tax authorities may challenge our eligibility to, or our
calculation of certain tax reductions and/or deductions in respect
of our research and development activities and, should the French
tax authorities be successful, we may be liable for additional
corporate income tax, and penalties and interest related thereto,
or we may not obtain the refunds for which we have applied, which
could have a significant impact on our results of operations and
future cash flows. We believe we are eligible to receive the CIR
benefit through at least the end of 2021. If our research and
development operations in France are terminated, we would no longer
be eligible to receive the CIR. Furthermore, if the French
Parliament decides to eliminate, or reduce the scope or the rate
of, the CIR benefit, either of which it could decide to do at any
time, our results of operations could be adversely
affected.
Due to the significant resources required for the development of
our drug candidates, we must prioritize development of certain drug
candidates and/or certain disease indications. We may expend our
limited resources on candidates or indications that do not yield a
successful product and fail to capitalize on drug candidates or
indications that may be more profitable or for which there is a
greater likelihood of success.
We plan
to develop a pipeline of drug candidates to treat GI and other
diseases. Due to the significant resources required for the
development of drug candidates, we must focus our attention and
resources on specific diseases and/or indications and decide which
drug candidates to pursue and the amount of resources to allocate
to each. We are currently focusing our resources on the development
of our lead product candidate, MS1819, for the treatment of
exocrine pancreatic insufficiency ("EPI") associated with cystic
fibrosis ("CF") and chronic pancreatitis ("CP").
We have
also recently entered into the First Wave License Agreement with
First Wave pursuant to which we were granted a worldwide, exclusive
right to develop, manufacture, and commercialize First Wave’s
proprietary immediate release and enema formulations of niclosamide
for the fields of treating ICI-AC and COVID gastrointestinal
infections in humans. We are now solely responsible, and have
agreed to use commercially reasonable efforts, for all development,
regulatory and commercial activities related to the Products in the
ICI-AC and COVID fields.
Our
decisions concerning the allocation of research, development,
collaboration, management and financial resources toward particular
drug candidates or therapeutic areas may not lead to the
development of any viable commercial product and may divert
resources away from better opportunities. Similarly, any decision
to delay, terminate or collaborate with third parties in respect of
certain programs or product candidates may subsequently prove to be
suboptimal and could cause us to miss valuable opportunities. If we
make incorrect determinations regarding the viability or market
potential of any of our programs or product candidates or misread
trends in the GI, CF, CP, COVID or biotechnology industry, our
business, financial condition and results of operations could be
materially adversely affected. As a result, we may fail to
capitalize on viable commercial products or profitable market
opportunities, be required to forego or delay pursuit of
opportunities with other product candidates or other diseases and
indications that may later prove to have greater commercial
potential than those we choose to pursue, or relinquish valuable
rights to such product candidates through collaboration, licensing
or other royalty arrangements in cases in which it would have been
advantageous for us to invest additional resources to retain
development and commercialization rights.
If we fail to attract and retain key management and clinical
development personnel, we may be unable to successfully develop or
commercialize our product candidates.
We are
dependent on our management team and clinical development personnel
and our success will depend on their continued service, as well as
our ability to attract and retain highly qualified personnel. In
particular, the continued development of our senior management team
which now includes James Sapirstein, our President and Chief
Executive Officer, Daniel Schneiderman, our Chief Financial
Officer, and James Pennington, our Chief Medical Officer, is
critical to our success. The market for the services of qualified
personnel in the biotechnology and pharmaceutical industries are
highly competitive. The loss of service of any member of our senior
management team or key personnel could prevent, impair or delay the
implementation of our business plan, the successful conduct and
completion of our planned clinical trials and the commercialization
of any product candidates that we may successfully develop. We do
not carry key man insurance for any member of our senior management
team.
We use biological materials and may use hazardous materials, and
any claims relating to improper handling, storage or disposal of
these materials could be time consuming or costly.
We may
use hazardous materials, including chemicals and biological agents
and compounds, that could be dangerous to human health and safety
or the environment. Our operations also produce hazardous waste
products. Federal, state and local laws and regulations govern the
use, generation, manufacture, storage, handling and disposal of
these materials and wastes. Compliance with applicable
environmental laws and regulations may be expensive, and current or
future environmental laws and regulations may impair our product
development efforts. In addition, we cannot entirely eliminate the
risk of accidental injury or contamination from these materials or
wastes. We do not carry specific biological or hazardous waste
insurance coverage and our property and casualty, and general
liability insurance policies specifically exclude coverage for
damages and fines arising from biological or hazardous waste
exposure or contamination. Accordingly, in the event of
contamination or injury, we could be held liable for damages or
penalized with fines in an amount exceeding our resources, and our
clinical trials or regulatory approvals could be
suspended.
Although we
maintain workers’ compensation insurance to cover us for costs and
expenses, we may incur due to injuries to our employees resulting
from the use of hazardous materials, this insurance may not provide
adequate coverage against potential liabilities. We do not maintain
insurance for environmental liability or toxic tort claims that may
be asserted against us in connection with our storage or disposal
of biological or hazardous materials.
In
addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to
comply with these laws and regulations also may result in
substantial fines, penalties or other sanctions.
If we or our partners are sued for infringing intellectual property
rights of third parties, it will be costly and time consuming, and
an unfavorable outcome in that litigation would have a material
adverse effect on our business.
Our
success also depends upon our ability and the ability of any of our
future collaborators to develop, manufacture, market and sell our
product candidates without infringing the proprietary rights of
third parties. Numerous United States and foreign issued patents
and pending patent applications, which are owned by third parties,
exist in the fields in which we are developing products, some of
which may be directed at claims that overlap with the subject
matter of our intellectual property. Because patent applications
can take many years to issue, there may be currently pending
applications, unknown to us, which may later result in issued
patents that our product candidates or proprietary technologies may
infringe. Similarly, there may be issued patents relevant to our
product candidates of which we are not aware.
There
is a substantial amount of litigation involving patent and other
intellectual property rights in the biotechnology and
biopharmaceutical industries generally. If a third-party claims
that we or any of our licensors, suppliers or collaborators
infringe the third party’s intellectual property rights, we may
have to:
●
obtain licenses,
which may not be available on commercially reasonable terms, if at
all;
●
abandon an
infringing product candidate or redesign our products or processes
to avoid infringement;
●
pay substantial
damages, including the possibility of treble damages and attorneys’
fees, if a court decides that the product or proprietary technology
at issue infringes on or violates the third party’s
rights;
●
pay substantial
royalties, fees and/or grant cross licenses to our technology;
and/or
●
defend litigation
or administrative proceedings which may be costly whether we win or
lose, and which could result in a substantial diversion of our
financial and management resources.
Healthcare reform and restrictions on reimbursements may limit our
financial returns.
Our
ability or the ability of our collaborators to commercialize any of
our product candidates that we successfully develop may depend, in
part, on the extent to which government health administration
authorities, private health insurers and other organizations will
reimburse consumers for the cost of these products. These third
parties are increasingly challenging both the need for and the
price of new drug products. Significant uncertainty exists as to
the reimbursement status of newly approved therapeutics. Adequate
third-party reimbursement may not be available for our product
candidates to enable us or our collaborators to maintain price
levels sufficient to realize an appropriate return on their and our
investments in research and product development.
Changes in healthcare law and implementing regulations, including
government restrictions on pricing and reimbursement, as well as
healthcare policy and other healthcare payor cost-containment
initiatives, may negatively impact our ability to generate
revenues.
The potential pricing and reimbursement environment for MS1819,
niclosamide and our other product candidates and any future
products may change in the future and become more challenging due
to, among other reasons, policies advanced by the current or any
new presidential administration, federal agencies, healthcare
legislation passed by Congress, or fiscal challenges faced by all
levels of government health administration
authorities.
If we or any of our independent contractors, consultants,
collaborators, manufacturers, vendors or service providers fail to
comply with healthcare laws and regulations, we or they could be
subject to enforcement actions, which could result in penalties and
affect our ability to develop, market and sell our product
candidates and may harm our reputation.
We are
subject to federal, state, and foreign healthcare laws and
regulations pertaining to fraud and abuse and patients’ rights.
These laws and regulations include:
●
the U.S. federal
healthcare program anti-kickback law, which prohibits, among other
things, persons and entities from soliciting, receiving or
providing remuneration, directly or indirectly, to induce either
the referral of an individual for a healthcare item or service, or
the purchasing or ordering of an item or service, for which payment
may be made under a federal healthcare program such as Medicare or
Medicaid;
●
the U.S. federal
false claims and civil monetary penalties laws, which prohibit,
among other things, individuals or entities from knowingly
presenting or causing to be presented, claims for payment by
government funded programs such as Medicare or Medicaid that are
false or fraudulent, and which may apply to us by virtue of
statements and representations made to customers or third
parties;
●
the U.S. federal
Health Insurance Portability and Accountability Act (“HIPAA”), which prohibits, among other
things, executing a scheme to defraud healthcare
programs;
●
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act, or HITECH, imposes requirements relating to the
privacy, security, and transmission of individually identifiable
health information, and requires notification to affected
individuals and regulatory authorities of certain breaches of
security of individually identifiable health
information;
●
the federal
Physician Payment Sunshine Act, which requires certain
manufacturers of drugs, devices, biologics and medical supplies to
report annually to the Centers for Medicare & Medicaid
Services, or CMS, information related to payments and other
transfers of value to physicians, other healthcare providers and
teaching hospitals, and ownership and investment interests held by
physicians and other healthcare providers and their immediate
family members, which is published in a searchable form on an
annual basis; and
●
state laws
comparable to each of the above federal laws, such as, for example,
anti-kickback and false claims laws that may be broader in scope
and also apply to commercial insurers and other non-federal payors,
requirements for mandatory corporate regulatory compliance
programs, and laws relating to patient data privacy and
security.
If our
operations are found to be in violation of any such health care
laws and regulations, we may be subject to penalties, including
administrative, civil and criminal penalties, monetary damages,
disgorgement, imprisonment, the curtailment or restructuring of our
operations, loss of eligibility to obtain approvals from the FDA,
or exclusion from participation in government contracting,
healthcare reimbursement or other government programs, including
Medicare and Medicaid, any of which could adversely affect our
financial results. Although effective compliance programs can
mitigate the risk of investigation and prosecution for violations
of these laws, these risks cannot be entirely eliminated. Any
action against us for an alleged or suspected violation could cause
us to incur significant legal expenses and could divert our
management’s attention from the operation of our business, even if
our defense is successful. In addition, achieving and
sustaining compliance with applicable laws and regulations may be
costly to us in terms of money, time and resources.
We will need to grow the size of our organization, and we may
experience difficulties in managing this growth.
As of
December 31, 2020, we had ten employees. As our development
and commercialization plans and strategies develop, we expect to
need additional managerial, operational, research and development,
sales, marketing, financial and other personnel. Future growth
would impose significant added responsibilities on members of
management, including:
●
identifying,
recruiting, integrating, maintaining and motivating additional
employees;
●
managing our
internal development efforts effectively, including the clinical,
FDA and international regulatory review process for our product
candidates, while complying with our contractual obligations to
contractors and other third parties; and
●
improving our
operational, financial and management controls, reporting systems
and procedures.
Our
future financial performance and our ability to commercialize our
product candidates will depend, in part, on our ability to
effectively manage any future growth, and our management may also
have to divert a disproportionate amount of its attention away from
day-to-day activities in order to devote a substantial amount of
time to managing these growth activities.
We
currently rely, and for the foreseeable future will continue to
rely, in substantial part on certain independent organizations,
advisors and consultants to provide certain services, including
certain aspects of regulatory approval, clinical management and
manufacturing. There can be no assurance that the services of
independent organizations, advisors and consultants will continue
to be available to us on a timely basis when needed, or that we can
find qualified replacements. In addition, if we are unable to
effectively manage our outsourced activities or if the quality or
accuracy of the services provided by consultants is compromised for
any reason, our clinical trials may be extended, delayed or
terminated, and we may not be able to obtain regulatory approval of
our product candidates or otherwise advance our
business. There can be no assurance that we will be able to
manage our existing consultants and contractors or find other
competent outside contractors and consultants on economically
reasonable terms, or at all.
If we
are not able to effectively expand our organization by hiring new
employees and expanding our groups of consultants and contractors,
we may not be able to successfully implement the tasks necessary to
further develop and commercialize our product candidates and,
accordingly, may not achieve our research, development and
commercialization goals.
We are subject to U.S. and foreign anti-corruption and anti-money
laundering laws with respect to our operations and non-compliance
with such laws can subject us to criminal and/or civil liability
and harm our business.
We are
subject to the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or the FCPA, the U.S. domestic bribery statute contained
in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act,
and possibly other state and national anti-bribery and anti-money
laundering laws in countries in which we conduct activities.
Anti-corruption laws are interpreted broadly and prohibit companies
and their employees, agents, third-party intermediaries, joint
venture partners and collaborators from authorizing, promising,
offering, or providing, directly or indirectly, improper payments
or benefits to recipients in the public or private sector. We
engage third-party investigators, CROs, and other consultants to
design and perform preclinical studies of our drug candidates and
will do the same for any clinical trials. Also, once a drug
candidate has been approved and commercialized, we may engage
third-party intermediaries to promote and sell our products abroad
and/or to obtain necessary permits, licenses, and other regulatory
approvals. We or our third-party intermediaries may have direct or
indirect interactions with officials and employees of government
agencies or state-owned or affiliated entities. We can be held
liable for the corrupt or other illegal activities of these
third-party intermediaries, our employees, representatives,
contractors, collaborators, partners, and agents, even if we do not
explicitly authorize or have actual knowledge of such
activities.
Noncompliance with
anti-corruption and anti-money laundering laws could subject us to
whistleblower complaints, investigations, sanctions, settlements,
prosecution, other enforcement actions, disgorgement of profits,
significant fines, damages, other civil and criminal penalties or
injunctions, suspension and/or debarment from contracting with
certain persons, the loss of export privileges, reputational harm,
adverse media coverage, and other collateral consequences. If any
subpoenas, investigations, or other enforcement actions are
launched, or governmental or other sanctions are imposed, or if we
do not prevail in any possible civil or criminal litigation, our
business, results of operations and financial condition could be
materially harmed. In addition, responding to any action will
likely result in a materially significant diversion of management's
attention and resources and significant defense and compliance
costs and other professional fees. In certain cases, enforcement
authorities may even cause us to appoint an independent compliance
monitor which can result in added costs and administrative
burdens.
Significant disruptions of information technology systems or
breaches of data security could materially adversely affect our
business, results of operations and financial
condition.
We
collect and maintain information in digital form that is necessary
to conduct our business, and we are increasingly dependent on
information technology systems and infrastructure to operate our
business. In the ordinary course of our business, we collect, store
and transmit large amounts of confidential information, including
intellectual property, proprietary business information and
personal information. It is critical that we do so in a secure
manner to maintain the confidentiality and integrity of such
confidential information. We have established physical, electronic
and organizational measures to safeguard and secure our systems to
prevent a data compromise, and rely on commercially available
systems, software, tools, and monitoring to provide security for
our information technology systems and the processing, transmission
and storage of digital information. We have also outsourced
elements of our information technology infrastructure, and as a
result a number of third-party vendors may or could have access to
our confidential information. Our internal information technology
systems and infrastructure, and those of our current and any future
collaborators, contractors and consultants and other third parties
on which we rely, are vulnerable to damage from computer viruses,
malware, natural disasters, terrorism, war, telecommunication and
electrical failures, cyber-attacks or cyber-intrusions over the
Internet, attachments to emails, persons inside our organization,
or persons with access to systems inside our
organization.
The
risk of a security breach or disruption, particularly through
cyber-attacks or cyber-intrusion, including by computer hackers,
foreign governments and cyber-terrorists, has generally increased
as the number, intensity and sophistication of attempted attacks
and intrusions from around the world have increased. In addition,
the prevalent use of mobile devices that access confidential
information increases the risk of data security breaches, which
could lead to the loss of confidential information or other
intellectual property. The costs to us to mitigate network security
problems, bugs, viruses, worms, malicious software programs and
security vulnerabilities could be significant, and while we have
implemented security measures to protect our data security and
information technology systems, our efforts to address these
problems may not be successful, and these problems could result in
unexpected interruptions, delays, cessation of service and other
harm to our business and our competitive position. If such an event
were to occur and cause interruptions in our operations, it could
result in a material disruption of our product development
programs. For example, the loss of clinical trial data from
completed or ongoing or planned clinical trials could result in
delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. Moreover, if a
computer security breach affects our systems or results in the
unauthorized release of personally identifiable information, our
reputation could be materially damaged.
In
addition, such a breach may require notification to governmental
agencies, the media or individuals pursuant to various federal and
state privacy and security laws, if applicable, including the
Health Insurance Portability and Accountability Act of 1996, as
amended by the Health Information Technology for Clinical Health
Act of 2009, and its implementing rules and regulations, as well as
regulations promulgated by the Federal Trade Commission and state
breach notification laws.
Under
the EU regulation and notably the General Data Protection
Regulation, or GDPR, No. 2016/679, which entered into force on
May 25, 2018 and is applicable personal data that we process
in relation to our presence in the EU, the offering of products or
services to individuals in the EU or the monitoring of the behavior
of individuals in the EU, we have also a legal responsibility to
report personal data breaches to the competent supervisory
authority. The EU data protection regulation includes a broad
definition and a short deadline for the notification of personal
data breaches, which may be difficult to implement in practice and
requires that we implement robust internal processes. Under this
regulation, we have to report personal data breaches to the
competent supervisory authority within 72 hours of the time we
become aware of a breach "unless the personal data breach is
unlikely to result in a risk to the right and freedoms of natural
persons" (Article 33 of the GDPR). In addition, the GDPR
requires that we communicate the breach to the Data Subject if the
breach is "likely to result in a high risk to the rights and
freedoms of natural persons" (Article 34 of the GDPR). In
order to fulfil these requirements, we have to implement specific
internal processes to be followed in case of a personal data
breach, which will allow us to (a) contain and recover the
breach, (b) assess the risk to the data subjects,
(c) notify, and possibly communicate the breach to the data
subjects, (d) investigate and respond to the breach. The
performance of these processes implies substantial costs in
resources and time.
Moreover, as we may
rely on third parties that will also process as processor the data
for which we are a data controller—for example, in the context of
the manufacturing of our drug candidates or for the conduct of
clinical trials, we must contractually ensure that strict security
measures, as well as appropriate obligations including an
obligation to report in due delay any security incident are
implemented, in order to allow us fulfilling our own regulatory
requirements.
We
would also be exposed to a risk of loss or litigation and potential
liability for any security breach on personal data for which we are
data controller. The costs of above-mentioned processes together
with legal penalties, possible compensation for damages and any
resulting lawsuits arising from a breach may be extensive and may
have a negative impact on reputation and materially adversely
affect our business, results of operations and financial
condition.
Our employees and independent contractors, including principal
investigators, consultants, commercial collaborators, service
providers and other vendors may engage in misconduct or other
improper activities, including noncompliance with regulatory
standards and requirements, which could have an adverse effect on
our results of operations.
We are
exposed to the risk that our employees and independent contractors,
including principal investigators, consultants, any future
commercial collaborators, service providers and other vendors may
engage in misconduct or other illegal activity. Misconduct by these
parties could include intentional, reckless and/or negligent
conduct or other unauthorized activities that violate the laws and
regulations of the FDA, EMA and other similar regulatory bodies,
including those laws that require the reporting of true, complete
and accurate information to such regulatory bodies; manufacturing
standards; healthcare fraud and abuse, data privacy laws and other
similar laws; or laws that require the true, complete and accurate
reporting of financial information or data. Activities subject to
these laws also involve the improper use or misrepresentation of
information obtained in the course of clinical trials, the creation
of fraudulent data in our preclinical studies or clinical trials,
or illegal misappropriation of product, which could result in
regulatory sanctions and cause serious harm to our reputation. It
is not always possible to identify and deter misconduct by
employees and other third parties, and the precautions we take to
detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or
regulations. In addition, we are subject to the risk that a person
or government could allege such fraud or other misconduct, even if
none occurred. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our
business and financial results, including, without limitation, the
imposition of significant civil, criminal and administrative
penalties, damages, monetary fines, disgorgements, possible
exclusion from participation in governmental healthcare programs,
individual imprisonment, other sanctions, contractual damages,
reputational harm, diminished profits and future earnings and
curtailment of our operations, any of which could adversely affect
our ability to operate our business and our results of
operations.
Our Ability to Compete May Decline If We Do Not Adequately Protect
Our Proprietary Rights.
Our
success depends on obtaining and maintaining proprietary rights to
our drug candidates for the treatment of age-related diseases, as
well as successfully defending these rights against third-party
challenges. We will only be able to protect our drug candidates,
and their uses from unauthorized use by third parties to the extent
that valid and enforceable patents, or effectively protected trade
secrets, cover them. Our ability to obtain patent protection for
our drug candidates is uncertain due to a number of factors,
including:
●
we may not have
been the first to make the inventions covered by pending patent
applications or issued patent
●
we may not have
been the first to file patent applications for our drug candidates
or the compositions we developed or for their uses;
●
others may
independently develop identical, similar or alternative products or
compositions and uses thereof;
●
our disclosures in
patent applications may not be sufficient to meet the statutory
requirements for patentability;
●
any or all of our
pending patent applications may not result in issued
patents;
●
we may not seek or
obtain patent protection in countries that may eventually provide
us a significant business opportunity;
●
any patents issued
to us may not provide a basis for commercially viable products, may
not provide any competitive advantages, or may be successfully
challenged by third parties;
●
our compositions
and methods may not be patentable;
●
hers may design
around our patent claims to produce competitive products which fall
outside of the scope of our patents;
●
others may identify
prior art or other bases which could invalidate our
patents.
Even if
we have or obtain patents covering our drug candidates or
compositions, we may still be barred from making, using and selling
our drug candidates or technologies because of the patent rights of
others. Others may have filed, and in the future may file, patent
applications covering compositions or products that are similar or
identical to ours. There are many issued U.S. and foreign patents
relating to chemical compounds and therapeutic products, and some
of these relate to compounds we intend to commercialize. These
could materially affect our ability to develop our drug candidates
or sell our products if approved. Because patent applications can
take many years to issue, there may be currently pending
applications unknown to us that may later result in issued patents
that our drug candidates or compositions may infringe. These patent
applications may have priority over patent applications filed by
us.
Obtaining and
maintaining a patent portfolio entails significant expense and
resources. Part of the expense includes periodic maintenance fees,
renewal fees, annuity fees, various other governmental fees on
patents and/or applications due in several stages over the lifetime
of patents and/or applications, as well as the cost associated with
complying with numerous procedural provisions during the patent
application process. We may or may not choose to pursue or maintain
protection for particular inventions. In addition, there are
situations in which failure to make certain payments or
noncompliance with certain requirements in the patent process can
result in abandonment or lapse of a patent or patent application,
resulting in partial or complete loss of patent rights in the
relevant jurisdiction. If we choose to forgo patent protection or
allow a patent application or patent to lapse purposefully or
inadvertently, our competitive position could
suffer.
In
addition, it is unclear at this time what Brexit's impact will have
on our intellectual property rights and the process for obtaining
and defending such rights. It is possible that certain intellectual
property rights, such as trademarks, granted by the EU will cease
being enforceable in the UK absent special arrangements to the
contrary. With regard to existing patent rights, the effect of
Brexit should be minimal considering enforceable patent rights are
specific to the UK, whether arising out of the European Patent
Office or directly through the UK patent office.
Legal
actions to enforce our proprietary rights (including patents and
trademarks) can be expensive and may involve the diversion of
significant management time. In addition, these legal actions could
be unsuccessful and could also result in the invalidation of our
patents or trademarks or a finding that they are unenforceable. We
may or may not choose to pursue litigation or other actions against
those that have infringed on our patents or trademarks, or used
them without authorization, due to the associated expense and time
commitment of monitoring these activities. If we fail to protect or
to enforce our intellectual property rights successfully, our
competitive position could suffer, which could harm our results of
operations.
Risks
Relating to our Finances, Capital Requirements and Other Financial
Matters
We are a clinical stage biopharmaceutical company with a history of
operating losses that are expected to continue and we are unable to
predict the extent of future losses, whether we will generate
significant revenues or whether we will achieve or sustain
profitability.
We are
a company in the clinical stage of pharmaceutical development and
our prospects must be considered in light of the uncertainties,
risks, expenses and difficulties frequently encountered by
companies in their early stages of operations. We have generated
operating losses since our inception, including losses of
approximately $15.2 million and $13.5 million for the years ended
December 31, 2019 and 2018, respectively, and losses of
approximately $15.3 for the nine months ended September 30, 2020.
We expect to make substantial expenditures and incur increasing
operating costs in the future and our accumulated deficit will
increase significantly as we expand development and clinical trial
activities for MS1819, niclosamide and our other product
candidates. Our losses have had, and are expected to continue to
have, an adverse impact on our working capital, total assets and
stockholders’ equity. Because of the risks and uncertainties
associated with product development, we are unable to predict the
extent of any future losses, whether we will ever generate
significant revenues or if we will ever achieve or sustain
profitability.
We have
incurred significant operating losses and negative cash flows from
operations since inception. As of September 30, 2020, we had an
accumulated deficit of approximately $78.0 million. While we had
positive working capital as of September 30, 2020, based on our
historical and anticipated rate of cash expenditures, we do not
anticipate our working capital will be sufficient to sustain our
business through the successful commercialization of our product
candidates. Therefore, we are dependent on obtaining, and are
continuing to pursue, the necessary funding from outside sources,
including obtaining additional funding from the sale of securities,
in order to continue our operations. Without adequate funding, we
may not be able to meet our obligations. We believe these
conditions raise substantial doubt about our ability to continue as
a going concern.
Raising additional funds by issuing securities or through licensing
or lending arrangements may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish
proprietary rights.
To the
extent that we raise additional capital by issuing equity
securities, the share ownership of existing stockholders will be
diluted. Any future debt financing may involve covenants that
restrict our operations, including limitations on our ability to
incur liens or additional debt, pay dividends, redeem our stock,
make certain investments and engage in certain merger,
consolidation or asset sale transactions, among other restrictions.
In addition, if we raise additional funds through licensing
arrangements, it may be necessary to relinquish potentially
valuable rights to our product candidates or grant licenses on
terms that are not favorable to us.
In the event we
effect any issuance, or any of our subsidiaries, of Common Stock or
Common Stock equivalents for cash consideration, or a combination
of units thereof (a “Subsequent
Financing”), each holder of our Series B Preferred Stock has
the right, subject to certain exceptions set forth in the Series B
Certificate of Designations, at its option, to exchange (in lieu of
cash subscription payments) all or some of the Series B Preferred
Stock then held (with a value per share of Series B Preferred Stock
equal to the Liquidation Preference) for any securities or units
issued in a Subsequent Financing on dollar-for-dollar
basis.
We will need substantial additional capital and certain terms
included in our financing transactions may prohibit us from raising
capital when needed, which would force us to delay, curtail or
eliminate one or more of our research and development programs or
commercialization efforts.
Our
operations have consumed substantial amounts of cash since
inception. During the years ended December 31, 2019 and 2018, we
incurred research and development expense of approximately $8.7
million and $5.8 million, respectively. We expect to continue to
spend substantial amounts on product development, including
conducting clinical trials for MS1819, niclosamide and our other
product candidates and purchasing clinical trial materials from our
suppliers. We will require substantial additional funds to support
our continued research and development activities, as well as the
anticipated costs of preclinical studies and clinical trials,
regulatory approvals and potential commercialization. We could
spend our available financial resources much faster than we
currently expect.
Further,
pursuant to the financing transaction documents we entered into in
connection with the Offerings, we have agreed, not to issue,
enter into any agreement to issue or announce the issuance or
proposed issuance of any shares of common stock or common stock
equivalents or file any registration statement other than as
contemplated pursuant to the Registration Rights Agreement entered
into in connection with the Private Placement until the later of 30
days after the effective date of such registration statement is
declared effective or the day we obtain the Stockholder Approval.
In addition, we have agreed, subject to certain exceptions,
for the one-year period commencing on the signing of the Purchase
Agreement, not to (i) issue or sell any debt or equity securities
that are convertible into, exchangeable or exercisable for, or
include the right to receive, additional common stock either (A) at
a conversion price, exercise price or exchange rate or other price
that is based upon, and/or varies with, the trading prices of or
quotations for the common stock at any time after the initial
issuance of such debt or equity securities or (B) with a
conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt
or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to our business or
the market for the common stock or (ii) enter into, or effect a
transaction under, any agreement, including, but not limited to, an
equity line of credit, whereby we may issue securities at a future
determined price. The Series C Purchase Agreement limits our
ability to make sales of our Common Stock pursuant to our Equity
Line Agreement (as defined below) with Lincoln Park Capital Fund,
LLC until June 30, 2021.
Until
such time, if ever, as we can generate a sufficient amount of
product revenue and achieve profitability, we expect to seek to
finance future cash needs through equity and/or debt financings or
corporate collaboration and licensing arrangements. We currently
have no other commitments or agreements relating to any of these
types of transactions and we cannot be certain that additional
funding will be available on acceptable terms, or at all. If we are
unable to raise additional capital, we will have to delay, curtail
or eliminate one or more of our research and development programs.
If we are able to raise additional capital, our stockholders may
experience additional dilution, and as a result, our stock price
may decline.
If we issue additional shares of Common Stock in the future,
including issuances of shares upon conversion
or exercise of our outstanding securities convertible
and/or exercisable into shares of Common Stock, our existing
stockholders will be diluted.
The
conversion or exercise, as applicable, of outstanding
securities will dilute the voting interest of the owners of
presently outstanding shares of Common Stock by adding a
substantial number of additional shares of our Common Stock. As of
January 11, 2021, we had:
●
4,082,506
shares of Common Stock issuable upon the exercise of stock options,
at a weighted average exercise price of $1.24 per share under our
2014 Plan;
●
387,000
shares of granted, but unissued restricted stock and restricted
stock units under our 2014 Plan;
●
36,592,527
shares of Common Stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $1.09 per
share;
●
316,185
shares of Common Stock issuable upon the exercise of stock options,
at a weighted average exercise price of $0.95 per share under our
2020 Plan;
●
9,638,815
shares of Common Stock that are available for future issuance under
our 2020 Plan;
●
25,535,473
shares of Common Stock issuable upon conversion of Series B
Convertible Preferred Stock, including accrued and unpaid dividends
of approximately $48,363 as of January 11, 2021;
●
up
to 679,282 shares of Common Stock issuable upon conversion of
Series C Preferred Stock that may be issued pursuant to the
Exchange Right, in excess of amounts currently underlying the
Series B Preferred Stock, the issuance of which is subject to the
Stockholder Approval to the extent in excess of the Issuable
Maximum;
●
up
to 26,151,945 shares of Common Stock issuable upon exercise of
Investor Warrants that may be issued pursuant to the Exchange
Right, the issuance of which is subject to the Stockholder
Approval;
●
3,260,869
shares of Common Stock issuable upon conversion of Series C
Preferred Stock issued to First Wave pursuant to the First Wave
License Agreement, the issuance of which is subject to the
Stockholder Approval;
●
746,667
shares of Common Stock issuable upon exercise of Placement Agent
Warrants, the issuance of which is subject to the Stockholder
Approval;
●
5,333,334
shares of Common Stock issuable upon conversion of Series C
Preferred Stock sold in the Private Placement, the issuance of
which is subject to the Stockholder Approval to the extent in
excess of the Issuable Maximum; and
●
10,666,668
shares of Common Stock issuable upon exercise of Investor Warrants
sold in the Private Placement, the issuance of which is subject to
the Stockholder Approval.
To
the extent any of these convertible securities, warrants or options
are converted or exercised and any additional options are
granted and exercised, there will be
further dilution to stockholders and
investors.
Risks
Associated with our Capital Stock
Our failure to maintain compliance with Nasdaq’s continued listing
requirements could result in the delisting of our Common
Stock.
On
March 23, 2020, we received a letter from the Listing
Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC
(“Nasdaq”) indicating that,
based upon the closing bid price of our Common Stock for the prior
30 consecutive business days, we were not in compliance with the
requirement to maintain a minimum bid price of $1.00 per share for
continued listing on Nasdaq, as set forth in Nasdaq Listing Rule
5550(a)(2) (the “Minimum Bid Price
Requirement”). The 180-day time period for us to regain
compliance was subsequently extended to December 3, 2020, pursuant
to certain COVID-19 related relief from price-based continued
listing requirements issued by Nasdaq on April 16, 2020. On
November 23, 2020, we submitted a request to Nasdaq for a 180-day
extension to regain compliance with the Minimum Bid Price
Requirement. On December 4, 2020, we received a letter from Nasdaq
advising that we had been granted a 180-day extension to June 1,
2021 to regain compliance with the Minimum Bid Price Requirement,
in accordance with Nasdaq Listing Rule 5810(c)(3)(A). If we do not
regain compliance within the allotted compliance periods, including
any extensions that may be granted by Nasdaq, Nasdaq will provide
notice that our Common Stock will be subject to delisting. We would
then be entitled to appeal that determination to a Nasdaq hearings
panel. We will continue to monitor the closing bid price of our
Common Stock and seek to regain compliance with the Minimum Bid
Price Requirement within the allotted compliance period. If we do
not regain compliance within the allotted compliance period, Nasdaq
will provide notice that our Common Stock will be subject to
delisting. We would then be entitled to appeal that determination
to a Nasdaq hearings panel. There can be no assurance that we will
regain compliance with the Minimum Bid Price Requirement during the
180-day extension.
While
we intend to engage in efforts to regain compliance, and thus
maintain our listing, there can be no assurance that we will be
able to regain compliance during the applicable time periods set
forth above. If we fail to continue to meet all applicable Nasdaq
Capital Market requirements in the future and Nasdaq determines to
delist our Common Stock, the delisting could substantially decrease
trading in our Common Stock; adversely affect the market liquidity
of our Common Stock as a result of the loss of market
efficiencies associated with Nasdaq and the loss of federal
preemption of state securities laws; adversely affect our ability
to obtain financing on acceptable terms, if at all; and may result
in the potential loss of confidence by investors, suppliers,
customers, and employees and fewer business development
opportunities. Additionally, the market price of our Common Stock
may decline further and shareholders may lose some or all of their
investment.
The limited public market for our securities may adversely affect
an investor’s ability to liquidate an investment in
us.
Although our Common
Stock is currently listed on the Nasdaq Capital Market, there is
limited trading activity. We can give no assurance that an
active market will develop, or if developed, that it will be
sustained. If an investor acquires shares of our Common Stock,
the investor may not be able to liquidate our shares should there
be a need or desire to do so.
The market price of our Common Stock may be volatile and may
fluctuate in a way that is disproportionate to our operating
performance.
Our
stock price may experience substantial volatility as a result of a
number of factors, including:
●
sales or potential
sales of substantial amounts of our Common Stock;
●
delay or failure in
initiating or completing pre-clinical or clinical trials or
unsatisfactory results of these trials;
●
announcements about
us or about our competitors, including clinical trial results,
regulatory approvals or new product introductions;
●
developments
concerning our licensors or product manufacturers;
●
litigation and
other developments relating to our patents or other proprietary
rights or those of our competitors;
●
conditions in the
pharmaceutical or biotechnology industries;
●
governmental
regulation and legislation;
●
variations in our
anticipated or actual operating results;
●
change in
securities analysts’ estimates of our performance, or our failure
to meet analysts’ expectations; foreign currency values and
fluctuations; and
●
overall economic
conditions.
Many of
these factors are beyond our control. The stock markets in general,
and the market for pharmaceutical and biotechnological companies in
particular, have historically experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies.
These broad market and industry factors could reduce the market
price of our Common Stock, regardless of our actual operating
performance.
We have never paid and do not intend to pay cash dividends. As
a result, capital appreciation, if any, will be your sole source of
gain.
We have
never paid cash dividends on any of our capital stock and we
currently intend to retain future earnings, if any, to fund the
development and growth of our business. In addition, the terms
of existing and future debt agreements may preclude us from paying
dividends. As a result, capital appreciation, if any, of our
Common Stock will be your sole source of gain for the foreseeable
future.
Provisions in our restated certificate of incorporation, our
restated by-laws and Delaware law might discourage, delay or
prevent a change in control of our company or changes in our
management and, therefore, depress the trading price of our Common
Stock.
Provisions of our
restated certificate of incorporation, our restated by-laws and
Delaware law may have the effect of deterring unsolicited takeovers
or delaying or preventing a change in control of our company or
changes in our management, including transactions in which our
stockholders might otherwise receive a premium for their shares
over then current market prices. In addition, these provisions may
limit the ability of stockholders to approve transactions that they
may deem to be in their best interests. These provisions
include:
●
the inability of
stockholders to call special meetings; and
●
the ability of our
board of directors (the “Board”) to designate the terms of and
issue new series of preferred stock without stockholder approval,
which could include the right to approve an acquisition or other
change in our control or could be used to institute a rights plan,
also known as a poison pill, that would work to dilute the stock
ownership of a potential hostile acquirer, likely preventing
acquisitions that have not been approved by our board of
directors.
In
addition, Section 203 of the Delaware General Corporation Law
prohibits a publicly-held Delaware corporation from engaging in a
business combination with an interested stockholder, generally a
person which together with its affiliates owns, or within the last
three years, has owned 15% of our voting stock, for a period of
three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination
is approved in a prescribed manner.
The
existence of the foregoing provisions and anti-takeover measures
could limit the price that investors might be willing to pay in the
future for shares of our Common Stock. They could also deter
potential acquirers of our company, thereby reducing the likelihood
that you could receive a premium for your Common Stock in an
acquisition.
We are eligible to be treated as an “emerging growth company”, as
defined in the JOBS Act, and we cannot be certain if the reduced
disclosure requirements applicable to emerging growth companies
will make our Common Stock less attractive to
investors.
We are
an “emerging growth company”, as defined in the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”). For as long as we continue
to be an emerging growth company, we may take advantage of
exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies,
including (i) not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act,
(ii) reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and
(iii) exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved. We could be
an emerging growth company for up to five years, although
circumstances could cause us to lose that status earlier, including
if the market value of our Common Stock held by non-affiliates
exceeds $700.0 million as of any June 30 before that time
or if we have total annual gross revenue of $1.0 billion or more
during any fiscal year before that time, after which, in each case,
we would no longer be an emerging growth company as of the
following December 31 or, if we issue more than $1.0 billion in
non-convertible debt during any three-year period before that time,
we would cease to be an emerging growth company
immediately.
Under
the JOBS Act, emerging growth companies can also delay adopting new
or revised accounting standards until such time as those standards
apply to private companies. We have irrevocably elected not to
avail ourselves of this exemption from new or revised accounting
standards and, therefore, will be subject to the same new or
revised accounting standards as other public companies that are not
emerging growth companies.
If securities or industry analysts do not publish research or
reports about our business, if they adversely change their
recommendations regarding our shares or if our results of
operations do not meet their expectations, our share price and
trading volume could decline.
The
trading market for our shares is influenced by the research and
reports that industry or securities analysts publish about us or
our business. We do not have any control over these analysts. If
one or more of these analysts cease coverage of our company or fail
to publish reports on us regularly, we could lose visibility in the
financial markets, which in turn could cause our share price or
trading volume to decline. Moreover, if one or more of the analysts
who cover us downgrade our stock, or if our results of operations
do not meet their expectations, our share price could
decline.
We
currently have Series B Convertible Preferred Stock, par value
$0.0001 per share (the “Series B Preferred Stock”) and Series C
Preferred Stock outstanding. Our certificate of incorporation
authorizes our Board to create new series of preferred stock
without further approval by our stockholders, which could adversely
affect the rights of the holders of our Common Stock.
Our
Board has the authority to fix and determine the relative rights
and preferences of preferred stock. Our Board also has the
authority to issue preferred stock without further stockholder
approval.
We
currently have 2,738.643867 shares of Series B Preferred Stock
outstanding with a stated value of $7,700 per share, which are
currently convertible at the holder’s option at any time, together
with any accrued but unpaid dividends thereon, into an aggregate of
27,386,327 shares of Common Stock at a conversion price of $0.77,
subject to certain adjustments.
Our
Series B Preferred Stock gives its holders the preferred right to
our assets upon liquidation and the right to receive dividend
payments at 9.00% per annum before dividends are distributed to the
holders of Common Stock, among other things. In addition, in the
event we effect any issuance of Common Stock or Common Stock
equivalents for cash consideration, or a combination of units
thereof, the holders of the Series B Preferred Stock have the
right, subject to certain exceptions, at their option, to exchange
(in lieu of cash subscription payments) all or some of the Series B
Preferred Stock then held (with a value per share of the Series B
Preferred Stock equal to the Series B Stated Value plus accrued and
unpaid dividends thereon) for any securities or units issued in
such issuance on a dollar-for-dollar basis. The holders of the
Series B Preferred Stock, voting as a separate class, also have
customary consent rights with respect to certain corporate actions,
including the issuance of an increased number of shares of Series B
Preferred Stock, the establishment of any capital stock ranking
senior to or on parity the Series B Preferred Stock as to dividends
or upon liquidation, the incurrence of indebtedness, and certain
changes to our Charter or Bylaws including other
actions.
We currently have 5,333.3333 shares of
Series C Preferred Stock outstanding, with a stated value of
$750.00 (the “Series C Stated Value”) per share, which will be
initially convertible, subject to the Beneficial Ownership
Limitation and the Issuable Maximum (such Issuable Maximum applied
collectively when any conversions of Series C Preferred Stock are
aggregated together with all shares of Common Stock issuable in
respect of certain Related Transactions described herein), at
either the holder’s option or at our option at any time, into an
aggregate of up to 5,333,334 shares of Common Stock at a conversion
price of $0.75, subject to specified adjustments for stock splits,
cash or stock dividends, reorganizations, reclassifications other
similar events as set forth in the Series C Certificate of
Designations. The Series C Preferred Stock contains limitations
that prevent the holder thereof from acquiring shares of Common
Stock upon conversion that would result in the number of shares
beneficially owned by such holder and its affiliates exceeding the
Beneficial Ownership Limitation. The Series C Certificate of
Designations provides for the issuance of Pre-funded Warrants to
the extent necessary to comply with the Beneficial Ownership
Limitation. Any conversions of Series C Preferred Stock prior to
obtaining the Stockholder Approval will be processed in the order
in which we receive such conversion request from the holders of
Series C Preferred Stock, and not on a pro rata basis. If we
obtain the Stockholder Approval, we anticipate to convert
immediately all shares of Series C Preferred Stock into shares of
Common Stock (or Pre-funded Warrants, as
applicable).
Our
Series C Preferred Stock gives its holders, subject to the
preference and priority to the holders of our Series B Preferred
Stock, the preferred right to receive dividends, commencing from
the date of issuance of the Series C Preferred Stock. Such
dividends may be paid only when, as and if declared by the Board,
out of assets legally available therefore, quarterly in arrears on
the last day of March, June, September and December in each year,
commencing on the date of issuance, at the dividend rate of 9.0%
per annum. Such dividends are cumulative and continue to accrue on
a daily basis whether or not declared and whether or not we have
assets legally available therefore.
Under
the Series C Certificate of Designations, each share of Series C
Preferred Stock carries a liquidation preference equal to the
Series C Stated Value plus accrued and unpaid dividends thereon and
any other fees or liquidated damages then due and owing
thereon.
If we
obtain the Stockholder Approval, we anticipate to convert
immediately all shares of Series C Preferred Stock into shares of
Common Stock (or Pre-funded Warrants, as applicable).
Our
obligations to the holders of the Series B Preferred Stock and
Series C Preferred Stock could limit our ability to obtain
additional financing or increase our borrowing costs, which could
have an adverse effect on our financial condition and hinder the
accomplishment of our corporate goals.
In
addition to the Series B Preferred Stock and Series C Preferred
Stock, our Board could authorize the issuance of additional series
of preferred stock with such rights preferential to the rights of
our Common Stock, including the issuance of a series of preferred
stock that has greater voting power than our Common Stock or that
is convertible into our Common Stock, which could decrease the
relative voting power of our Common Stock or result in dilution to
our existing stockholders.
Conversion and exercise, as applicable, of all of the shares of
Series C Preferred Stock and Investor Warrants are contingent upon
stockholder approval.
We
do not have a sufficient number of authorized shares of Common
Stock to cover all of the shares of Common Stock issuable upon the
exercise in full of all of the Investor Warrants issued in the
concurrent Private Placement and potentially issuable to holders of
Series B Preferred Stock in connection with their exercise of the
Exchange Rights.
In
addition, pursuant to Nasdaq Listing Rule 5635, stockholder
approval is required for the issuance of any shares of Common Stock
in excess of 6,186,966 shares of Common Stock in the aggregate,
referred to herein as the “Issuable Maximum,” which amount is equal
to 19.99% of the shares of Common Stock issued and outstanding on
December 30, 2020. We will apply the Issuable Maximum collectively,
with conversions processed in the order in which we receive them,
aggregating shares of Common Stock issuable upon conversion of
Series C Preferred Stock together with all shares of Common Stock
issuable upon conversion or exchange of any securities issued in
certain related transactions to this offering and Private
Placement, including (i) any shares of preferred stock issuable to
First Wave as consideration for the First Wave License Agreement,
(ii) any warrants issued to the placement agent and (iii) any
securities issuable to holders of the Exchange Right as a result of
the offering and Private Placement, referred to herein as the
“Related Transactions.” As a result of the conversion, immediately
upon consummation of the Registered Direct Offering, of 5,333.3333
shares of Series C Preferred Stock into Common Stock and Pre-funded
Warrants, 853,632 shares of Common Stock remained available for
issuance below the Issuable Maximum as of January 11,
2021.
Upon
receipt of the Stockholder Approval, we anticipate to convert
immediately all shares of Series C Preferred Stock into shares of
Common Stock (or Pre-Funded Warrants, as applicable).
Accordingly,
we are required pursuant to the purchase agreement relating to the
Offerings to hold a meeting of our stockholders not later March 31,
2021 to seek approval (the “Stockholder Approval”) for (i) the
issuance, upon conversion of the Series C Preferred Stock, of the
number of shares of Common Stock which would exceed the Issuable
Maximum, and (ii) an increase in the number of authorized shares of
Common Stock above 150,000,000. If we obtain the Stockholder
Approval, we anticipate to convert immediately all shares of Series
C Preferred Stock into shares of Common Stock (or Pre-funded
Warrants, as applicable).
Our
stockholders may reject such proposals, which could delay or
prevent the ability of holders to convert all of their shares of
Series C Preferred Stock into shares of Common Stock.
In
the event the Stockholder Approval is not received on or prior to
the Meeting Deadline, we must hold an additional meeting of our
stockholders every three months thereafter until the Stockholder
Approval is obtained.
We may be required to issue additional shares of Series C Preferred
Stock and/or Investor Warrants to the investors who purchased
shares of our Series B Preferred Stock and warrants to purchase
shares of our Common Stock in a private placement in July 2020 as a
result of the “most favored nation” provision in the securities
purchase agreement entered into in such private
placement.
On
July 16, 2020, we consummated a private placement offering (the
“Series B Offering”) in which we issued an aggregate of
2,912.583005 shares of Series B Preferred Stock, at a price of
$7,700.00 per share, initially convertible into an aggregate of
29,125,756 shares of Common Stock at $0.77 per share, together with
warrants (the “Series B Warrants”) to purchase an aggregate of
14,562,826 shares of Common Stock at an exercise price of $0.85 per
share. The Series B Preferred Stock carries a cumulative dividend
at a rate of 9.0% per annum, payable at our option either in cash
or in kind in additional shares of Series B Preferred
Stock.
Under
the Certificate of Designations for the Series B Preferred Stock
(the “Series B Certificate of Designations”), in the event we
effect any issuance of Common Stock or Common Stock equivalents for
cash consideration, or a combination of units thereof (a
“Subsequent Financing”), each holder of the Series B Preferred
Stock has the right to exchange the stated value, plus accrued and
unpaid dividends, of the Series B Preferred Stock for any
securities issued in the Subsequent Financing, in lieu of any cash
subscription payments therefor (the “Exchange Right”). As a result,
we may be required to issue up to 679,282 additional shares of
Series C Preferred Stock and Investor Warrants to purchase up to an
additional 26,151,945 shares of Common Stock to any holders of
Series B Preferred Stock who elect to exercise their Exchange
Rights.
In
connection with any exercise of any Exchange Right, under Nasdaq
Listing Rule 5635 and related guidance, prior to obtaining the
Stockholder Approval, conversions of any Series C Preferred Stock
received upon exercise of an Exchange Right into Common Stock at
the reduced conversion price of $0.75 per share applicable to the
Series C Preferred Stock will be counted against the Issuable
Maximum, with any conversions of Series C Preferred Stock to be
processed in the order in which we receive such conversion request
from the holders of Series C Preferred Stock, and not on a pro rata
basis, and such Issuable Maximum shall be applied collectively,
aggregating together any conversions of Series C Preferred Stock
with all shares of Common Stock issuable in respect of the Related
Transactions, except to the extent such conversions do not exceed
the amount previously issuable upon conversion of the Series B
Preferred Stock at the prior conversion price of $0.77 per share,
which was the applicable conversion price at the time of our
stockholder approval for the Series B Preferred Stock obtained on
September 11, 2020.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus, and any documents we incorporate by reference, contain
certain forward-looking statements that involve substantial risks
and uncertainties. All statements contained in this prospectus and
any documents we incorporate by reference, other than statements of
historical facts, are forward-looking statements including
statements regarding our strategy, future operations, future
financial position, future revenue, projected costs, prospects,
plans, objectives of management and expected market growth. These
statements involve known and unknown risks, uncertainties and other
important factors that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements.
The
words “anticipate”, “believe”, “estimate”, “expect”, “intend”,
“may”, “plan”, “predict”, “project”, “target”, “potential”, “will”,
“would”, “could”, “should”, “continue” and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. These
forward-looking statements include, among other things, statements
about:
●
availability
of capital to satisfy our working capital
requirements;
●
our current and
future capital requirements and our ability to raise additional
funds to satisfy our capital needs;
●
accuracy
of our estimates regarding expense, future revenue and capital
requirements;
●
ability
to continue operating as a going concern;
●
our
plans to develop and commercialize our lead drug candidate,
MS1819;
●
our
ability to initiate and complete our clinical trials and to advance
our principal product candidates into additional clinical trials,
including pivotal clinical trials, and successfully complete such
clinical trials;
●
regulatory
developments in the U.S. and foreign countries;
●
the
performance of our third-party contract manufacturer(s), contract
research organization(s) and other third-party non-clinical and
clinical development collaborators and regulatory service
providers;
●
our
ability to obtain and maintain intellectual property protection for
our core assets;
●
the
size of the potential markets for our product candidates and our
ability to serve those markets;
●
the
rate and degree of market acceptance of our product candidates for
any indication once approved;
●
the
success of competing products and product candidates in development
by others that are or become available for the indications that we
are pursuing;
●
the
loss of key scientific, clinical and nonclinical development,
and/or management personnel, internally or from one of our
third-party collaborators;
●
the
impact of the coronavirus (COVID-19) epidemic on our operations,
and current and planned clinical trials, including, but not limited
to delays in clinical trial recruitment and participation;
and
●
other risks and uncertainties, including those
listed in the “Risk
Factors” section of this
prospectus and the documents incorporated by reference
herein.
These
forward-looking statements are only predictions and we may not
actually achieve the plans, intentions or expectations disclosed in
our forward-looking statements, so you should not place undue
reliance on our forward-looking statements. Actual results or
events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make.
We have based these forward-looking statements largely on our
current expectations and projections about future events and trends
that we believe may affect our business, financial condition and
operating results. We have included important factors in the
cautionary statements included in this prospectus that could cause
actual future results or events to differ materially from the
forward-looking statements that we make. Our forward-looking
statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments
we may make.
You
should read this prospectus with the understanding that our actual
future results may be materially different from what we expect. We
do not assume any obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise, except as required by applicable law.
The
common stock to be offered and sold using this prospectus will be
offered and sold by the selling stockholders named in this
prospectus. Accordingly, we will not receive any proceeds from any
sale of shares of our Common Stock in this offering. A portion
of the shares covered by this prospectus may be issued upon
exercise of the warrants. Upon any cash exercise of the
warrants, the selling stockholders will pay us the applicable
exercise price. We anticipate that proceeds that we receive from
the cash exercise of such warrants, if any, will be used for
working capital and general corporate purposes, including, without
limitation, development of our product candidates, and general and
administrative expenses. We will pay all of the fees and expenses
incurred by us in connection with this registration. We will not be
responsible for fees and expenses incurred by the selling
stockholders or any underwriting discounts or agent’s
commissions.
MARKET
PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our
Common Stock is listed on The Nasdaq Capital Market, under the
symbol “AZRX”. On January 11, 2021, the closing price for our
common stock as reported on The Nasdaq Capital Market was $0.9090
per share. As of January 11, 2021, we had 99 record holders of our
common stock.
We have
never declared or paid any cash dividends on our capital stock, and
we do not currently intend to pay any cash dividends on our common
stock for the foreseeable future. We expect to retain future
earnings, if any, to fund the development and growth of our
business. Any future determination to pay dividends on our common
stock will be at the discretion of our board of directors and will
depend upon, among other factors, our results of operations,
financial condition, capital requirements and any contractual
restrictions.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
References in this report to “AzurRx,” “Company,” “we,” “us,”
“our,” or similar references mean AzurRx BioPharma, Inc. and our
subsidiaries on a consolidated basis. References to “AzurRx
BioPharma” refer to AzurRx BioPharma, Inc. on an unconsolidated
basis. References to “AzurRx SAS” refer to AzurRx BioPharma’s
wholly owned subsidiary through which we conduct our European
operations. References to the “SEC” refer to the U.S. Securities
and Exchange Commission.
Forward-Looking
Statements
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with
our consolidated financial statements and the related notes
included elsewhere in this interim report. Our consolidated
financial statements have been prepared in accordance with U.S.
GAAP. The following discussion and analysis contains
forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are
signified by the words “expect,” “anticipate,” “intend,” “believe,”
or similar language. Our business and financial performance are
subject to substantial risks and uncertainties. Actual
results, performance or achievements of the company and its
clinical trials may differ materially from those
indicated by such forward-looking statements as a result of various
important factors, including whether our cash resources will be
sufficient to fund continuing operations for the periods and/or
trials anticipated; whether results obtained in preclinical and
nonclinical studies and clinical trials will be indicative of
results obtained in future clinical trials; whether preliminary or
interim results from a clinical trial such as the interim results
presented will be indicative of the final results of the trial;
whether our product candidates will advance through the clinical
trial process on a timely basis, or at all; whether the results of
such trials will warrant submission for approval from the United
States Food and Drug Administration or equivalent foreign
regulatory agencies; whether our product candidates will receive
approval from regulatory agencies on a timely basis or at all;
whether, if product candidates obtain approval, they will be
successfully distributed and marketed; whether the coronavirus
pandemic will have an impact on the timing of our clinical
development, clinical supply and our operations; and other factors
discussed in the “Risk Factors” section of our annual report on
Form 10-K for the period ended December 31, 2019, and
risks described in other filings that we may make with the
Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements. Any
forward-looking statements contained in this report speak only as
of the date hereof, and we specifically disclaim any obligation to
update any forward-looking statement, whether because of new
information, future events or otherwise.
Overview
AzurRx
BioPharma, Inc. (“AzurRx”
or “Parent”) was
incorporated on January 30, 2014 in the State of Delaware. In June
2014, AzurRx acquired 100% of the issued and outstanding capital
stock of AzurRx SAS (formerly “ProteaBio Europe SAS”), a company
incorporated in October 2008 under the laws of France. AzurRx and
its wholly-owned subsidiary, AzurRx SAS (“ABS”), are collectively referred to as
the “Company.”
We are engaged in
the research and development of targeted, non-systemic therapies
for the treatment of patients with GI diseases. Non-systemic
therapies are non-absorbable drugs that act locally, i.e. the
intestinal lumen, skin or mucosa, without reaching an individual’s
systemic circulation. We are currently focused on developing our
lead drug candidates, MS1819 as well as launching clinical trials
for niclosamide.
MS1819
MS1819 is a recombinant lipase enzyme for the
treatment of exocrine pancreatic insufficiency (“EPI”) associated
with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”).
MS1819, supplied as an oral non-systemic biologic capsule, is
derived from the Yarrowia
lipolytica yeast lipase
and breaks up fat molecules in the digestive tract of EPI patients
so that they can be absorbed as nutrients. Unlike the standard of
care, the MS1819 synthetic lipase does not contain any animal
products.
EPI
is a condition characterized by deficiency of the
exocrine pancreatic enzymes, resulting in a patient’s
inability to digest food properly, or maldigestion. The deficiency
in this enzyme can be responsible for greasy diarrhea, fecal urge
and weight loss. There are more than 30,000 patients with EPI
caused by CF according to the Cystic Fibrosis Foundation
approximately and approximately 90,000 patients in the U.S. with
EPI caused by CP according to the National Pancreas Foundation.
Patients are currently treated with porcine pancreatic enzyme
replacement pills.
MS1819 – Phase 2b OPTION 2 Cystic Fibrosis Monotherapy
Studies
On October 17, 2019, we announced that the Cystic
Fibrosis Foundation Data Safety Monitoring Board (the “CFF DSMB”)
completed its review of our final results of the OPTION Cross-Over
Study and had found no safety concerns for MS1819, and that the CFF
DSMB supported our plan to proceed to a higher 4.4 gram dose of
MS1819 with enteric capsules in the multi-center dose escalation
Phase 2b OPTION clinical trial (the “OPTION 2 Trial”). In December
2019, we submitted the clinical trial protocol to the existing IND
at the FDA. The clinical trial protocol has been reviewed by the
FDA with no comments. In April 2020, we received approval to
conduct the OPTION 2 Trial in Therapeutics Development Network
(“TDN”) clinical sites in the U.S. as well as
Institutional Review Board (“IRB”) approval to commence the OPTION 2
Trial.
The OPTION 2 Trial is designed to investigate the
safety, tolerability and efficacy of MS1819 (2.2 gram and 4.4 gram
doses in enteric capsules) in a head-to-head manner versus the
current standard of care, porcine pancreatic enzyme replacement
therapy (“PERT”) pills. The OPTION 2 Trial will be an
open-label, crossover study, conducted in 15 sites in the
U.S. and Europe. A total of 30 CF patients 18 years or
older will be enrolled. MS1819 will be administered in
enteric capsules to provide gastric protection and allow optimal
delivery of enzyme to the duodenum. Patients will first be
randomized into two cohorts: to either the MS1819 arm, where they
receive a 2.2 gram daily oral dose of MS1819 for three weeks; or to
the PERT arm, where they receive their pre-study dose of PERT pills
for three weeks. After three weeks, stools will be collected for
analysis of coefficient of fat absorption (“CFA”). Patients will then be crossed over for
another three weeks of the alternative treatment. After three weeks
of cross-over therapy, stools will again be collected for analysis
of CFA. A parallel group of patients will be randomized and studied
in the same fashion, using a 4.4 gram daily dose of
MS1819. All patients will be followed for an additional two
weeks after completing both crossover treatments for post study
safety observation. Patients will be assessed using
descriptive methods for efficacy, comparing CFA between MS1819 and
PERT arms, and for safety.
We initiated
the OPTION 2 Trial in July 2020 with the first patient screened and
three clinical trial sites activated in the U.S. In August 2020, we
dosed the first patients and initiated the European arm of the
OPTION 2 Trial. Topline data is anticipated in the first quarter of
2021; however, this timeline may be further delayed due to
the COVID-19 pandemic.
In November 2020, we submitted a protocol amendment for the OPTION
2 Trial to add a study arm that uses an immediate release MS1819
capsule to compare data from the existing arm, that uses
delayed-release enteric capsules with data from the new arm, that
uses immediate release capsules, in order to determine the optimal
dose and delivery method. We plan to initiate the OPTION 2 study
extension in early first quarter 2021.
MS1819 – Phase 2 Combination Therapy Study
In
addition to the monotherapy studies, we launched a Phase 2
multi-center clinical trial (the “Combination Trial”) in Europe to
investigate MS1819 in combination with PERT, for CF patients who
suffer from severe EPI but continue to experience clinical symptoms
of fat malabsorption despite taking the maximum daily dose of
PERTs. The Combination Trial is designed to investigate the safety,
tolerability and efficacy of escalating doses of MS1819 (700 mg,
1120 mg and 2240 mg per day, respectively), in conjunction with a
stable dose of PERTs, in order to increase CFA and relieve
abdominal symptoms in uncontrolled CF patients. A combination
therapy of PERT and MS1819 has the potential to: (i) correct
macronutrient and micronutrient maldigestion; (ii) eliminate
abdominal symptoms attributable to maldigestion; and (iii) sustain
optimal nutritional status on a normal diet in CF patients with
severe EPI.
We
dosed the first patients in our Combination Trial in Hungary in
October 2019. Planned enrollment is expected to include
approximately 24 CF patients with severe EPI, at clinical trial
sites in Hungary and additional countries in Europe, including
Turkey. Topline data is currently expected in the first half of
2021; however, this timeline may be further delayed due to the
COVID-19 pandemic.
We
announced positive interim data on the first five patients in the
Combination Trial in August 2020. The primary efficacy endpoint was
met, with CFAs greater than 80% for all patients across all visits.
For secondary efficacy endpoints, we observed that stool weight
decreased, the number of stools per day decreased, steatorrhea
improved, and body weight increased. Additionally, no serious
adverse events were reported.
We
opened a total of five clinical sites for the Combination
Trial in Turkey in October 2020 and announced that its first
patients were dosed in November 2020. We currently have a
total of nine of the expected ten sites in Europe active and
recruiting patients.
We
do not expect to generate revenue from drug candidates that we
develop until we obtain approval for one or more of such drug
candidates and commercialize our product or enter into a
collaborative agreement with a third party. We do not have any
products approved for sale at the present and have never generated
revenue from product sale.
Liquidity
and Capital Resources
We have
experienced net losses and negative cash flows from operations
since our inception. As of September 30, 2020, we had cash of
approximately $11.4 million and had sustained cumulative losses
attributable to Common Stockholders of approximately $78.0 million.
We have not yet achieved profitability and anticipate that we will
continue to incur net losses for the foreseeable future. We
expect that our expenses will continue to grow and, as a result, we
will need to generate significant product revenues to achieve
profitability. We may never achieve profitability. As such, we are
dependent on obtaining, and are continuing to pursue, the necessary
funding from outside sources, including obtaining additional
funding from the sale of securities in order to continue our
operations. Without adequate funding, we may not be able to meet
our obligations. These conditions raise substantial doubt about our
ability to continue as a going concern.
Our
primary sources of liquidity come from capital raises through
additional equity and/or debt financings. This may be impacted by
the COVID-19 pandemic, which is evolving and could negatively
impact our ability to raise additional capital in the
future.
We have funded our
operations to date primarily through the issuance of debt and
convertible debt securities, as well as the issuance of our Common
Stock and convertible preferred equity securities in various public
offerings and private placement transactions. We expect to incur
substantial expenditures in the foreseeable future for the
development of MS1819, niclosamide and any other product
candidates. We will require additional financing to develop,
prepare regulatory filings and obtain regulatory approvals, fund
operating losses, and, if deemed appropriate, establish
manufacturing, sales and marketing
capabilities.
On June
4, 2019, we filed a universal shelf
registration statement on Form S-3 with the
Securities and Exchange Commission (the “SEC”) to register our sale
from time to time up to $50.0 million of Common Stock, preferred
stock, warrants and/or units in one or more registered offerings
(the “Shelf Registration Statement”). The Shelf Registration
Statement was declared effective by the SEC on June 25, 2019. As of
January 11, 2021, we have sold an aggregate of $14.6 million worth
of securities pursuant to the Shelf Registration Statement. Current
SEC rules limit the size of primary securities offerings conducted
by issuers with a public float of less than $75 million
to no more than one-third of a company’s public float in
any 12-month period. Pursuant to these rules, as of January 11,
2021, the amount of such limitation was approximately $39.4
million, less any amounts allocable to our $4.0 million Registered
Direct Offering of Series C Preferred Stock which was consummated
on January 6, 2021.
On
November 13, 2019, we entered into a purchase agreement (the
“Equity Line Agreement”), together with a registration rights
agreement (the “Lincoln Park Registration Rights Agreement”), with
Lincoln Park Capital Fund, LLC (“Lincoln Park”). Under the terms of
the Equity Line Agreement, Lincoln Park has committed to purchase
up to $15,000,000 of our Common Stock (the “Equity Line”). During
nine months ended September 30, 2020, we issued an aggregate
of 1,495,199 shares of Common Stock in connection with
the Equity Line Agreement, resulting in net proceeds to
us of approximately $988,348. However, pursuant to the Securities
Purchase Agreement entered into in connection with the Offerings,
we may not effect any transactions under the Equity Line without
first obtaining a waiver until after June 30, 2021.
On
December 31, 2020, to finance our entry into the First Wave License
Agreement with First Wave, we raised aggregate gross proceeds of
$8.0 million from the sale of shares of Series C Preferred Stock
and the Investor Warrants. In consideration of the license and
other rights granted by First Wave, we paid First Wave a $9.0
million upfront cash payment and an additional payment of $1.25
million due on June 30, 2021. In addition, we are obligated to pay
potential milestone payments to First Wave totaling up to $37.0
million for each indication, based upon the achievement of
specified development and regulatory milestones. We are also
obligated to pay First Wave royalties as a mid-single digit
percentage of net sales of the Product, subject to specified
reductions.
We
expect to incur substantial expenditures in the foreseeable future
for the development of MS1819, niclosamide and our other product
candidates. We will require additional financing to develop our
product candidates, run clinical trials, prepare regulatory filings
and obtain regulatory approvals, fund operating losses, and, if
deemed appropriate, establish manufacturing, sales and marketing
capabilities. Our current financial condition raises substantial
doubt about our ability to continue as a going concern. Our failure
to raise capital as and when needed would have a material adverse
impact on our financial condition, our ability to meet our
obligations, and our ability to pursue our business strategies. We
will seek funds through additional equity and/or debt financings,
collaborative or other arrangements with corporate sources, or
through other sources of financing.
Although we are
primarily focused on the development of MS1819 and niclosamide, we
are also opportunely focused on expanding our product pipeline
through collaborations, and also through acquisitions of products
and companies. We are continually evaluating potential asset
acquisitions and business combinations. To finance such
acquisitions, we might raise additional equity capital, incur
additional debt, or both.
Series B Private Placement and Exchange
As
described in Note 11 in the accompanying financial statements, on
July 16, 2020, we consummated a private placement of our Series B
Convertible Preferred Stock, par value $0.0001 per share (the
“Series B Preferred Stock”)
and related warrants (the “Series
B Private Placement”), resulting in aggregate gross proceeds
of approximately $15.2 million and aggregate net proceeds of
approximately $13.2 million, after deducting placement agent
compensation and offering expenses.
In the
private placement we issued an aggregate of 2,912.583005 shares of
Series B Preferred Stock at a price of $7,700.00 per share,
initially convertible into an aggregate of 29,125,756 shares of
Common Stock at $0.77 per share, together with warrants (the
“Series B Warrants”) to
purchase an aggregate of 14,562,826 shares of Common Stock at an
exercise price of $0.85 per share.
In
connection with the Series B Private Placement, we issued an
aggregate of 1,975.578828 shares of Series B Preferred Stock
initially convertible into 19,755,748 shares of Common Stock and
related 9,877,835 Series B Warrants for cash consideration. In
addition, we issued the balance of an aggregate of 937.004177
shares of Series B Preferred Stock initially convertible into
9,370,008 shares of Common Stock and related Series B Warrants to
purchase 4,684,991 shares of Common Stock to certain investors in
exchange for approximately $6.9 million aggregate outstanding
principal amount, together with accrued and unpaid interest thereon
of approximately $0.3 million, of outstanding promissory notes
previously issued between December 2019 and January 2020. As
additional consideration to such investors, we also issued certain
additional warrants to purchase an aggregate of 1,772,937 shares of
Common Stock at an exercise price of $0.85 per share.
Following the
Series B Private Placement, we prepaid the outstanding balance of
$25,000 aggregate principal amount of outstanding promissory notes,
together with accrued and unpaid interest thereon through the
prepayment date, held by those holders who did not participate in
such exchange. As a result, following the consummation of the
Series B Private Placement, we no longer have any convertible debt
outstanding.
Continued Nasdaq Listing
On March 23, 2020, we
received a letter from the Listing Qualifications Department (the
“Staff”)
of The Nasdaq Stock Market LLC (“Nasdaq”)
indicating that, based upon the closing bid price of our Common
Stock for the prior 30 consecutive business days, we were not in
compliance with the requirement to maintain a minimum bid price of
$1.00 per share for continued listing on Nasdaq, as set forth in
Nasdaq Listing Rule 5550(a)(2) (the “Minimum
Bid Price Requirement”). The 180-day time
period for us to regain compliance was subsequently extended to
December 3, 2020, pursuant to certain COVID-19 related relief from
price-based continued listing requirements issued by Nasdaq on
April 16, 2020. On November 23, 2020, we submitted a request to
Nasdaq for a 180-day extension to regain compliance with the
Minimum Bid Price Requirement. On December 4, 2020, we received a
letter from Nasdaq advising that we had been granted a 180-day
extension to June 1, 2021 to regain compliance with the Minimum Bid
Price Requirement, in accordance with Nasdaq Listing Rule
5810(c)(3)(A). If we do not regain compliance within the allotted
compliance periods, including any extensions that may be granted by
Nasdaq, Nasdaq will provide notice that our Common Stock will be
subject to delisting. We would then be entitled to appeal that
determination to a Nasdaq hearings panel.
In
addition, on August 20, 2020, we received a separate letter from
the Listing Qualifications Staff of Nasdaq indicating that we were
not in compliance with the minimum stockholders’ equity requirement
for continued listing on the Nasdaq Capital Market, under Listing
Rule 5550(b)(1 (the “Minimum
Equity Requirement”), because our stockholders’ equity of
approximately negative $0.8 million, as reported for the quarter
ended June 30, 2020, was below the required minimum of $2.5
million, and because, as of August 19, 2020, we did not meet
certain alternative compliance standards. Based on correspondence
with the Listing Qualifications Staff of Nasdaq, we have been
granted an extension of time to regain compliance with the Minimum
Equity Requirement, provided that we file our Form 10-Q for the
period ended September 30, 2020 on or before November 16, 2020,
demonstrating a minimum of $2.5 million in stockholders’
equity.
As
reflected in the accompanying financial statements, as of September
30, 2020, our stockholders’ equity was approximately $14.0 million.
Accordingly, we believe we have evidenced compliance with the
Minimum Equity Requirement, and we anticipate resolving this matter
with Nasdaq promptly following the filing of this Form 10-Q with
the Securities and Exchange Commission.
Cash
Flows for the Nine Months Ended September 30, 2020 and
2019
Net
cash used in operating activities for the nine months ended
September 30, 2020 was $5,331,557, which primarily reflected our
net loss of $15,271,074 plus adjustments to reconcile net loss to
net cash used in operating activities of depreciation and
amortization expense of $422,217, non-cash stock-based compensation
of $369,517, non-cash restricted stock granted to employees and
directors of $27,292, non-cash Common Stock granted to members of
our board of directors to settle accounts payable of $131,137,
non-cash Common Stock granted to consultants of $109,605, non-cash
accretion of debt discount of $4,580,167, non-cash interest on
convertible debt of $234,334, loss on debt extinguishment of
$609,998, gain on settlement of $211,430, and beneficial conversion
feature related to the promissory note exchange of $798,413, and
non-cash lease expense of $4,855. Changes in assets and liabilities
are due to a decrease in other receivables of $2,121,336 due
primarily to the payments of French research and development
(“R&D”) tax credits, a
decrease in prepaid expenses of $446,766 due primarily to the
expensing of prepaid insurance, a decrease in other liabilities of
$31,104, and a decrease of accounts payable and accrued expense of
$90,147, offset by an increase in an increase in deposits of
$4,180, and an increase in accrued dividends payable of
$408,043.
Net
cash used in operating activities for the nine months ended
September 30, 2019 was $10,807,517, which primarily reflected our
net loss of $13,896,063 plus adjustments to reconcile net loss to
net cash used in operating activities of depreciation and
amortization expense of $876,324, non-cash stock-based compensation
of $541,725 due primarily to achievement of certain
performance-based milestones associated with previously issued
equity awards, non-cash restricted stock granted to
employees/directors of $556,888 due primarily to reaching certain
performance-based milestones, non-cash restricted stock granted to
a consultant in payment of accounts payable for $112,500, accrued
interest on convertible debt of $124,932, and non-cash debt
discount - warrants on convertible debt of $147,461. Changes in
assets and liabilities are due to an increase in other receivables
of $261,981, a decrease in prepaid expenses of $420,218 due
primarily to the expensing of prepaid insurance, an increase in
deposits of $4,125, a decrease in accounts payable and accrued
expenses of $601,096 and a decrease in other liabilities of $23,274
primarily due to the adoption of new lease accounting
standards.
Net
cash used in investing activities for the nine months ended
September 30, 2020, was $2,808, which consisted of the purchase of
property and equipment.
Net
cash used in investing activities for the nine months ended
September 30, 2019 was $17,243, which consisted of the purchase of
property and equipment.
Net
cash provided by financing activities for the nine months ended
September 30, 2020 was $16,493,726, compared to $11,298,574 for the
nine months ended September 30, 2019, resulting in an increase of
$5,195,152.
Net
cash provided by financing activities for the nine months ended
September 30, 2020 consisted of $13,197,740 from the from the
issuance of the preferred stock in the Series B Private Placement,
$3,227,002 from the issuance of the convertible debt in our
offering of Senior Convertible Promissory Notes and warrants to
purchase shares of Common Stock that occurred in December 2019,
$988,348 from the proceeds of the Equity Line, and $179,408 from
the issuance of a note payable in connection with the PPP loan,
offset by repayments of convertible debt of $475,000 plus accrued
interest of $105,460 related to the issuance to ADEC Equity
Investments, LLC of two Senior Convertible Notes (the “ADEC Notes”)
and Senior Convertible Promissory Notes, and repayment of notes
payable of $623,772, which included the repayment of the Paycheck
Protection Program loan.
Net
cash provided by financing activities for the nine months ended
September 30, 2019 was $11,298,574, which consisted of $9,492,016
from the sale of Common Stock offered in our public offerings of
Common Stock that occurred in April 2019 and in May 2019,
$2,000,000 from the issuance of the ADEC Notes, and $61,590
received from a stockholder in relation to a warrant modification
offset by repayment of a note payable of $255,032.
Consolidated
Results of Operations for the Three Months Ended September 30, 2020
and 2019
Revenues. We have not yet achieved
revenue-generating status from any of our product
candidates. Since inception, we have devoted substantially all
of our time and efforts to developing MS1819. As a result, we
did not have any revenue during the three months ended September
30, 2020 and 2019, respectively.
Research and Development
Expense. R&D expense was
$1,795,684 for the three months ended September 30, 2020, as
compared to $2,221,933 for the three months ended September 30,
2019. This represents a decrease of $426,249 or approximately 19%
for the three months ended September 30, 2020 as compared to the
three months ended September 30, 2019. Stock-based compensation for
employees, depreciation and amortization was $19,878, $4,881 and
$131,887, respectively, for the three months ended September 30,
2020, as compared to $0, $11,842 and $131,887, respectively for the
three months ended September 30, 2019. Excluding non-cash expenses,
total cash R&D expense decreased by $439,165, or approximately
21% to $1,639,038 for the three months ended September 30, 2020,
from $2,078,203 for the three months ended September 30,
2019.
The decrease in R&D cash spending was
primarily due to decreased clinical trial costs of $378,340 related
to reduced clinical trial activity in connection with recruitment
delays in the Combination Study due to COVID-19 as compared to the
prior period when we were conducting the OPTION Trial, and
decreased personnel costs of $104,484. We expect cash R&D
expense to increase during the remainder of the fiscal year as we
advance both the OPTION 2 Trial and the Combination Trial and
increase chemistry, manufacturing, and controls
(“CMC”) activities in connection with the continued
development of MS1819.
General and Administrative Expense.
General and administrative (“G&A”)
expense was $1,916,250 for the three months ended September 30,
2020, as, as compared to $1,860,141 for the three months ended
September 30, 2019. This represents an increase of $56,109, or
approximately 3% for the three months ended September 30, 2020 as
compared to the three months ended September 30, 2019. Stock-based
compensation for employees and depreciation was $148,303, and
$3,307, respectively, for the three months ended September 30,
2020, as compared to $93,824, and $5,149, respectively for the
three months ended September 30, 2019. Excluding non-cash expenses,
total cash G&A expense increased by $3,472, or approximately 0%
to $1,764,640 for the three months ended September 30, 2020, from
$1,761,169 for the three months ended September 30,
2019.
The
slight increase in G&A cash spending was primarily due to
increased legal expenses of $474,960, increased insurance of
$69,368, increased personnel expenses of $57,443, and increased
information technology expenses of $23,459, offset by decreased
other expenses of $315,442 primarily due to the fraud loss for the
three months ended September 30, 2019, cutbacks in public company
and corporate communications expense, including investor and public
relations of $136,554, decreased taxes and licenses of $50,421,
primarily due to the refund of $42,190 in the three months ended
September 30, 2020, for overpayments in prior years, elimination of
directors fees of $35,000, decreased travel and entertainment of
$32,136, decreased accounting and auditing fees of $27,399 and
decreased consulting expenses of $22,237.
We
expect cash G&A expense to increase during the remainder of
this fiscal year primarily due to increases in public company and
corporate communications expenses, including investor relations,
legal expenses, fees related to business development efforts, and
information technology security expenses, among
others.
Other
Expense. Other expense for the
three months ended September 30, 2020 was $1,601,972 as compared to
$110,398 for the three months ended September 30, 2019. This
represents an increase of $1,491,574 for the three months ended
September 30, 2020 as compared to the three months ended September
30, 2019. This increase is primarily due to increased interest
expense of $1,203,404 due to amortization of debt discount and
accrued interest related to the convertible debt issued in between
December 2019 and January 2020, which was not present in the prior
period, and a loss on debt extinguishment of $609,998, which was
not present in the prior period, offset by gain on settlement of
$211,430, which was not present in the prior
period.
Net Loss. As a result of the factors above, our net loss
increased by $1,121,434 to $5,313,906 for the three months ended
September 30, 2020 as compared to $4,192,472 for the three months
ended September 30, 2019.
Consolidated
Results of Operations for the Nine Months Ended September 30, 2020
and 2019
Revenues. We have not yet
achieved revenue-generating status from any of our product
candidates. Since inception, we have devoted substantially all
of our time and efforts to developing MS1819. As a result, we
did not have any revenue during the three months ended September
30, 2020 and 2019, respectively.
Research and Development Expense.
R&D expense was $4,438,229 for the nine months ended September
30, 2020, as compared to $7,927,907 for the nine months ended
September 30, 2019. This represents a decrease of $3,489,678, or
approximately 49% for the nine months ended September 30, 2020 as
compared to the nine months ended September 30, 2019. Stock-based
compensation for employees, depreciation and amortization was
$28,878, $14,372, and $395,661, respectively, for the nine months
ended September 30, 2020, as compared to $0, $35,918 and
$824,936, respectively for the nine months ended September 30,
2019. Excluding non-cash expenses, total cash R&D expense
decreased by $3,068,074, or approximately 43% to $3,999,318 for the
nine months ended September 30, 2020, from $7,067,392 for the nine
months ended September 30, 2019.
The
decrease in R&D cash spending was primarily due to decreased
clinical trial costs of $2,608,858 related to reduced clinical
trial activity in connection with recruitment delays in the
Combination Study due to COVID-19 as compared to the prior period
which included the OPTION trial, decreased personnel costs of
$342,887, decreased supplies and materials expenses related to
laboratory research of $57,097, and decreased consulting expenses
of $53,966. We expect cash R&D expense to increase during the
remainder of the fiscal year as we advance both the OPTION 2 Trial
and the Combination Trial and increase CMC activities in connection
with the continued development of MS1819.
General and Administrative Expense.
G&A expense was $4,595,860 for the nine months ended September
30, 2020, as, as compared to $5,690,001 for the for the nine months
ended September 30, 2019. This represents a decrease of $1,094,141,
or approximately 19% for the nine months ended September 30, 2020
as compared to the nine months ended September 30, 2019.
Stock-based compensation for employees and consultants,
depreciation, and loss on asset disposal was $477,537, $12,184, and
$1,998, respectively, for the nine months ended September 30, 2020,
as compared to $1,098,613, $15,343 and $0, respectively for the
nine months ended September 30, 2019. Excluding non-cash expenses,
total cash G&A expense decreased by $471,904, or approximately
10% to $4,104,141 for the nine months ended September 30, 2020,
from $4,576,045 for the nine months ended September 30,
2019.
The
decrease in G&A cash spending was primarily due to the
elimination of bonuses of $629,300 as compared to the prior period,
cutbacks in public company and corporate communications expense,
including investor and public relations of $280,153, directors fees
of $105,000, and travel and entertainment expenses of $72,377, and
decreased other expenses of $326,417 primarily due to the fraud
loss for the three months ended September 30, 2019, offset by
increases in legal expenses of $495,801, insurance of $203,080,
consulting expenses of $136,976, increased insurance of $203,080,
and increased information technology expenses of
$72,028.
We
expect cash G&A expense to increase during the remainder of
this fiscal year primarily due to increases in public company and
corporate communications expenses, including investor relations,
legal expenses, fees related to business development efforts, and
information technology security expenses, among
others.
Other Expense. Other expense for the
nine months ended September 30, 2020 was $6,236,985 as compared to
$278,155 for the three months ended September 30, 2019. This
represents an increase of $5,958,830 for the three months ended
September 30, 2020 as compared to the three months ended September
30, 2019. This increase is primarily due to increased interest
expense of $5,838,417 due to amortization of debt discount and
accrued interest related to the convertible debt issued in between
December 2019 and January 2020, as compared to $278,155 in the
prior period, and a loss on debt extinguishment of $609,998, which
was not present in the prior period, offset by gain on settlement
of $211,430, which was not present in the prior
period.
Net Loss. As a result of the factors
above, our net loss increased by $1,375,011 to $15,271,074 for the
nine months ended September 30, 2020 as compared to $13,896,063 for
the nine months ended September 30, 2019.
Cash Flows for the Years Ended December 31, 2019 and
2018
At
December 31, 2019, we had $175,796 in cash and cash equivalents,
compared to $1,114,343 at December 31, 2018.
Net
cash used in operating activities for the year ended December 31,
2019 was $14,033,496, as compared to $10,869,320 for the year ended
December 31, 2018, representing an increase in cash used of
approximately $3,164,176. This increase was mainly due to increased
operating expenses primarily related to clinical trials expense, a
reduction in accounts payable and accrued expenses, increased
stock-based compensation and stock expense and the elimination of
warrant modification expense, offset by decreases in other
receivables, amortization, accreted interest on convertible debt
and debt discount and prepaid expenses.
Net cash used in operating activities for the year
ended December 31, 2019 primarily reflected our net loss of
$15,177,686 plus
adjustments to reconcile net loss to net cash used in operating
activities of depreciation and amortization expense of $1,020,046,
non-cash stock-based compensation of $574,335, non-cash restricted
stock granted to employees and directors of $607,597, non-cash
Common Stock granted to consultants of $210,000, non-cash debt
discount - warrants of $313,364, non-cash interest on convertible
debt of $112,543, and the write off of fixed assets of $7,296.
Changes in assets and liabilities are due to an increase in other
receivables of $749,859 due primarily to the French R&D tax
credit normally received in the following year not yet received for
2018 and to increased billings to Laboratories Mayoly
Spinder (“Mayoly”), an decrease in
prepaid expense of $85,681 due primarily to the expensing of
prepaid insurance, a decrease in deposits of $3,900 due to the
return of a refundable deposit, offset by an increase in accounts
payable and accrued expense of $420,788 due primarily to increased
R&D expenses.
Net cash used in operating activities for the year
ended December 31, 2018 was $10,869,320, which primarily reflected
our net loss of $13,533,617 plus
adjustments to reconcile net loss to net cash used in operating
activities of depreciation and amortization expense of $798,446,
non-cash fair value adjustment of the contingent consideration of
$210,000, non-cash stock-based compensation of $1,441,475, non-cash
restricted stock granted to employees and directors of $1,038,822,
non-cash restricted stock granted/accrued to consultants of
$360,771, non-cash debt discount - warrants on a 12% Senior Secured
Original Issue Discount Convertible Debenture issued to Lincoln
Park in April 2017 of $97,837, and a non-cash warrant modification
expense of $428,748. Changes in assets and liabilities are due to
an increase in other receivables of $2,187,903 due primarily to the
billings to our research partner Mayoly, an decrease in prepaid
expense of $243,330 due primarily to the expensing of prepaid
insurance, an increase in deposits of $15,001 due to a new office
space lease for the startup of U.S. R&D, and a decrease in
interest payable of $7,192, offset by an decrease in accounts
payable and accrued expense of $741,624 due primarily to increased
R&D expenses.
Net cash used in investing activities for the year
ended December 31, 2019 was $24,098, which consisted of the
purchase of property and equipment. Net cash used in investing
activities for the year ended December 31, 2018 was $305,473, which
consisted of the cash portion of the purchase of Protea assets from
bankruptcy of $250,000 and the purchase of property and equipment
of $55,473.
Net cash provided by financing activities for the
year ended December 31, 2019 was $13,144,979, compared to
$11,712,128 for the year December 31,
2018, representing an increase of $1,432,851.
Net
cash provided by financing activities for the year ended December
31, 2019 consisted of $9,476,749 from the sale of Common
Stock in our April, May, and July 2019 Public Offerings, $4,967,308
from the issuance of the convertible debt in the ADEC Note Offering
and the December 2019 Promissory Note Offering, and $498,783 from
the proceeds of a note payable related to the financing of our
D&O insurance, and $61,590 received from a stockholder in
relation to a warrant modification offset by issuance of Common
Stock in connection with the exercise of certain repriced warrants
in May 2018, offset by repayments of convertible debt of $1,550,000
related to the ADEC Notes and repayment of a note payable of
$309,451.
Net
cash provided by financing activities for the year ended December
31, 2018 consisted of $2,324,742 from the issuance of
Common Stock in connection with the exercise of certain repriced
warrants in January 2018, $9,578,063 from the sale of Common Stock
offered in our May 2018 Public Offering, $286,203 from the proceeds
of the issuance of a note payable offset by repayments of
convertible debt of $286,529 and repayment of a note payable of
$190,351.
Consolidated Results of Operations for the Years Ended December 31,
2019 and 2018
Revenues. We have not yet achieved revenue-generating status
from any of our product candidates. Since inception, we have
devoted substantially all of our time and efforts to developing
MS1819. As a result, we did not have any revenue during the
years ended December 31, 2019 and 2018,
respectively.
Research and Development Expense.
R&D expense was $8,680,669 for the
year ended December 31, 2019, as compared to $5,771,405 for the
year ended December 31, 2018. This represents an increase of
$2,909,264, or approximately 50% for the year ended December 31,
2019 as compared to the year ended December 31, 2018.
Stock-based compensation for stock options, stock expense for
employees and consultants and depreciation and amortization was
$361,739, $475,259, and $956,169, respectively, for the year ended
December 31, 2019, as compared to $0, $0, and $736,243,
respectively for the year ended December 31, 2018. Excluding
non-cash stock-based compensation, stock expense and depreciation
and amortization, cash R&D expenses increased by $2,214,078, or
approximately 44% to $7,249,240 for
the year ended December 31, 2019, from $5,035,163 for the year
ended December 31, 2018.
The
increase in R&D cash spending was primarily due to increased
direct clinical trial costs of $4,075,949 related to the OPTION
Cross-Over Study and the Combination Study, increased consulting
expenses of $317,613, increased personnel costs of $316,688, offset
by a net decrease of $2,062,105 related to R&D expenses in
relation to Mayoly, decreased R&D tax credit of $418,038 and
decreased licensing fees of $108,841. We expect cash R&D
expense to increase in the next fiscal year as we progress clinical
trials and CMC activities in connection with the continued
development of MS1819.
General and Administrative Expense.
G&A expense was $6,063,078 for the
year ended December 31, 2019, as compared to $7,450,366 for the
year ended December 31, 2018. This represents a decrease of
$1,387,288, or approximately 19% for the year ended December 31,
2019 as compared to the year ended December 31, 2018.
Stock-based compensation for stock options, stock expense for
employees and consultants, depreciation and amortization, and loss
on disposal of assets was $212,596, $494,071, $20,813 and $7,296,
respectively, for the year ended December 31, 2019, as compared to
$1,441,475, $1,234,542, $15,291 and $0, respectively for the year
ended December 31, 2018. Excluding non-cash stock-based
compensation, stock expense, depreciation and amortization, and
loss on disposal of assets, cash G&A expenses increased by
$997,994, or approximately 23% to $5,328,302 for the year ended December 31, 2019, from
$4,330,308 for the year ended December 31,
2018.
The
increase in G&A cash spending was primarily due to increased
legal expenses of $523,400, the loss due to cyber-related fraud of
$367,908 that was not present in the same period in 2018, increased
public company and corporate communications, including investor
relations of $167,632, increased insurance of $99,765, and
increased directors fees of $35,000, offset by decreased personnel
costs of $148,730, decreased office expenses of $37,468 and
decreased travel and entertainment of $35,477. We expect cash
G&A expense to remain relatively flat to slightly down in the
next fiscal year as management instituted cost cutting measures
related to public company and corporate communications, including
investor relations, the termination of the TransChem Sublicense
Agreement and related intellectual property legal expenses and
one-time and transaction-related costs are expected to be offset by
increases to D&O and corporate insurance, outside consulting
fees related to business development efforts and information
technology security expenses.
Fair
value adjustment of our contingent consideration was $0 and
$210,000, respectively, for the years ended December 31, 2019 and
2018. The difference in fair value adjustments in year ended
December 31, 2019 as compared to the same period in 2018 is due
primarily to the contingent consideration being eliminated in
2018.
Other Expense. Interest expense for the year ended December 31,
2019 was $433,939 as compared to $101,846 for the year ended
December 31, 2018. The increased interest expense is due to
amortization of debt discount and accrued interest related to the
convertible debt issued in 2019.
Net
Loss. As a result of the factors above, our net loss increased by
$1,644,069 to $15,177,686 for the year ended December 31, 2019 as
compared to $13,533,617 for the year ended December 31,
2018.
DESCRIPTION
OF BUSINESS
As used
in this prospectus, unless otherwise stated or the context
otherwise requires, references to “AzurRx”, “Company”, “we”, “us”, “our” or similar references are to
AzurRx BioPharma, Inc. and our subsidiaries on a consolidated
basis. References to “AzurRx
BioPharma” refer to AzurRx BioPharma, Inc. on an
unconsolidated basis. References to “AzurRx SAS” refer to AzurRx SAS, AzurRx
BioPharma’s wholly-owned subsidiary through which we conduct our
European operations.
Overview
AzurRx
BioPharma, Inc. (“AzurRx”)
was incorporated on January 30, 2014 in the State of Delaware. In
June 2014, we acquired 100% of the issued and outstanding capital
stock of AzurRx SAS (formerly “ProteaBio Europe SAS”), a company
incorporated in October 2008 under the laws of France. AzurRx and
our wholly-owned subsidiary, AzurRx SAS (“ABS”) (collectively referred to herein
as the “Company”).
We are
engaged in the research and development of targeted, non-systemic
therapies for the treatment of patients with gastrointestinal (GI)
diseases. Non-systemic therapies are non-absorbable drugs that act
locally, i.e. the intestinal lumen, skin or mucosa, without
reaching an individual’s systemic circulation. We are currently
focused on developing our lead drug candidates, MS1819 as well as
launching clinical trials for niclosamide.
We are
currently focused on developing our pipeline of three
gut-restricted GI clinical drug candidates. The lead therapeutic
candidate is MS1819, a recombinant lipase for the treatment of
exocrine pancreatic insufficiency (EPI) in patients with cystic
fibrosis and chronic pancreatitis, currently in two Phase 2
clinical trials. We plan to launch two clinical programs using
proprietary formulations of niclosamide, a pro-inflammatory pathway
inhibitor; FW-420, for grade1 Immune Checkpoint Inhibitor
Colitis (ICI-AC) and diarrhea in oncology patients
and FW-1022, for COVID-19 gastrointestinal infections. Each
drug candidate is described below:
MS1819
MS1819 is a recombinant lipase enzyme for the
treatment of exocrine pancreatic insufficiency (“EPI”) associated
with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”).
MS1819, supplied as an oral non-systemic biologic capsule, is
derived from the Yarrowia
lipolytica yeast lipase
and breaks up fat molecules in the digestive tract of EPI patients
so that they can be absorbed as nutrients. Unlike the standard of
care, the MS1819 synthetic lipase does not contain any animal
products.
EPI
is a condition characterized by deficiency of the
exocrine pancreatic enzymes, resulting in a patient’s
inability to digest food properly, or maldigestion. The deficiency
in this enzyme can be responsible for greasy diarrhea, fecal urge
and weight loss. There are more than 30,000 patients with EPI
caused by CF according to the Cystic Fibrosis Foundation
approximately and approximately 90,000 patients in the U.S. with
EPI caused by CP according to the National Pancreas Foundation.
Patients are currently treated with porcine pancreatic enzyme
replacement pills.
MS1819 – Phase 2b OPTION 2 Cystic Fibrosis Monotherapy
Studies
On October 17, 2019, we announced that the Cystic
Fibrosis Foundation Data Safety Monitoring Board (the “CFF DSMB”)
completed its review of our final results of the OPTION Cross-Over
Study and had found no safety concerns for MS1819, and that the CFF
DSMB supported our plan to proceed to a higher 4.4 gram dose of
MS1819 with enteric capsules in the multi-center dose escalation
Phase 2b OPTION clinical trial (the “OPTION 2 Trial”). In December
2019, we submitted the clinical trial protocol to the existing IND
at the FDA. The clinical trial protocol has been reviewed by the
FDA with no comments. In April 2020, we received approval to
conduct the OPTION 2 Trial in Therapeutics Development Network
(“TDN”) clinical sites in the U.S. as well as
Institutional Review Board (“IRB”) approval to commence the OPTION 2
Trial.
The OPTION 2 Trial is designed to investigate the
safety, tolerability and efficacy of MS1819 (2.2 gram and 4.4 gram
doses in enteric capsules) in a head-to-head manner versus the
current standard of care, porcine pancreatic enzyme replacement
therapy (“PERT”) pills. The OPTION 2 Trial will be an
open-label, crossover study, conducted in 15 sites in the
U.S. and Europe. A total of 30 CF patients 18 years or
older will be enrolled. MS1819 will be administered in
enteric capsules to provide gastric protection and allow optimal
delivery of enzyme to the duodenum. Patients will first be
randomized into two cohorts: to either the MS1819 arm, where they
receive a 2.2 gram daily oral dose of MS1819 for three weeks; or to
the PERT arm, where they receive their pre-study dose of PERT pills
for three weeks. After three weeks, stools will be collected for
analysis of coefficient of fat absorption (“CFA”). Patients will then be crossed over for
another three weeks of the alternative treatment. After three weeks
of cross-over therapy, stools will again be collected for analysis
of CFA. A parallel group of patients will be randomized and studied
in the same fashion, using a 4.4 gram daily dose of
MS1819. All patients will be followed for an additional two
weeks after completing both crossover treatments for post study
safety observation. Patients will be assessed using
descriptive methods for efficacy, comparing CFA between MS1819 and
PERT arms, and for safety.
We initiated
the OPTION 2 Trial in July 2020 with the first patient screened and
three clinical trial sites activated in the U.S. In August 2020, we
dosed the first patients and initiated the European arm of the
OPTION 2 Trial. Topline data is anticipated in the first quarter of
2021; however, this timeline may be further delayed due to
the COVID-19 pandemic.
In
November 2020, we submitted a protocol amendment for the OPTION 2
Trial to add a study arm that uses an immediate release MS1819
capsule to allow us to compare data from that existing arm that
uses enteric capsules with data from the new arm. We plan to
initiate the OPTION 2 study extension in early first quarter
2021.
MS1819 – Phase 2 Combination Therapy Study
In
addition to the monotherapy studies, we launched a Phase 2
multi-center clinical trial (the “Combination Trial”) in Europe to
investigate MS1819 in combination with PERT, for CF patients who
suffer from severe EPI but continue to experience clinical symptoms
of fat malabsorption despite taking the maximum daily dose of
PERTs. The Combination Trial is designed to investigate the safety,
tolerability and efficacy of escalating doses of MS1819 (700 mg,
1120 mg and 2240 mg per day, respectively), in conjunction with a
stable dose of PERTs, in order to increase CFA and relieve
abdominal symptoms in uncontrolled CF patients. A combination
therapy of PERT and MS1819 has the potential to: (i) correct
macronutrient and micronutrient maldigestion; (ii) eliminate
abdominal symptoms attributable to maldigestion; and (iii) sustain
optimal nutritional status on a normal diet in CF patients with
severe EPI.
We
dosed the first patients in our Combination Trial in Hungary in
October 2019. Planned enrollment is expected to include
approximately 24 CF patients with severe EPI, at clinical trial
sites in Hungary and additional countries in Europe, including
Turkey. Topline data is currently expected in the first half of
2021; however, this timeline may be further delayed due to the
COVID-19 pandemic.
We
announced positive interim data on the first five patients in the
Combination Trial in August 2020. The primary efficacy endpoint was
met, with CFAs greater than 80% for all patients across all visits.
For secondary efficacy endpoints, we observed that stool weight
decreased, the number of stools per day decreased, steatorrhea
improved, and body weight increased. Additionally, no serious
adverse events were reported.
We
opened a total of five clinical sites for the Combination
Trial in Turkey in October 2020 and announced that its first
patients were dosed in November 2020. We currently have a
total of nine of the expected ten sites in Europe active and
recruiting patients.
License Agreement with First Wave Bio, Inc.
On
December 31, 2020, we entered into the First Wave License Agreement
with First Wave. Pursuant to the First Wave License Agreement,
First Wave granted us a worldwide, exclusive right to develop,
manufacture, and commercialize First Wave’s proprietary immediate
release and enema formulations of niclosamide for the fields of
treating ICI-AC and COVID in GI. The Product uses First Wave’s
proprietary formulations of niclosamide, a pro-inflammatory pathway
inhibitor. We plan to commence in 2021 both a Phase 2 trial of the
Product for COVID in GI and a Phase 1b/2a trial for
ICI-AC.
In
consideration of the license and other rights granted by First
Wave, we will pay First Wave a $9.0 million upfront cash payment
and an additional payment of $1.25 million due on June 30, 2021. In
addition, we are obligated to pay potential milestone payments to
First Wave totaling up to $37.0 million for each indication, based
upon the achievement of specified development and regulatory
milestones. We are also obligated to pay First Wave royalties as a
mid-single digit percentage of net sales of the Product, subject to
specified reductions.
We
are now solely responsible, and have agreed to use commercially
reasonable efforts, for all development, regulatory and commercial
activities related to the Products in the ICI-AC and COVID fields.
We may sublicense our rights under the First Wave License Agreement
and, if we do so, we will be obligated to pay milestone payments
and royalties to First Wave based on the sublicensee’s development
and commercialization of the Products.
Pursuant
to the First Wave License Agreement, First Wave retains rights to
develop and commercialize the licensed niclosamide formulations
outside the ICI-AC and COVID fields, and to develop and
commercialize other niclosamide formulations that are not licensed
to us. However, if prior to April 30, 2021, First Wave seeks to
outlicense, sell to or otherwise grant rights to a third party
related to any products containing niclosamide for use outside the
ICI-AC or COVID fields to develop or commercialize a product
containing niclosamide for use outside of the field then First Wave
shall provide to us written notice of such proposal, in reasonable
detail and we shall have the right and option to negotiate with
First Wave with respect to a definitive agreement for the
acquisition of First Wave. Pursuant to the First Wave License
Agreement, we grant First Wave a worldwide, non-exclusive,
royalty-free, perpetual, irrevocable license for use outside the
ICI-AC and COVID fields, with the right to grant sublicenses, under
any program IP and other intellectual property owned by us and
incorporated into the Product.
The
First Wave License Agreement terminates on a country-by-country
basis and product-by-product basis upon the expiration of the
royalty term for such product in such country. Each royalty term
begins on the date of the first commercial sale of the licensed
product in the applicable country and ends on date of expiration of
the last to expire royalty term with respect to the country. The
First Wave License Agreement may be terminated earlier in specified
situations, including termination for uncured material breach of
the First Wave License Agreement by either party, termination by us
in specified circumstances, termination by First Wave in specified
circumstances, termination by us for convenience with advance
notice, and termination upon a party’s insolvency or bankruptcy.
After expiration of the royalty term, we shall have a
non-exclusive, fully-paid, perpetual, royalty-free right and
irrevocable license with respect to any Product in any country
within the territory.
The
First Wave License Agreement also contains customary
representations, warranties and covenants by both parties, as well
as customary provisions relating to indemnification,
confidentiality and other matters.
We do not expect to generate revenue from drug candidates that we
develop until we obtain approval for one or more of such drug
candidates and commercialize our product or enter into a
collaborative agreement with a third party. We do not have any
products approved for sale at the present and have never generated
revenue from product sale.
Corporate
History
On May
21, 2014, we entered into a stock purchase agreement (the
“SPA”) with Protea
Biosciences Group, Inc. (“Protea
Group”) and its wholly-owned subsidiary, Protea Biosciences,
Inc. (“Protea Sub” and,
together with Protea Group, “Protea”), to acquire 100% of the
outstanding capital stock of AzurRx SAS (formerly ProteaBio Europe
SAS), a wholly-owned subsidiary of Protea Sub. On June 13, 2014, we
completed the acquisition in exchange for the payment of $600,000
and the issuance of shares of our Series A Convertible Preferred
Stock (“Series A
Preferred”) convertible into 33% of our outstanding Common
Stock and agreed to make certain milestone and royalty payments to
Protea. Subsequently, on December 14, 2018, we purchased from
Protea Group and Protea Sub the rights to any milestone payments,
royalty payments, and transaction value consideration (see
“Agreements and
Collaborations - Protea
Asset Sale and Purchase Agreement” below).
Product
Programs
Our current
therapeutic product pipeline consists of three clinical-stage
programs, each of which are described below.
MS1819
MS1819
is the active pharmaceutical ingredient, or API, derived
from Yarrowia
lipolytica, an aerobic yeast naturally found in various
foods such as cheese and olive oil that is widely used as a
biocatalyst in several industrial processes. MS1819 is an
acid-resistant secreted lipase naturally produced
by Yarrowia
lipolytica, known as LIP2, that we are developing
through recombinant DNA technology for the treatment of EPI
associated with CP and CF. We previously held the exclusive right
to commercialize MS1819 in the U.S. and Canada, South America
(excluding Brazil), Asia (excluding China and Japan), Australia,
New Zealand and Israel pursuant to a sublicense from Mayoly under
the JDLA (as defined below), which also granted us joint
commercialization rights for Brazil, Italy, China and Japan. As
disclosed under “License
Agreements - Asset Purchase Agreement with Mayoly” below, on
March 27, 2019, we purchased all rights, title and interest in and
to MS1819 from Mayoly.
Background
The
pancreas is both an endocrine gland that produces several important
hormones, including insulin, glucagon, and pancreatic polypeptide,
as well as a digestive organ that secretes pancreatic juice
containing digestive enzymes that assist the absorption of
nutrients and digestion in the small intestine.
The
targeted indication of MS1819 is the compensation of EPI, which is
observed when the exocrine functions of the pancreas are below 10%
of normal. The symptomatology of EPI is essentially due to the
deficiency of pancreatic lipase, an enzyme that hydrolyses
triglycerides into monoglycerides and free fatty acids. The
pancreatic lipase enzymatic activity is hardly compensated by
extra-pancreatic mechanisms, because gastric lipase has nearly no
lipolytic activity in the pH range of the intestine. On the other
hand, when they are impaired, the pancreatic amylase and proteases
(enzymes that break up starches and protein,
respectively) activities can be compensated by the salivary
amylase, the intestinal glycosidase, the gastric pepsin, and the
intestinal peptidases, all of which are components of the gastric
juice secreted by the stomach walls. Lipid maldigestion due to
lipase deficiency is responsible for weight loss, steatorrhea
featured by greasy diarrhea, and fat-soluble vitamin deficiencies
(i.e. A, D, E and K vitamins).
CP, the
most common cause of EPI, is a long-standing inflammation of the
pancreas that alters its normal structure and functions. In the
United States, its prevalence rate is of 42 cases per 100,000
inhabitants, resulting in approximately 132,000 cases.
Approximately 60% of patients affected with CP display EPI,
resulting in approximately 80,000 patients requiring substitution
therapy in the U.S. In Western societies, CP is caused by chronic
alcoholic consumption in approximately 55-80% of cases. Other
relatively frequent etiologies include the genetic form of the
disease that is inherited as an autosomal dominant condition with
variable penetrance, pancreatic trauma and idiopathic
causes.
CF,
another dominant etiology of EPI, is a severe genetic disease
associated with chronic morbidity and life-span decrease of most
affected individuals. In most Caucasian populations, CF prevalence
is of 7-8 cases per 100,000 inhabitants, but is less common in
other populations, resulting in more than 30,000 affected
individuals in the U.S. and more than 70,000 affected individuals
worldwide. CF is inherited as monogenic autosomal recessive disease
due to the defect at a single gene locus that encodes the Cystic
Fibrosis Transmembrane Regulator protein (“CFTR”), a regulated chloride channel.
Mutation of both alleles of this chloride channel gene results in
the production of thick mucus, which causes a multisystem disease
of the upper and lower respiratory tracts, digestive system, and
the reproductive tract. The progressive destruction of the pancreas
results in EPI that is responsible for malnutrition and contributes
to significant morbidity and mortality. About 80-90% of patients
with CF develop EPI, resulting in approximately 25,000-27,000
patients in the U.S. that require substitution
therapy.
Current treatments
for EPI stemming from CP and CF rely on porcine (pig derived)
pancreatic enzyme replacement therapies (PERTs), which have been on
the market since the late 1800s. The PERT market is well
established with estimated sales in the U.S. of $1.4 billion in
2019 in the U.S. and has been growing for the past five years at a
compound annual growth rate of approximately 20%. In spite of their
long-term use, however, PERTs suffer from poor stability,
formulation problems, possible transmission of conventional and
non-conventional infectious agents due to their animal origins, and
possible adverse events at high doses in patients with CF and
limited effectiveness.
History of the Program
In
1998, Mayoly, a European pharmaceutical company focusing primarily
on gastroenterology disorders, launched a program for the discovery
and characterization of novel lipases of non-animal origin that
could be used in replacement therapy for EPI. The program was
conducted in collaboration with INRA TRANSFERT, a subsidiary of the
French academic laboratory, Institut National de la Recherche
Agronomique (National Institute for Agricultural Research), or
INRA. In 2000, Mayoly and INRA discovered that the
yeast Yarrowia
lipolytica secreted a lipase named LIP2. During the
ensuing years, Mayoly investigated the in vitro enzymatic activities of
LIP2 in collaboration with the Laboratory of Enzymology at
Interfaces and Physiology of Lipolysis ("EIPL"), a French public-funded
research laboratory at the French National Scientific Research
Centre laboratory ("CNRS"),
which focuses on the physiology and molecular aspects of lipid
digestion.
Pre-Clinical Program
The
efficacy of MS1819 has been investigated in normal minipigs, which
are generally considered as a relevant model for digestive drug
development when considering their physiological similarities with
humans and their omnivore diet. Experimental pancreatitis was
induced by pancreatic duct ligation, resulting in severe EPI with
baseline CFA around 60% post-ligature. CFA is a measurement
obtained by quantifying the amount of fat ingested orally over a
defined time period and subtracting the amount eliminated in the
stool to ascertain the amount of fat absorbed by the
body. Pigs were treated with either MS1819 or enteric-coated
PERTs, both administered as a single-daily dose.
At
doses ranging from 10.5 to 211 mg, MS1819 increased the CFA by +25
to +29% in comparison to baseline (p<0.05 at all doses), whereas
the 2.5 mg dose had milder activity. Similar efficacy was observed
in pigs receiving 100,000 U lipase of enteric-coated porcine
pancreatic extract. These findings demonstrate
the in
vivo activity of MS1819 in a relevant in vivo model at a level similar
to the PERTs at dosages of 10.5mg or greater. The results of a
trial are statistically significant if they are unlikely to have
occurred by chance. Statistical significance of the trial results
is typically based on widely used, conventional statistical methods
that establish the p-value of the results. A p-value of 0.05 or
less is required to demonstrate statistical significance. As such,
these CFA levels are considered to be statistically
significant.
To
date, two non-clinical toxicology studies have been conducted. Both
show that MS1819 lipase is clinically well tolerated at levels up
to 1000mg/kg in rats and 250 mg/kg in minipigs up to 13 weeks.
MS1819 is therefore considered non-toxic in both rodent and
non-rodent species up to a maximum feasible dose (“MFD”) of 1,000 mg/kg/day in the rats
over six months of administration.
Clinical Program
We
believe that there are two principal therapeutic indications for
EPI compensation by MS1819: (i) adult patients with CP, and (ii)
children and adults affected by CF. Because of their different
pathophysiology and clinical presentation, we intend to separately
investigate each of these indications and have determined, based on
market size and expected dose requirements, to pursue the
indication for adults first in CF.
During 2010 and
2011, a Phase 1/2a clinical trial of MS1819 was conducted in
conjunction with Mayoly in a single center in France. The study was
an exploratory study mainly designed to investigate the safety of
MS1819-FD (freeze-dried) and was a randomized, double blind,
placebo controlled, parallel clinical trial in 12 patients affected
with CP or pancreatectomy and severe EPI. The primary efficacy
endpoint of the study was defined as the relative change in
steatorrhea (an established surrogate biomarker of EPI correction)
in comparison to baseline. The study found that MS1819 was well
tolerated with no serious adverse events. Only two adverse events
were observed: constipation (two patients out of eight with MS1819)
and hypoglycemia (two patients out of eight with MS1819, and one
patient out of four with placebo). A non-statistically significant
difference of the primary endpoint, possibly due to the small group
size, was found between the two groups both in intention-to-treat,
a group that included three patients who received the in-patient
facility study diet but did not fulfill the protocol’s inclusion
criteria, and per-protocol analysis. This study was not
designed, nor did it aim, to demonstrate statistically significant
changes of CFA or steatorrhea under MS1819-FD.
We
received regulatory approval in Australia and New Zealand in 2016,
with the addition of a 2018 regulatory approval in France, to
conduct a Phase 2 multi-center dose escalation study of MS1819 in
CP and pancreatectomy. The primary endpoint of this study was to
evaluate the safety of escalating doses of MS1819 in 11 CP
patients. The secondary endpoint was to investigate the efficacy of
MS1819 in these patients by analysis of the CFA and its change from
baseline. On September 24, 2018, we announced that in pre-planned
analyses, both the study’s primary and secondary endpoints were
reached with a statistically significant (p=0.002) improvement in
the CFA of 21.8%, in a per protocol analysis, with the highest
evaluated dose of 2,240 mg/day of MS1819. Statistical significance
of the trial results is typically based on widely used,
conventional statistical methods that establishes the p-value of
the results. A p-value of 0.05 or less is required to demonstrate
statistical significance. As such, these CFA levels are considered
to be statistically significant.
In
October 2018, the U.S. Food and Drug Administration (“FDA”) cleared our Investigational New
Drug (“IND”) application
for MS1819 in patients with EPI due to CF. On December 19, 2018, we announced that we
initiated the Phase 2 OPTION Cross-Over Study to investigate MS1819 in CF patients with
EPI and on February 20, 2019, we announced that we dosed the first
patients. The Phase 2 multi-center study investigated the safety,
tolerability and efficacy of MS1819 in a head-to-head comparison
against the current PERT standard of care. Planned enrollment is
expected to include approximately 30 CF patients, who are 18 years
of age or older, with study completion anticipated in 2019. The
OPTION Cross-Over Study
employed a six-week non-inferiority CFA primary efficacy endpoint
comparing MS1819 to PERTs. In June 2019, we reached our enrollment
target.
On
September 25, 2019, we announced positive results from the OPTION
Cross-Over Study. Results showed that the primary efficacy endpoint
of CFA was comparable to the CFA in a prior Phase 2 study in
patients with CP, while using the same dosage of MS1819. The dosage
used in the OPTION Cross-Over Study was 2.2 grams per day, which
was determined in agreement with the FDA as a bridging dose from
the highest safe dose used in the Phase 2 CP dose escalation study.
Although the study was not powered for statistical significance,
the data demonstrated meaningful efficacy results, with
approximately 50% of the patients showing CFAs high enough to reach
non-inferiority with standard PERTs. Additionally, the coefficient
of nitrogen absorption (“CNA”) was comparable between the MS1819
and PERT arms, 93% vs. 97%, respectively, in the OPTION Cross-Over
Study. This important finding confirms that protease
supplementation is not likely to be required with MS1819 treatment.
A total of 32 patients, ages 18 or older, completed the OPTION
Cross-Over Study.
In
addition to the OPTION Cross-Over Study, in July 2019 we launched
a Phase 2 multi-center clinical trial (the “Combination Trial”) in Hungary to
investigate MS1819 in combination with PERT, for CF patients who
suffer from severe EPI, but continue to experience clinical
symptoms of fat malabsorption despite taking the maximum daily dose
of PERTs. The Combination Trial is designed to investigate the
safety, tolerability and efficacy of escalating doses of MS1819, in
conjunction with a stable dose of PERTs, in order to increase CFA
and relieve abdominal symptoms.
On
October 15, 2019, we announced that we dosed the first patients in
our Combination Trial. This study is designed to investigate the
safety, tolerability and efficacy of escalating doses of MS1819
(700 mg, 1120 mg and 2240 mg per day, respectively), in conjunction
with a stable dose of porcine PERTs, in order to increase the CFA
and relieve abdominal symptoms. A combination therapy of PERT and
MS1819 has the potential to: (i) correct macronutrient and
micronutrient maldigestion; (ii) eliminate abdominal symptoms
attributable to maldigestion; and (iii) sustain optimal nutritional
status on a normal diet in CF patients with severe EPI. Planned
enrollment is expected to include approximately 24 CF patients with
severe EPI, at clinical trial sites in Hungary and additional
countries in Europe, including Spain, with study completion
originally anticipated in the first half of 2021, however, this
timeline may be delayed due to the COVID-19 epidemic.
On
October 17, 2019, we announced that the Cystic Fibrosis Foundation
Data Safety Monitoring Board had completed its review of our final
results of the OPTION Cross-Over Study and had found no safety
concerns for MS1819, and that the group supported our plan to
proceed to a higher four-gram dose of MS1819 in our next planned
Phase 2 clinical trial.
Niclosamide
Niclosamide,
a pro-inflammatory pathway
inhibitor, is a prescription small molecule drug that has
been safely used on millions of patients. Niclosamide is listed as
an essential medicine by the World Health Organization
(WHO). In the U.S., niclosamide was approved by the
FDA in 1982 for the treatment of intestinal tapeworm infections.
Niclosamide’s activity as an antihelminthic result from direct
action in the intestinal lumen where it disrupts parasite oxidative
metabolism, killing parasites. Niclosamide has been commercially
available worldwide for more than 50 years as 500mg tablets
intended for use in pediatric and adult populations, at a dose rate
of 2g per adult or child over 6 years of age. No safety issues have
ever been identified. In addition to its antihelminthic
activity, niclosamide has novel anti-inflammatory and
anti-viral properties.
We
believe niclosamide, and more specifically the patented and
proprietary micronized niclosamide formulation developed by First
Wave, has the potential to be an ideal therapeutic to treat
multiple GI indications due to the following favorable properties:
(i) it has a reduced particle size (approximately 7lM ) as
compared to regular non-micronized niclosamide (approximately
60lM) with
greater surface to solvent ratio, (ii) low oral bio-availability
with minimal systemic absorption / exposure, (iii) improved
dissolution with broader distribution allowing for higher local GI
concentrations (up to approximately 200 times based on preclinical
study results), and (iv) it exhibits anti-inflammatory effects
while avoiding steroid-related complications and adverse
events.
Background
FW-1022: COVID-19 GI infections
The
COVID-19 pandemic is a global public health emergency caused by the
SARS-CoV-2 virus. An increasing volume of convergent evidence
indicates that GI infection and fecal-oral transmission of
SARS-CoV-2 are important factors in the clinical presentation,
virology and epidemiology of COVID-19. There is currently no
etiological treatment for COVID-19 GI effects. We believe our
FW-1022 micronized niclosamide formulation will be the only one
being tested in clinical trials for a COVID-19 GI indication. Given
the potentially critical role of COVID GI infections we believe
there is a clear unmet therapeutic need.
Drug
repurposing and/or repositioning aimed at identifying new
therapeutic applications for existing clinically approved drugs is
a critical strategy to accelerate drug discovery for the COVID-19
pandemic. Multiple companies and laboratories have identified and
validated niclosamide to have potent antiviral activity against
SARS-CoV-2.
A recent study published in July 2020 in
Antimicrobial
Agents and Chemotherapy, an
American Society for Microbiology journal (Jeon et. al, 2020) examined a small set (n=49) of
FDA-approved drugs that were selected based on either having known
activity against SARS-CoV or being recommended by infectious
disease experts for activity against the
SARS-CoV-2 virus. Results from this study indicated that
niclosamide was the most potent of all agents tested in a Vero cell
cytopathic assay with an IC50 value of 0.28 lM. For comparison, in
terms of potency, niclosamide out-performed reference compounds
chloroquine, lopinavir, and remdesivir with IC50 values of 7.28,
9.12, and 11.41 lM, respectively. IC50 is a quantitative measure
that indicates how much of a particular inhibitory substance
(e.g. a drug) is needed to
inhibit, in vitro, a given biological process or biological
component by fifty percent. Thus, niclosamide is approximately
25-fold more potent in vitro than VEKLURY® (remdesivir), an antiviral drug marketed by Gilead
Sciences Inc. that received FDA approval in October 2020 for use in
adult and pediatric patients for the treatment of COVID-19
requiring hospitalization.
Following
oral administration, niclosamide is poorly absorbed, which results
in a majority of the administered dose remaining in the GI tract.
We believe this basic property of niclosamide, when combined with
FW-1022 the micronized niclosamide FW-1022 in the drug product
developed by First Wave to accelerate dissolution, allows this drug
product to achieve pharmacologically effective concentrations of
niclosamide in the GI tract while having almost no bioavailability,
potentially enhancing efficacy and safety. We believe these
properties make our FW-1022 micronized niclosamide formulation an
ideal and differentiated therapeutic for treating COVID-19
infections and GI symptoms.
There
are multiple other late-stage clinical trials evaluating the
standard (non-micronized) formulation of niclosamide in COVID-19.
We believe this further indicates that available data on
niclosamide’s antiviral properties against SARS-CoV-2 is considered
by others to be sufficient to proceed with clinical
testing.
We
are developing FW-1022, a medicinal product containing micronized
niclosamide in an immediate release tablet formulation as treatment
for SARS-CoV-2 intestinal infection in patients presenting with
gastrointestinal symptoms of COVID-19 disease. Evidence of
niclosamide’s antiviral properties is sufficient to expect a
clinical pharmacodynamic response against viral replication and
clinical benefit, justifying the proposed clinical study in
COVID-19 patients and favourable benefit -risk
assessment.
FW-420:
Immune Checkpoint Inhibitor Colitis (ICI-AC)
Immune checkpoint inhibitors (“ICIs”) are
monoclonal antibodies that target down-regulators of the
anti-cancer immune response and have gained increasing popularity
and have revolutionized the treatment of a variety of malignancies.
However, many immune-related adverse events, especially diarrhea
and colitis, limit their use. A 2019 study titled, “Immune
checkpoint inhibitor-induced colitis: A comprehensive review,”
published in World Journal of Clinical
Cases (Sol et.al, 2019) estimated the incidence of immune-mediated
colitis (“IMC“) ranges from 1%-25% depending on the type of ICI and
whether they are used in combination. A 2017 study titled
“Incidence of immune checkpoint inhibitor-related colitis in solid
tumor patients: a systematic review and meta-analysis” published
in Oncoimmunology
(Wang and Zhao et.al, 2017) estimated that approximately 44%, or
260,000 patients with advanced and metastatic tumors were eligible
to receive ICIs. Further, approximately 30% of ICI patients develop
diarrhea, which can progress to colitis. The onset of diarrhea in
ICI-AC patients occurs within six to seven weeks and progressively
worsens, and the progression to colitis is rapid and
unpredictable.
In patients taking Yervoy® (ipilimumab) marketed by Bristol Myers Squibb,
between 25-30% developed diarrhea and approximately 8-12% developed
colitis, as reported in a peer-reviewed article, “Immune-checkpoint
inhibitor-induced diarrhea and colitis in patients with advanced
malignancies: retrospective review at MD Anderson” published in
the Journal
for ImmunoTherapy of Cancer (Wang et. al,, 2018). Moreover, there is a treatment trend
towards the use of combination ICI therapies (for example combining
Yervoy® and
Opdivo®), which is believed to
lead to a concomitant increase in both diarrhea and
colitis.
We
believe there currently is no approved treatment for
grade-1colitis. The recommended treatment for grade two or more
severe colitis is administration of corticosteroids, or treatment
with certain immunosuppressive biologics, while withholding ICI
therapy (National Cancer Institute 2020). The impact of this
colitis complication and treatment may reduce the goal of
progression free cancer survival. We believe there is an unmet
medical need and an oral, non-absorbed therapeutic, such as our
FW-420 micronized niclosamide, for grade-1 colitis (diarrhea) may
prevent progression to grade-2 disease.
Clinical Development
Recent discoveries in immune cell metabolism have
opened up the possibility of selectively targeting disease-causing
immune cells to treat inflammatory diseases without unwanted side
effects such as broad immunosuppression. Prior to entering
into the First Wave License Agreement, First Wave had
developed a suite of product candidates, gut-restricted small
molecules that target the metabolism of disease-causing Th17 cells.
First Wave’s first clinical program, FW-424, had
encouraging data from a study Phase 1b/2a study in patients with
mild-to-moderate ulcerative colitis. In addition,
First Wave submitted an IND for
FW-1022 micronized niclosamide for COVID-19 GI infections that was
cleared by the FDA in September 2020.
In
addition, First Wave submitted an IND
for FW-1022 micronized niclosamide for COVID-19 GI infections that
was cleared by the FDA in September 2020.
Following
the entry into the First Wave License Agreement, we plan to
commence both a Phase 2 trial for COVID-19 GI infections as well as
a Phase 1b/2a trial for ICI-AC.
Agreements
and Collaborations
License Agreement with First Wave Bio, Inc.
On
December 31, 2020, we entered into the First Wave License Agreement
with First Wave. Pursuant to the First Wave License Agreement,
First Wave granted the Company a worldwide, exclusive right to
develop, manufacture, and commercialize First Wave’s proprietary
immediate release and enema formulations of niclosamide for the
fields of treating ICI-AC and COVID gastrointestinal infections in
humans (the “Product”). The Product uses First Wave’s proprietary
formulations of niclosamide, a pro-inflammatory pathway inhibitor.
We plan to commence in 2021 both a Phase 2 trial of the Product for
COVID in GI and a Phase 1b/2a trial for ICI-AC.
In
consideration of the license and other rights granted by First
Wave, we paid First Wave a $9.0 million upfront cash payment and
will pay an additional payment of $1.25 million due on June 30,
2021. In addition, we are obligated to pay potential milestone
payments to First Wave totaling up to $37.0 million for each
indication, based upon the achievement of specified development and
regulatory milestones. We are also obligated to pay First Wave
royalties as a mid-single digit percentage of net sales of the
Product, subject to specified reductions. We are also obligated to
issue to First Wave junior convertible preferred stock, initially
convertible into $3.0 million worth of Common Stock, based upon the
volume weighted average price of our Common Stock for the five-day
period immediately preceding the date of the First Wave License
Agreement, or $0.9118 per share. The preferred stock will convert
automatically into Common Stock upon the Stockholder Approval. The
purchase agreement pursuant to which the preferred stock is issued
will contain customary demand and piggyback registration rights
with respect to the Common Stock issuable upon
conversion.
We are
now solely responsible, and have agreed to use commercially
reasonable efforts, for all development, regulatory and commercial
activities related to the Products in the ICI-AC and COVID fields.
We may sublicense our rights under the First Wave License Agreement
and, if we do so, we will be obligated to pay milestone payments
and royalties to First Wave based on the sublicensee’s development
and commercialization of the Products.
Pursuant to the
First Wave License Agreement, First Wave retains rights to develop
and commercialize the licensed niclosamide formulations outside the
ICI-AC and COVID fields, and to develop and commercialize other
niclosamide formulations that are not licensed to us. However, if
prior to April 30, 2021, First Wave seeks to outlicense, sell to or
otherwise grant rights to a third party related to any products
containing niclosamide for use outside the ICI-AC or COVID fields
to develop or commercialize a product containing niclosamide for
use outside of the field then First Wave shall provide to us
written notice of such proposal, in reasonable detail and we shall
have the right and option to negotiate with First Wave with respect
to a definitive agreement for the acquisition of First Wave.
Pursuant to the First Wave License Agreement, we grant First Wave a
worldwide, non-exclusive, royalty-free, perpetual, irrevocable
license for use outside the ICI-AC and COVID fields, with the right
to grant sublicenses, under any program IP and other intellectual
property owned by us and incorporated into the
Product.
The
First Wave License Agreement terminates on a country-by-country
basis and product-by-product basis upon the expiration of the
royalty term for such product in such country. Each royalty term
begins on the date of the first commercial sale of the licensed
product in the applicable country and ends on date of expiration of
the last to expire royalty term with respect to the country. The
First Wave License Agreement may be terminated earlier in specified
situations, including termination for uncured material breach of
the First Wave License Agreement by either party, termination by us
in specified circumstances, termination by First Wave in specified
circumstances, termination by us for convenience with advance
notice, and termination upon a party’s insolvency or bankruptcy.
After expiration of the royalty term, we shall have a
non-exclusive, fully-paid, perpetual, royalty-free right and
irrevocable license with respect to any Product in any country
within the territory.
The
First Wave License Agreement also contains customary
representations, warranties and covenants by both parties, as well
as customary provisions relating to indemnification,
confidentiality and other matters.
Protea Stock Purchase Agreement
On May
21, 2014, we entered into a Stock Purchase Agreement (the
“Protea SPA”) with Protea
to acquire 100% of the outstanding capital stock of ProteaBio
Europe (the “Protea
Acquisition”). On June 13, 2014, we completed the Protea
Acquisition in exchange for the payment to Protea of $600,000 and
the issuance of shares of our Series A Preferred convertible into
33% of our outstanding Common Stock. Pursuant to the Protea SPA,
Protea Sub assigned (i) to Protea Europe all of its rights, assets,
know-how and intellectual property rights in connection with
program PR1101 and those granted under that certain Joint Research
and Development Agreement (the “JDLA”), by and among Protea Sub, Protea
Europe and Mayoly, dated March 22, 2010; and (ii) to us all
amounts, together with any right of reimbursement, due to Protea
Sub in connection with outstanding stockholder loans.
Pursuant to the
Protea SPA, we were obligated to pay certain other contingent
consideration upon the satisfaction of certain events, including
(a) a one-time milestone payment of $2.0 million due within ten
days of receipt of the first approval by the FDA of a New Drug
Application (“NDA”) or
Biological License Application (“BLA”) for a Business Product (as such
term is defined in the Protea SPA); (b) royalty payments equal to
2.5% of net sales of Business Product up to $100.0 million and 1.5%
of net sales of Business Product in excess of $100.0 million; and
(c) 10% of the Transaction Value (as defined in the Protea SPA)
received in connection with a sale or transfer of the
pharmaceutical development business of Protea Europe.
Protea Asset Sale and Purchase Agreement
On
December 7, 2018, we entered into a purchase agreement (the
“Protea
Purchase Agreement”) with Protea Biosciences Group,
Inc. and Protea, its wholly owned subsidiary, pursuant to which we
agreed to purchase the rights to any milestone payments, royalty
payments, and transaction value consideration due from us to Protea
now or in the future, arising from the Protea SPA (the
“Purchased
Assets”).
Protea
previously filed for Chapter 11 protection under the United States
Bankruptcy Code on December 1, 2017. On November 27, 2018, we
participated in a bankruptcy auction for the Purchased
Assets and were chosen as the successful bidder at the
conclusion of the auction. On December 10, 2018, the
transaction was approved by Judge Patrick J. Flatley of the United
States Bankruptcy Court for the Northern District of West
Virginia.
On
December 14, 2018, we closed the transactions contemplated by the
Protea Purchase Agreement. In accordance with the terms of the
Protea Purchase Agreement, we purchased the Purchased
Assets from Protea
for an aggregate purchase price of $1,550,000. We paid $250,000 of
the purchase price in cash, and the remaining $1,300,000 was paid
by the issuance of shares of Common Stock, at a price of $1.77 per
share, resulting in the issuance of 734,463 shares of Common Stock
to Protea.
Mayoly JDLA and Subsequent Asset Purchase Agreement
Effective March 22,
2010, Protea and AzurRx SAS entered into the JDLA with Mayoly
pursuant to which Mayoly sublicensed certain of its exclusive
rights to a genetically engineered yeast strain cell line on which
our MS1819 is based that derive from a Usage and Cross-Licensing
Agreement dated February 2, 2006 (the “INRA Agreement”) between Mayoly and
INRA, in charge of patent management acting for and on behalf of
the National Centre of Scientific Research (“CNRS”) and INRA.
Effective January
1, 2014, Protea entered into an amended and restated JDLA with
Mayoly (the “Mayoly
Agreement”), pursuant to which Protea acquired the
exclusive right to Mayoly patents and technology, with the right to
sublicense, develop, manufacture and commercialize human
pharmaceuticals based on the MS1819 lipase within the following
territories: U.S. and Canada, South America (excluding Brazil),
Asia (excluding China and Japan), Australia, New Zealand and
Israel. The JDLA further provided Mayoly the exclusive right
to Protea’s patents and technology, with the right to
sublicense, develop, manufacture and commercialize human
pharmaceuticals based on the MS1819 lipase within the following
territories: Mexico, Europe (excluding Italy, Portugal and Spain)
and any other country not granted to us alone, or jointly with
Mayoly. Prior to the execution of the Mayoly APA, rights to the
following territories were held jointly with Mayoly: Brazil, Italy,
Portugal, Spain, China and Japan. In addition, the Mayoly Agreement
required Protea to pay 70% of all development costs and required
each of the parties to use reasonable efforts to:
●
devote sufficient
personnel and facilities required for the performance of its
assigned tasks;
●
make available
appropriately qualified personnel to supervise, analyze and report
on the results obtained in the furtherance of the development
program; and
●
deploy such
scientific, technical, financial and other resources as is
necessary to conduct the development program.
Asset Purchase Agreement with Mayoly
On March 27, 2019, we entered into an Asset
Purchase Agreement and associated Assignment Agreement and
Delegation and Set-off Agreement with Mayoly (together, the
“Mayoly APA”), pursuant to which we purchased all remaining
rights, title and interest in and to MS1819. Upon execution of the
Mayoly APA, the JDLA previously executed by AzurRx SAS and Mayoly
was assigned to us. In addition, we executed a Patent
License Agreement with Mayoly pursuant to which we granted to Mayoly an exclusive, royalty-bearing
right to revenue received from commercialization of MS1819 within
France and Russia. We have exclusive rights to MS1819 in all other
global territories.
In
accordance with the Mayoly APA and related transaction documents,
we provided to Mayoly the following consideration:
(i)
we
assumed certain of Mayoly’s liabilities with respect to
MS1819;
(ii)
we
assumed all amounts currently owed to AzurRx SAS by Mayoly under
the JDLA;
(iii)
we
agreed to pay, within 30 days after the execution of the Mayoly
APA, all amounts incurred by Mayoly for the maintenance of patents
related to MS1819 from January 1, 2019 through the date of the
Mayoly APA;
(iv)
we made an initial payment to Mayoly of €800,000,
which amount was paid by the issuance of 400,481 shares of Common
Stock at a price of $2.29 per share (the “Closing Payment
Shares”);
and
(v)
we agreed to pay to Mayoly an additional
€1,500,000, payable in a mix of cash and shares of Common Stock as
follows (the “Milestone
Payments”): (i) on December 31,
2019, a cash payment of €400,000 and 200,240 shares of Common Stock
(the “2019
Escrow Shares”) and (ii) on
December 31, 2020, a cash payment of €350,000 and 175,210 shares of
Common Stock (the “2020 Escrow
Shares” and, together with the
2019 Escrow Shares, the “Escrow
Shares”).
The
Closing Payment Shares and the Escrow Shares were all issued upon
execution of the Mayoly APA;provided, however, per the terms of the Mayoly
APA, the Escrow Shares will be held in escrow until the applicable
Milestone Payment date, at which time the respective Escrow Shares
will be vested and released to Mayoly (See Note 6 to the 2019 Consolidated Financial
Statements).
INRA Agreement
In
February 2006, INRA, acting on behalf of CNRS and INRA entered into
a Usage and Cross-licensing Agreement with Mayoly to specify their
respective rights to the use of (i) French patent application no.
FR9810900 (the "INRA CNRS Patent
Application"), (ii) international patent application no.
WO2000FR0001148 (the "Mayoly
Patent Application"), and (iii) the technology and know-how
associated with both patent applications.
The
agreement covers extensions of both patent applications.
Specifically, the INRA CNRS Patent Application encompasses
application no. FR9810900 as well as PCT/FR99/02079 with national
phase entry in the U.S. (no. 09/786,048, now US patent 6,582,951),
Canada (no. 2,341,776) and Europe (no. 99.940.267.0, now EP 1 108
043 B1). The Mayoly Patent Application encompasses WO2000FR0001148
with the national phase entered in Europe (now EP 1 276 874
B1).
The
agreement provided Mayoly with the world-wide use in human therapy,
nutraceuticals, and cosmetology and provides INRA with world-wide
(i) use of lipase as an enzymatic catalyst throughout this field,
including the production of pharmaceuticals, and (ii) treatment of
the environment, food production processes, cleaning processes and
other fields, excluding human therapies, nutraceuticals and
cosmetology. The agreement provides for shared use in the
production of lipase in the veterinary field (livestock and pets).
As consideration for the agreement, Mayoly agreed to pay INRA an
annual lump sum of €5,000 until marketing. Upon marketing, Mayoly
agreed to pay INRA a lump sum of €100,000 and royalties on net
sales of the product. Unless earlier terminated in accordance with
its terms, the agreement with INRA expires upon the expiration of
the patents in each country in which the license has been granted.
The parties may terminate the agreement in the event the other
party breaches its obligations therein, which termination shall
become effective three months following written notice thereof to
the breaching party. The breaching party shall have the right to
cure such breach or default during such three-month period. Upon
execution of the Mayoly APA in March 2019, Mayoly transferred the
INRA Agreement to us.
TransChem Sublicense
On
August 7, 2017, we entered into the TransChem Sublicense Agreement
with Transchem pursuant to which TransChem granted to us an
exclusive license to certain patents (the “TransChem Licensed Patents”) relating
to H. pylori 5’methylthioadenosine nucleosidase inhibitors. We may
terminate the Sublicense Agreement and the licenses granted therein
for any reason and without further liability on 60 days’ notice.
Unless terminated earlier, the Sublicense Agreement will expire
upon the expiration of the last Licensed Patents. Upon execution,
we paid an upfront fee to TransChem and agreed to reimburse
TransChem for certain expenses previously incurred in connection
with the preparation, filing, and maintenance of the Licensed
Patents. We also agreed to pay TransChem certain future periodic
sublicense maintenance fees, which fees may be credited against
future royalties. We may also be required to pay TransChem
additional payments and royalties in the event certain
performance-based milestones and commercial sales involving the
Licensed Patents are achieved. The TransChem Licensed Patents will
allow us to develop compounds for treating gastrointestinal, lung
and other infections that are specific to individual bacterial
species. H. pylori bacterial infections are a major cause of
chronic gastritis, peptic ulcer disease, gastric cancer and other
diseases.
On
March 11, 2020, we provided TransChem with sixty (60) days prior
written notice of our intent to terminate the TransChem Sublicense
Agreement.
Intellectual
Property
Our
goal is to obtain, maintain and enforce patent protection for our
product candidates, formulations, processes, methods and any other
proprietary technologies, preserve our trade secrets, and operate
without infringing on the proprietary rights of other parties, both
in the United States and in other countries. Our policy is to
actively seek to obtain, where appropriate, the broadest
intellectual property protection possible for our current product
candidates and any future product candidates, proprietary
information and proprietary technology through a combination of
contractual arrangements and patents, both in the United States and
abroad. However, patent protection may not afford us with complete
protection against competitors who seek to circumvent our
patents.
We also
depend upon the skills, knowledge, experience and know-how of our
management and research and development personnel, as well as that
of our advisors, consultants and other contractors. To help protect
our proprietary know-how, which is not patentable, and for
inventions for which patents may be difficult to enforce, we
currently rely and will in the future rely on trade secret
protection and confidentiality agreements to protect our interests.
To this end, we require all of our employees, consultants, advisors
and other contractors to enter into confidentiality agreements that
prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our
business.
MS1819
The
MS1819 program is protected by the following series of issued
patents that we have licensed under the Mayoly Agreement covering
the method for transformation of Yarrowia lipolytica, the sequence of the LIP2 enzyme
and its production process:
●
PCT/FR99/02079
patent family (including the patents EP1108043 B1, and US6582951)
“Method for non-homologous transformation of Yarrowia lipolytica”,
concerns the integration of a gene of interest into the genome of a
Yarrowia strain devoid of
zeta sequences, by transforming said strain using a vector bearing
zeta sequences. This modified strain is used for the current
production process. This patent has been issued in the U.S.,
Canada, and validated in several European countries, including
Austria, Belgium, Switzerland, Cyprus, Germany, Denmark, Spain,
Finland, Great Britain, Greece, Ireland, France, Italy, Lithuania,
Luxembourg, Netherlands, Portugal and Sweden. This patent expired
September 1, 2019;
●
PCT/FR2000/001148
patent family (including the patent EP1276874 B1) “Cloning and
expressing an acid-resistant extracellular lipase of Yarrowia
lipolytica” describes the coding sequences of acid-resistant
extracellular lipases, in particular Candida ernobii or Yarrowia lipolytica yeasts and the
production of said lipases in their recombinant form. This patent
has been validated in several European countries, including Italy,
France and Great Britain. This patent expires April 28, 2020;
and
●
PCT/FR2006/001352
patent family (including the patent EP2035556 and patent
US8,334,130 and US8,834,867) “Method for producing lipase,
transformed Yarrowia
lipolytica cell capable of producing said lipase and their
uses” describes a method for producing Yarrowia lipolytica acid-resistant
recombinant lipase utilizing a culture medium without any products
of animal origin or non-characterized mixtures such as tryptone,
peptone or lactoserum, in addition to its uses. The European
patents expire June 15, 2026, U.S. patent 8,334,130 expires
September 11, 2028, and U.S. patent 8,834,867 expires September 15,
2026.
In
addition, a provisional application was filed in 2020 directed to
our proprietary formulation of MS1819. Any patent application
claiming priority to this provisional application upon issuance
will have an expected expiration in 2041.
Niclosamide
Our
FW-420 and FW-1022 niclosamide programs are protected by patent
filings licensed under the First
Wave License Agreement that include the
following:
|
●
|
US10,292,951;
US10,772,854; US10,744,103; US10,799,468; US10,849,867; and U.S.
Patent Application Publications US20200197339; US20200197340 and
US20200276140 as well as corresponding worldwide patent filings all
entitled “Methods and Compositions for Treating Conditions
Associated with an Abnormal Inflammatory Process.” The expiration
date of the issued patents is September 1, 2036.
|
|
●
|
A
series of provisional and yet unpublished applications all filed in
2020, including U.S. Application Serial No. 16/835,307, directed to
the use of niclosamide for the treatment of COVID-19
gastrointestinal infections, which has been allowed and upon
issuance will have an expiration date in 2040.
|
Manufacturing
MS1819
API is obtained by fermentation in bioreactors using our engineered
and proprietary Yarrowia
lipolytica strain. The proprietary yeast cell line from
which the API is derived is kept at a storage facility maintained
by Charles River. MS1819 Drug Substance is currently manufactured
at a contract facility located in Capua, Italy owned by Olon.
MS1819 Drug Product is currently manufactured at a contract
facilities located in Reims, France and Craigavon, United Kingdom
owned by Delpharm and Almac Pharma Services. We believe there are
multiple alternative contract manufacturers capable of producing
the product we need for clinical trials. We are in the process of
establishing alternative manufacturers and manufacturing sites for
the product; however, there is no guarantee that the processes are
easily reproducible and transferrable. In December 2020, we entered into a master service
agreement with Asymchem to initiate the transfer of the
manufacturing process for both Drug Substance and Drug
Product.
Niclosamide API is
obtained by chemical synthesis and is currently manufactured by
Olon at facility in Murcia, Spain. Niclosamide Drug Product is
currently manufactured at a contract facility located in Milan,
Italy owned by Monteresearch. We believe there are multiple
alternative contract manufacturers capable of producing the product
we need for clinical trials; however, there is no guarantee that
the processes are easily reproducible and
transferrable.
Competition
The
pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Many companies
of all sizes, including major pharmaceutical companies and
specialized biotechnology companies, are engaged in the development
and commercialization of therapeutic agents designed for the
treatment of the same diseases and disorders that we target. Many
of our competitors have substantially greater financial and other
resources, larger research and development staff and more
experience in the regulatory approval process. Moreover, potential
competitors have or may have patents or other rights that conflict
with patents covering our technologies.
MS1819
With
respect to MS1819, we will compete with PERTs (pancrelipase), a
well-established market that is currently dominated by a few large
pharmaceutical companies, including CREON® marketed by AbbVie Inc.,
ZENPEP® sold to Nestlé S.A. by Allergan plc. in January 2020,
PANCREAZE® marketed by VIVUS, Inc. and PERTZYE® marketed
by Chiesi Farmaceutici S.p.A. There are currently six PERT
products that have been approved by the FDA for sale in the U.S. We
believe our ability to compete in this market, if we are successful
in developing and obtaining regulatory approval to market MS1819,
will depend on our ability (or that of a future corporate partner)
to convince patients, their physicians, healthcare payors and the
medical community of the benefits of using a non-animal-based
product to treat EPI, as well as by addressing other shortcomings
associated with PERTs, including a large pill burden.
Niclosamide
With
respect to FW-1022, micronized niclosamide for COVID-19 infections,
if approved, we will compete with currently approved antivirals,
including VEKLURY® (remdesivir) marketed by Gilead Sciences, Inc.
and vaccines, including those marketed by Pfizer Inc. and BioNTech
SE, Moderna, Inc. and AstraZeneca plc. There are also several
therapeutic and vaccine candidates in various stages of development
that may obtain regulatory approval for the treatment or prevention
of COVID-19 infections. Additionally, there are currently ongoing
clinical studies using niclosamide by ANA Therapeutics (acquired by
NeuroBo Pharmaceuticals, Inc.), Daewoong Pharmaceuticals Co Ltd,
and Union Therapeutics A/S at various stages of development. We
believe our approach to target COVID-19 GI infections is
differentiated. We believe our ability to compete in this market,
if we are successful in developing and obtaining regulatory
approval to market FW-1022, will depend on our ability (or that of
future corporate partners) to convince patients, their physicians,
healthcare agencies and payors and the medical community of the
benefits of using a GI restricted FW-1022 to treat COVID-19
infections with GI symptoms.
With
respect to FW-420, micronized niclosamide for ICI-AC, we will
compete with both oral and intravenous (“IV”) administered steroids
as well as hospital-based infusions of biologics, including
infliximab and vedolizumab. We believe our ability to compete in
this market, if we are successful in developing and obtaining
regulatory approval to market FW-420, will depend on our ability
(or that of future corporate partners) to convince patients, their
physicians, healthcare agencies and payors and the medical
community of the benefits of using a non-steroidal, non-biologic
therapeutic option for the treatment of ICI-AC.
Government
Regulation and Product Approval
Government
authorities in the United States, at the federal, state and local
level, and other countries extensively regulate, among other
things, the research, development, testing, manufacture, quality
control, approval, labeling, packaging, storage, record-keeping,
promotion, advertising, distribution, post-approval monitoring and
reporting, marketing and export and import of products such as
those we are developing. To date, our internal research and
development efforts have been conducted in France. We expect to
continue to perform substantially all of our basic research
activities in France in order to leverage our human capital
expertise as well as to avail ourselves of tax credits (CIR)
awarded by the French government to research companies that perform
research activities in France. We expect to continue to conduct
early stage development work in France, with late stage development
work, including Phase 2b and Phase 3 clinical trials for MS1819 in
both the United States and Europe, as North America is our
principal target market for MS1819 and any other product candidates
that we may successfully develop.
U.S. Government Regulation
In the
United States, the FDA regulates drugs under the Federal Food,
Drug, and Cosmetic Act, or FDCA, and its implementing regulations,
and biologics under the FDCA and the Public Health Service Act, or
PHSA, and its implementing regulations. FDA approval is required
before any new unapproved drug or dosage form, including a new use
of a previously approved drug, can be marketed in the United
States. Drugs and biologics are also subject to other federal,
state and local statutes and regulations. If we fail to comply with
applicable FDA or other requirements at any time during the drug
development process, clinical testing, the approval process or
after approval, we may become subject to administrative or judicial
sanctions. These sanctions could include the FDA's refusal to
approve pending applications, license suspension or
revocation, withdrawal of an approval, warning letters, product
recalls, product seizures, placement on Import Alerts, debarment of
personnel, employees or officers, total or partial suspension of
production or distribution, injunctions, fines, civil penalties or
criminal prosecution.
The
process required by the FDA before drug candidates may be marketed
in the United States generally involves the following:
●
completion
of extensive preclinical laboratory tests, preclinical animal
studies, and toxicity data, all performed in accordance with the
good laboratory practices, or GLP, regulations;
●
submission to the
FDA of an IND, which must become effective before human clinical
studies may begin;
●
approval by an
independent IRB or ethics committee representing each clinical site
before each clinical study may be initiated;
●
performance of
adequate and well-controlled human clinical studies to establish
the safety and efficacy, or in the case of a biologic, the safety,
purity and potency, of the drug candidate for each proposed
indication;
●
preparation of and
submission to the FDA of a new drug application, or NDA, or
biologics license application, or BLA, after completion of all
pivotal clinical studies;
●
review of the
product application by an FDA advisory committee, where appropriate
and if applicable;
●
a determination by
the FDA within 60 days of its receipt of an NDA or BLA to file
the application for review;
●
satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facilities where the drug candidate is produced to assess
compliance with cGMP; and
●
FDA review and
approval of an NDA or BLA prior to any commercial marketing or sale
of the drug or biologic in the United States.
An IND
is a request for authorization from the FDA to administer an
investigational new drug product to humans. The central focus of an
IND submission is on the general investigational plan and the
protocol(s) for human studies. The IND also includes results of
animal and in vitro studies assessing the toxicology,
pharmacokinetics, pharmacology and pharmacodynamic characteristics
of the product; chemistry, manufacturing and controls information;
and any available human data or literature to support the use of
the investigational new drug. An IND must become effective before
human clinical studies may begin. An IND will automatically become
effective 30 days after receipt by the FDA, unless before that
time the FDA raises concerns or questions related to the proposed
clinical studies. In such a case, the IND may be placed on clinical
hold and the IND sponsor and the FDA must resolve any outstanding
concerns or questions before clinical studies can begin.
Accordingly, submission of an IND may or may not result in the FDA
allowing clinical studies to commence.
Clinical Studies
Clinical studies
involve the administration of the investigational new drug to human
subjects under the supervision of qualified investigators in
accordance with GCPs, which include the requirement that all
research subjects provide their informed consent for their
participation in any clinical study. Clinical studies are conducted
under protocols detailing, among other things, the objectives of
the study, and the parameters to be used in monitoring safety and
the efficacy criteria to be evaluated. A protocol for each clinical
study and any subsequent protocol amendments must be submitted to
the FDA as part of the IND. Additionally, approval must also be
obtained from each clinical study site's IRB before the studies may
be initiated, and the IRB must monitor the study until completed.
There are also requirements governing the reporting of ongoing
clinical studies and clinical study results to public registries,
such as ClinicalTrials.gov.
The
clinical investigation of a drug or biologic is generally divided
into three or four phases. Although the phases are usually
conducted sequentially, they may overlap or be
combined.
●
Phase 1. The drug
or biologic is initially introduced into healthy human subjects or
patients with the target disease or condition. These studies are
designed to evaluate the safety, dosage tolerance, metabolism and
pharmacologic actions of the investigational new drug in humans,
the side effects associated with increasing doses, and if possible,
to gain early evidence on effectiveness.
●
Phase 2. The drug
or biologic is administered to a limited patient population to
evaluate dosage tolerance and optimal dosage, identify possible
adverse side effects and safety risks and preliminarily evaluate
efficacy.
●
Phase 3. The drug
or biologic is administered to an expanded patient population,
generally at geographically dispersed clinical study sites to
generate enough data to statistically evaluate dosage, clinical
effectiveness and safety, to establish the overall benefit-risk
relationship of the investigational product and to provide an
adequate basis for product approval.
●
Phase 4. In some
cases, the FDA may condition approval of an NDA or BLA for a drug
candidate on the sponsor's agreement to conduct additional clinical
studies after approval. In other cases, a sponsor may commit to
conducting or voluntarily conduct additional clinical studies after
approval to gain more information about the drug. Such
post-approval studies are typically referred to as Phase 4
clinical studies.
A
confirmatory or pivotal study is a clinical study that adequately
meets regulatory agency requirements for the evaluation of a drug
candidate's efficacy and safety such that it can be used to justify
the approval of the product. Generally, pivotal studies are
Phase 3 studies, but the FDA may accept results from
Phase 2 studies if the study design provides a well-controlled
and reliable assessment of clinical benefit, particularly in
situations where there is an unmet medical need and the results are
sufficiently robust. In such cases, FDA may require post-market
studies for safety and efficacy to be conducted for the drug
candidate. The FDA may withdraw the approval if the results
indicate that the approved drug is not safe or
effective.
The
FDA, the IRB or the clinical study sponsor may suspend or terminate
a clinical study at any time on various grounds, including a
finding that the research subjects are being exposed to an
unacceptable health risk. Additionally, some clinical studies are
overseen by an independent group of qualified experts organized by
the clinical study sponsor, known as a data safety monitoring board
or committee. This group provides authorization for whether or not
a study may move forward at designated check points based on access
to certain data from the study. We may also suspend or terminate a
clinical study based on evolving business objectives and/or
competitive climate.
Submission of an NDA or BLA to the FDA
Assuming successful
completion of all required testing in accordance with all
applicable regulatory requirements, detailed investigational new
drug product information is submitted to the FDA in the form of an
NDA or BLA requesting approval to market the product for one or
more indications. Under federal law, the submission of most NDAs
and BLAs is subject to a substantial application user fee.
Applications for orphan drug products are exempted from the NDA and
BLA application user fees.
An NDA
or BLA must include all relevant data available from pertinent
preclinical and clinical studies, including negative or ambiguous
results as well as positive findings, together with detailed
information relating to the product's chemistry, manufacturing,
controls and proposed labeling, among other things. Data can come
from company-sponsored clinical studies intended to test the safety
and effectiveness of a use of a product, or from a number of
alternative sources, including studies initiated by
investigators. To support marketing approval, the data submitted
must be sufficient in quality and quantity to establish the safety
and effectiveness of the investigational product to the
satisfaction of the FDA.
Once an
NDA or BLA has been submitted, the FDA's goal is to review the
application within ten months after it accepts the application for
filing, or, if the application relates to an unmet medical need in
a serious or life-threatening indication, six months after the FDA
accepts the application for filing. The review process is often
significantly extended by FDA requests for additional information
or clarification.
Before
approving an NDA or BLA, the FDA typically will inspect the
facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the
manufacturing processes and facilities are in compliance with cGMP
requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before
approving an NDA or BLA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP.
The FDA
is required to refer an application for an investigational drug or
biologic to an advisory committee or explain why such referral was
not made. An advisory committee is a panel of independent experts,
including clinicians and other scientific experts, that reviews,
evaluates and provides a recommendation as to whether the
investigational product application should be approved and under
what conditions. The FDA is not bound by the recommendations of an
advisory committee, but it considers such recommendations carefully
when making decisions and typically follows such
recommendations.
The FDA's Decision on an NDA or BLA
After
the FDA evaluates the NDA or BLA and conducts inspections of
manufacturing facilities, it may issue an approval letter or a
Complete Response Letter. An approval letter authorizes commercial
marketing of the drug or biologic with specific prescribing
information for specific indications. A Complete Response Letter
indicates that the review cycle of the application is complete, and
the application is not ready for approval. A Complete Response
Letter may require additional clinical data and/or an additional
pivotal Phase 3 clinical study(ies), and/or other significant,
expensive and time-consuming requirements related to clinical
studies, preclinical studies or manufacturing. Even if such
additional information is submitted, the FDA may ultimately decide
that the NDA or BLA does not satisfy the criteria for approval. The
FDA could also approve the NDA or BLA with a REMS to mitigate
risks, which could include medication guides, physician
communication plans or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk
minimization tools. The FDA also may condition approval on, among
other things, changes to proposed labeling, development of adequate
controls and specifications or a commitment to conduct one or more
post-market studies or clinical studies. Such post-market testing
may include Phase 4 clinical studies and surveillance to
further assess and monitor the product's safety and effectiveness
after commercialization. The FDA may have the authority to withdraw
its approval if post-market testing fails to verify the approved
drug's clinical benefit, if the applicant does not perform the
required testing with due diligence, or if the any other evidence
demonstrates the approved drug is not safe or effective, among
other reasons. Also, new government requirements, including those
resulting from new legislation, may be established, or the FDA's
policies may change, which could delay or prevent regulatory
approval of our products under development.
Expedited Review and Accelerated Approval
Programs
The FDA
has various programs, including fast track designation,
breakthrough therapy designation, accelerated approval,
regenerative medicine advanced therapy and priority review, that
are intended to expedite the development and approval of new
drugs and biologics that address unmet medical needs in the
treatment of serious or life-threatening diseases and conditions.
To be eligible for a fast track designation, the FDA must
determine, based on the request of a sponsor, that a product is
intended to treat a serious or life-threatening disease or
condition and demonstrates the potential to address an unmet
medical need. The FDA may review sections of the NDA for a
fast-track product on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for
the submission of the sections of the NDA, the FDA agrees to accept
sections of the NDA and determines that the schedule is acceptable,
and the sponsor pays any required user fees upon submission of the
first section of the NDA.
The FDA
may give a priority review designation to drugs that offer major
advances in treatment or provide a treatment where no adequate
therapy exists. A priority review means that the goal for the FDA
to review an application is six months, rather than the standard
review of ten months under current. These six and ten-month review
periods are measured from the "filing" date rather than the receipt
date for NDAs for new molecular entities, which typically adds
approximately two months to the timeline for review and decision
from the date of submission. Most products that are eligible for
fast-track designation are also likely to be considered appropriate
to receive a priority review.
In
addition, products studied for their safety and effectiveness in
treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may be
eligible for accelerated approval and may be approved on the basis
of adequate and well-controlled clinical studies establishing that
the product has an effect on a surrogate endpoint that is
reasonably likely to predict clinical benefit, or on a clinical
endpoint that can be measured earlier than irreversible morbidity
or mortality, that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit,
taking into account the severity, rarity or prevalence of the
condition and the availability or lack of alternative treatments.
As a condition of approval, the FDA may require a sponsor of a drug
receiving accelerated approval to perform post-marketing studies to
verify and describe the predicted effect on irreversible morbidity
or mortality or other clinical endpoint, and the drug may be
subject to accelerated withdrawal procedures.
Moreover, under the
provisions of the FDA Safety and Innovation Act passed in July
2012, a sponsor can request designation of a drug candidate as a
"breakthrough therapy." A breakthrough therapy is defined as a drug
or biologic that is intended, alone or in combination with one or
more other drugs or biologics, to treat a serious or
life-threatening disease or condition, and preliminary clinical
evidence indicates that the product may demonstrate substantial
improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects
observed early in clinical development. Drugs designated as
breakthrough therapies are also eligible for the other expedited
review and approval programs, including accelerated approval,
priority review, regenerative medicine advanced therapy, and
fast-track designation. The FDA must take certain actions, such as
holding timely meetings and providing advice, intended to expedite
the development and review of an application for approval of a
breakthrough therapy.
In
addition, the 21st Century Cures Act in 2016 made the
Regenerative Medicine Advanced Therapy, or RMAT, designation
available for investigational drugs that are intended to treat,
modify, reverse, or cure a serious condition, with preliminary
clinical evidence indicating that the drug has the potential for
addressing unmet medical needs for such condition. The RMAT
designation is available for cell therapy, therapeutic tissue
engineering products, human cell and tissue products, and
combination products that use such therapies or products. The
advantages of RMAT designation include those of breakthrough and
fast track designations, such as early interactions with FDA and
rolling review of applications, and the drug candidate with the
RMAT designation may be eligible for accelerated approval. Requests
for RMAT designations should be made with the IND application (if
preliminary clinical evidence is available), but no later than the
end-of-phase-2 meeting.
Even if
a product qualifies for one or more of these programs, the FDA may
later decide that the product no longer meets the conditions for
qualification or decide that the time period for FDA review or
approval will not be shortened.
Post-Approval Requirements
Drugs
and biologics marketed pursuant to FDA approvals are subject to
pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and
promotion and reporting of adverse experiences with the product.
After approval, most changes to the approved product, such as
adding new indications or other labeling claims are subject to
prior FDA review and approval. There also are continuing, annual
user fee requirements.
Manufacturers are
subject to periodic unannounced inspections by the FDA and state
agencies for compliance with cGMP requirements. Changes to the
manufacturing process are strictly regulated and, depending on the
significance of the change, may require prior FDA approval before
being implemented. FDA regulations also require investigation and
correction of any deviations from cGMP and impose reporting and
documentation requirements upon us and any third-party
manufacturers that we may decide to use. Accordingly, manufacturers
must continue to expend time, money and effort in the area of
production and quality control to maintain compliance with cGMP and
other aspects of regulatory compliance.
Discovery of
previously unknown problems with a product or the failure to comply
with applicable requirements may result in restrictions on a
product, manufacturer or holder of an approved NDA or BLA,
including withdrawal or recall of the product from the market or
other voluntary, FDA-initiated or judicial action that could delay
or prohibit further marketing. Also, new government requirements,
including those resulting from new legislation, may be established,
or the FDA's policies may change, which could delay or prevent
regulatory approval of our products under
development.
The FDA
may withdraw approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown
problems with a product, including adverse events of unanticipated
severity or frequency, or with manufacturing processes, or failure
to comply with regulatory requirements, may result in revisions to
the approved labeling to add new safety information; imposition of
post-market studies or clinical studies to assess new safety risks;
or imposition of distribution restrictions or other restrictions
under a REMS program. Other potential consequences include, among
other things.
●
restrictions on the
marketing or manufacturing of the product;
●
complete withdrawal
of the product from the market or product
recalls;
●
fines, warning
letters or holds on post-approval clinical
studies;
●
refusal of the FDA
to approve pending NDAs or BLAs or supplements to approved NDAs or
BLAs, or suspension or revocation of product licenses or
approvals;
●
product seizure or
detention, or refusal to permit the import or export of products;
or
●
injunctions or the
imposition of civil or criminal penalties.
The FDA
strictly regulates marketing, labeling, advertising and promotion
of products that are placed on the market. Drugs may be promoted
only for the approved indications and in accordance with the
provisions of the approved label. The FDA and other agencies
actively enforce the laws and regulations prohibiting the promotion
of off-label uses, and a company that is found to have improperly
promoted off-label uses may be subject to significant
liability.
Orphan Designation and Exclusivity
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug
or biologic intended to treat a rare disease or condition, defined
as a disease or condition with a patient population of fewer than
200,000 individuals in the United States, or a patient population
greater than 200,000 individuals in the United States and when
there is no reasonable expectation that the cost of developing and
making available the drug or biologic in the United States will be
recovered from sales in the United States for that drug or
biologic. Orphan drug designation must be requested before
submitting a BLA or NDA. After the FDA grants orphan drug
designation, the generic identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the
FDA.
If a
product that has orphan drug designation subsequently receives the
first FDA approval for a particular active ingredient for the
disease for which it has such designation, the product is entitled
to orphan product marketing exclusivity, which means that the FDA
may not approve any other applications, including a full BLA, to
market the same biologic for the same use or indication for seven
years, except in limited circumstances, such as a showing of
clinical superiority to the product with orphan drug exclusivity or
if FDA finds that the holder of the orphan drug exclusivity has not
shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease
or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different
drug or biologic for the same disease or condition, or the same
drug or biologic for a different disease or condition. Among the
other benefits of orphan drug designation are tax credits for
certain research and a waiver of the BLA or NDA application user
fee.
A
designated orphan drug many not receive orphan drug exclusivity if
it is approved for a use that is broader than the indication for
which it received orphan designation. In addition, orphan drug
exclusive marketing rights in the United States may be lost if the
FDA later determines that the request for designation was
materially defective or, as noted above, if the second applicant
demonstrates that its product is clinically superior to the
approved product with orphan exclusivity or the manufacturer of the
approved product is unable to assure sufficient quantities of the
product to meet the needs of patients with the rare disease or
condition.
Biosimilars and Exclusivity
The
Affordable Care Act, signed into law in 2010, includes a subtitle
called the Biologics Price Competition and Innovation Act of 2009,
or BPCIA, which created an abbreviated approval pathway for
biological products that are biosimilar to or interchangeable with
an FDA-licensed reference biological product. To date, only a
handful of biosimilars have been licensed under the BPCIA, although
numerous biosimilars have been approved in Europe. The FDA has
issued several guidance documents outlining an approach to review
and approval of biosimilars.
Biosimilarity,
which requires that there be no clinically meaningful differences
between the biological product and the reference product in terms
of safety, purity and potency, can be shown through analytical
studies, human PK and PD studies, clinical immunogenicity
assessments, animal studies and a clinical study or studies.
Interchangeability requires that a product is biosimilar to the
reference product and the product must demonstrate that it can be
expected to produce the same clinical results as the reference
product in any given patient and, for products that are
administered multiple times to an individual, the biologic and the
reference biologic may be alternated or switched after one has been
previously administered without increasing safety risks or risks of
diminished efficacy relative to exclusive use of the reference
biologic. However, complexities associated with the larger, and
often more complex, structures of biological products, as well as
the processes by which such products are manufactured, pose
significant hurdles to implementation of the abbreviated approval
pathway that are still being worked out by the
FDA.
Under
the BPCIA, an application for a biosimilar product may not be
submitted to the FDA until four years following the date that the
reference product was first licensed by the FDA. In addition, the
approval of a biosimilar product may not be made effective by the
FDA until 12 years from the date on which the reference
product was first licensed. During this 12-year period of
exclusivity, another company may still market a competing version
of the reference product if the FDA approves a full BLA for the
competing product containing that applicant's own preclinical data
and data from adequate and well-controlled clinical studies to
demonstrate the safety, purity and potency of its product. The
BPCIA also created certain exclusivity periods for biosimilars
approved as interchangeable products. At this juncture, it is
unclear whether products deemed "interchangeable" by the FDA will,
in fact, be readily substituted by pharmacies, which are governed
by state pharmacy law.
A
biological product can also obtain pediatric market exclusivity in
the United States. Pediatric exclusivity, if granted, adds six
months to existing exclusivity periods and patent terms. This
six-month exclusivity, which runs from the end of other exclusivity
protection or patent term, may be granted based on the voluntary
completion of a pediatric study in accordance with an FDA-issued
"Written Request" for such a study.
The
BPCIA is complex and continues to be interpreted and implemented by
the FDA. In addition, recent government proposals have sought to
reduce the 12-year reference product exclusivity period. Other
aspects of the BPCIA, some of which may impact the BPCIA
exclusivity provisions, have also been the subject of recent
litigation. As a result, the ultimate impact, implementation, and
impact of the BPCIA is subject to significant
uncertainty.
Hatch-Waxman Amendments and Exclusivity
Section 505 of
the FDCA describes three types of marketing applications that may
be submitted to the FDA to request marketing authorization for a
new drug. A Section 505(b)(1) NDA is an application that
contains full reports of investigations of safety and efficacy. A
505(b)(2) NDA is an application that contains full reports of
investigations of safety and efficacy but where at least some of
the information required for approval comes from investigations
that were not conducted by or for the applicant and for which the
applicant has not obtained a right of reference or use from the
person by or for whom the investigations were conducted. This
regulatory pathway enables the applicant to rely, in part, on the
FDA's prior findings of safety and efficacy for an existing
product, or published literature, in support of its application.
Section 505(j) establishes an abbreviated approval process for
a generic version of approved drug products through the submission
of an ANDA. An ANDA provides for marketing of a generic drug
product that has the same active ingredients, dosage form,
strength, route of administration, labeling, performance
characteristics and intended use, among other things, to a
previously approved product. ANDAs are termed "abbreviated" because
they are generally not required to include preclinical (animal) and
clinical (human) data to establish safety and efficacy. Instead,
generic applicants must scientifically demonstrate that their
product is bioequivalent to, or performs in the same manner as, the
innovator drug through in vitro, in vivo or other testing. The
generic version must deliver the same amount of active ingredients
into a subject's bloodstream in the same amount of time as the
innovator drug and can often be substituted by pharmacists under
prescriptions written for the reference listed drug. In seeking
approval for a drug through an NDA, applicants are required to list
with the FDA each patent with claims that cover the applicant's
drug or a method of using the drug. Upon approval of a drug, each
of the patents listed in the application for the drug is then
published in the Orange Book. Drugs listed in the Orange Book can,
in turn, be cited by potential competitors in support of approval
of an ANDA or 505(b)(2) NDA.
Upon
submission of an ANDA or a 505(b)(2) NDA, an applicant must certify
to the FDA that (1) no patent information on the drug product
that is the subject of the application has been submitted to the
FDA; (2) such patent has expired; (3) the date on which
such patent expires; or (4) such patent is invalid or will not
be infringed upon by the manufacture, use or sale of the drug
product for which the application is submitted. Generally, the
ANDA or 505(b)(2) NDA cannot be approved until all listed patents
have expired, except where the ANDA or 505(b)(2) NDA applicant
challenges a listed patent through the last type of certification,
also known as a paragraph IV certification. If the applicant
does not challenge the listed patents, or indicates that it is not
seeking approval of a patented method of use, the ANDA or 505(b)(2)
NDA application will not be approved until all of the listed
patents claiming the referenced product have
expired.
If the
ANDA or 505(b)(2) NDA applicant has provided a Paragraph IV
certification to the FDA, the applicant must send notice of the
Paragraph IV certification to the NDA and patent holders once
the application has been accepted for filing by the FDA. The NDA
and patent holders may then initiate a patent infringement lawsuit
in response to the notice of the paragraph IV certification.
If the paragraph IV certification is challenged by an NDA
holder or the patent owner(s) asserts a patent challenge to the
paragraph IV certification, the FDA may not approve that
application until the earlier of 30 months from the receipt of
the notice of the paragraph IV certification, the expiration
of the patent, when the infringement case concerning each such
patent was favorably decided in the applicant's favor or settled,
or such shorter or longer period as may be ordered by a court. This
prohibition is generally referred to as the 30-month stay. In
instances where an ANDA or 505(b)(2) NDA applicant files a
paragraph IV certification, the NDA holder or patent owner(s)
regularly take action to trigger the 30-month stay, recognizing
that the related patent litigation may take many months or years to
resolve.
The FDA
also cannot approve an ANDA or 505(b)(2) application until all
applicable non-patent exclusivities listed in the Orange Book for
the branded reference drug have expired. For example, a
pharmaceutical manufacturer may obtain five years of non-patent
exclusivity upon NDA approval of a new chemical entity, or NCE,
which is a drug containing an active moiety that has not been
approved by FDA in any other NDA. An "active moiety" is defined as
the molecule responsible for the drug substance's physiological or
pharmacologic action. During that five-year exclusivity period, the
FDA cannot accept for filing (and therefore cannot approve) any
ANDA seeking approval of a generic version of that drug or any
505(b)(2) NDA that relies on the FDA's approval of the drug,
provided that that the FDA may accept an ANDA four years into the
NCE exclusivity period if the ANDA applicant also files a
Paragraph IV certification.
A drug,
including one approved under Section 505(b)(2), may obtain a
three-year period of exclusivity for a particular condition of
approval, or change to a marketed product, such as a new
formulation for a previously approved product, if one or more new
clinical studies (other than bioavailability or bioequivalence
studies) was essential to the approval of the application and was
conducted/sponsored by the applicant. Should this occur, the FDA
would be precluded from approving any ANDA or 505(b)(2) application
for the protected modification until after that three-year
exclusivity period has run. However, unlike NCE exclusivity, the
FDA can accept an application and begin the review process during
the exclusivity period.
Other Healthcare Laws and Compliance
Requirements
Pharmaceutical
companies are subject to additional healthcare regulation and
enforcement by the federal government and by authorities in the
states and foreign jurisdictions in which they conduct their
business. Such laws include, without limitation, state and federal
anti-kickback, fraud and abuse, false claims, privacy and security
and physician sunshine laws and regulations. If their operations
are found to be in violation of any of such laws or any other
governmental regulations that apply, they may be subject to
penalties, including, without limitation, civil and criminal
penalties, damages, fines, the curtailment or restructuring of
operations, exclusion from participation in federal and state
healthcare programs and individual imprisonment.
Coverage and Reimbursement
Sales
of any product depend, in part, on the extent to which such product
will be covered by third-party payors, such as federal, state and
foreign government healthcare programs, commercial insurance and
managed healthcare organizations and the level of reimbursement for
such product by third-party payors. Decisions regarding the extent
of coverage and amount of reimbursement to be provided are made on
a plan-by-plan basis. These third-party payors are increasingly
reducing reimbursements for medical products, drugs and services.
In addition, the U.S. government, state legislatures and foreign
governments have continued implementing cost-containment programs,
including price controls, restrictions on coverage and
reimbursement and requirements for substitution of generic
products. Adoption of price controls and cost-containment measures,
and adoption of more restrictive policies in jurisdictions with
existing controls and measures, could further limit sales of any
product. Decreases in third-party reimbursement for any product or
a decision by a third-party payor not to cover a product could
reduce physician usage and patient demand for the product and also
have a material adverse effect on sales. Even after FDA approves a
product, failure to have the product covered by third-party payors
may have material adverse effect on sales. Federal and state
governments continue to promulgate new policies and regulations;
such policies and regulations may have material adverse effect on
sales. These laws and regulations may restrict, prohibit, or
preventing us from implementing a wide range of pricing,
discounting, marketing, promotion, sales commission, incentive
programs, and other business activities. No uniform policy of
coverage and reimbursement among third-party payors exists in the
United States. Such payors often rely upon Medicare coverage policy
establishing their coverage and reimbursement policies. However,
each payor makes independent and separate decisions regarding the
extent of coverage and amount of reimbursement to be
provided.
Healthcare Reform
In
March 2010, former President Obama signed the Affordable Care Act,
which substantially changed the way healthcare is financed by both
governmental and private insurers in the United States, and
significantly affected the pharmaceutical industry. The Affordable
Care Act contains a number of provisions, including those governing
enrollments in federal healthcare programs, reimbursement
adjustments and fraud and abuse changes. Additionally, the
Affordable Care Act increases the minimum level of Medicaid rebates
payable by manufacturers of brand name drugs from 15.1% to 23.1%;
requires collection of rebates for drugs paid by Medicaid managed
care organizations; requires manufacturers to participate in a
coverage gap discount program, under which they must agree to offer
50% point-of-sale discounts off negotiated prices of applicable
brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer's outpatient drugs to
be covered under Medicare Part D; and imposes a non-deductible
annual fee on pharmaceutical manufacturers or importers who sell
"branded prescription drugs" to specified federal government
programs.
Since
its enactment, there have been judicial and Congressional
challenges to certain aspects of the Affordable Care Act, and we
expect there will be additional challenges and amendments to the
Affordable Care Act in the future. Other legislative changes have
been proposed and adopted since the Affordable Care Act was
enacted, including aggregate reductions of Medicare payments to
providers of 2% per fiscal year and reduced payments to several
types of Medicare providers. Moreover, there has recently been
heightened governmental scrutiny over the manner in which
manufacturers set prices for their marketed products, which has
resulted in several Congressional inquiries and proposed bills
designed to, among other things, bring more transparency to product
pricing, review the relationship between pricing and manufacturer
patient programs, and reform government program reimbursement
methodologies for drug products. Individual states in the United
States have also become increasingly active in implementing
regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost
disclosure and transparency measures, and, in some cases, proposing
to encourage importation from other countries and bulk
purchasing.
Foreign Corrupt Practices Act
Our
business activities may be subject to the Foreign Corrupt Practices
Act, or FCPA, and similar anti-bribery or anti-corruption laws,
regulations or rules of other countries in which we operate. The
FCPA generally prohibits offering, promising, giving, or
authorizing others to give anything of value, either directly or
indirectly, to a non-U.S. government official in order to influence
official action, or otherwise obtain or retain business. The FCPA
also requires public companies to make and keep books and records
that accurately and fairly reflect the transactions of the
corporation and to devise and maintain an adequate system of
internal accounting controls. Our business is heavily regulated and
therefore involves significant interaction with public officials,
including officials of non-U.S. governments. Additionally, in many
other countries, the health care providers who prescribe
pharmaceuticals are employed by their government, and the
purchasers of pharmaceuticals are government entities; therefore,
our dealings with these prescribers and purchasers are subject to
regulation under the FCPA. There is no certainty that all of our
employees, agents, suppliers, manufacturers, contractors, or
collaborators, or those of our affiliates, will comply with all
applicable laws and regulations, particularly given the high level
of complexity of these laws. Violations of these laws and
regulations could result in fines, criminal sanctions against us,
our officers, or our employees, the closing down of facilities,
including those of our suppliers and manufacturers, requirements to
obtain export licenses, cessation of business activities in
sanctioned countries, implementation of compliance programs, and
prohibitions on the conduct of our business. Any such violations
could include prohibitions on our ability to offer our products in
one or more countries as well as difficulties in manufacturing or
continuing to develop our products, and could materially damage our
reputation, our brand, our international expansion efforts, our
ability to attract and retain employees, and our business,
prospects, operating results, and financial condition.
European Union Drug Development
In the
European Union, our drug candidates may also be subject to
extensive regulatory requirements. As in the United States,
medicinal products can only be marketed if a marketing
authorization from the competent regulatory agencies has been
obtained.
Similar
to the United States, the various phases of preclinical and
clinical research in the European Union are subject to significant
regulatory controls. Clinical trials of medicinal products in the
European Union must be conducted in accordance with European Union,
national regulations and international standards for good clinical
practice, or GCP.
Clinical trials are
currently governed by EU Clinical Trials Directive 2001/20/EC that
set out common rules for the control and authorization of clinical
trials in the European Union.
To
improve the current system, Regulation (EU) No 536/2014 on clinical
trials on medicinal products for human use was adopted in 2014. The
Regulation aims at harmonizing and streamlining the clinical trials
authorization process, simplifying adverse event reporting
procedures, improving the supervision of clinical trials, and
increasing their transparency, notably via a clinical trial
information system set up by the EMA. The new Regulation expressly
provides that it will not be applied before six months after the
publication of a notice delivered by the European Commission on the
European Union clinical trial portal and database. As such notice
requires a successful (partial) audit of the database and as that
database is still under development, there is no scheduled
application date yet. Pursuant to the transitory provisions of the
new regulation, the Clinical Trials Directive 2001/20/EC will still
apply for three years after the implementation of the European
Union clinical trial portal and database. Thus, the sponsor
has the possibility to choose between the requirements of the
directive and the regulation for a period of three years from the
entry into force of the regulation.
European Union Drug Review and Approval
In the
EEA (which is comprised of the 28 Member States of the European
Union plus Norway, Iceland and Liechtenstein), medicinal products
can only be commercialized after obtaining a Marketing
Authorization, or MA. MAs may be granted either centrally
(Community MA) or nationally (National MA).
The
Community MA is issued centrally by the European Commission through
the Centralized Procedure, based on the opinion of the CHMP of the
EMA and is valid throughout the entire territory of the EEA. The
Centralized Procedure is mandatory for certain types of products
such as orphan medicinal products and medicinal products containing
a new active substance indicated for the treatment of
neurodegenerative disorders. The Centralized Procedure is optional
for products containing a new active substance not yet authorized
in the EEA, or for products that constitute a significant
therapeutic, scientific or technical innovation or which are in the
interest of public health in the European Union.
National MAs are
issued nationally by the competent authorities of the Member States
of the EEA and only cover their respective territory. National MAs
are available for products not falling within the mandatory scope
of the Centralized Procedure. We do not foresee that any of our
current drug candidates will be suitable for a National MA as they
fall within the mandatory criteria for the Centralized Procedure.
Therefore, our drug candidates will be approved through Community
MAs.
Under
the above-described procedures, before granting the MA, the EMA or
the competent authorities of the Member States of the EEA make an
assessment of the risk-benefit balance of the product on the basis
of scientific criteria concerning its quality, safety and
efficacy.
The
paediatric use marketing authorisation, or PUMA, is a dedicated
marketing authorization for medicinal products indicated
exclusively for use in the pediatric population, with, if
necessary, an age-appropriate formulation. Pursuant to Regulation
(EC) No. 1901/2006 (The “Paediatric Regulation”), all PUMA
applications for marketing authorization for new medicines must
include to be valid, in addition to the particulars and documents
referred to in Directive 2001/83/EC, the results of all studies
performed and details of all information collected in compliance
with a pediatric investigation plan agreed between regulatory
authorities and the applicant, unless the medicine is exempt
because of a deferral or waiver of the EMA.
Before
the EMA is able to begin its assessment of a Community MA
application, it will validate that the applicant has complied with
the agreed pediatric investigation plan. The applicant and the EMA
may, where such a step is adequately justified, agree to modify a
pediatric investigation plan to assist validation. Modifications
are not always possible; may take longer to agree than the period
of validation permits; and may still require the applicant to
withdraw its marketing authorization application and to conduct
additional non-clinical and clinical studies. Products that are
granted a MA on the basis of the pediatric clinical trials
conducted in accordance with the Pediatric Investigation Plan, or
PIP, are eligible for a six-month extension of the protection under
a supplementary protection certificate (if any is in effect at the
time of approval) or, in the case of orphan medicinal products, a
two-year extension of the orphan market exclusivity. This pediatric
reward is subject to specific conditions and is not automatically
available when data in compliance with the PIP are developed and
submitted.
Orphan Drugs
In the
European Union, Regulation (EC) No 141/2000 of the European
Parliament and of the Council of December 16, 1999 on orphan
medicinal products, as amended, states that a drug shall be
designated as an orphan drug if its sponsor can establish that the
three following cumulative conditions are met:
●
the product is
intended for the diagnosis, prevention or treatment of a
life-threatening or chronically debilitating
condition;
●
the prevalence of
the conditions is not more than five in ten thousand persons in the
European Union when the application is made, or that it is intended
for the diagnosis, prevention or treatment of a life-threatening,
seriously debilitating or serious and chronic condition in the
European Union and that without incentives it is unlikely that the
marketing of the drug in the European Union would generate
sufficient return to justify the necessary investment;
and
●
that there is no
satisfactory method of diagnosis, prevention or treatment of the
condition in question that has been authorized in the European
Union or, if such method exists, that the drug will be of
significant benefit to those affected by that
condition.
Pursuant to
Regulation (EC) No. 847/2000 of April 27, 2000 laying
down the provisions for implementation of the criteria for
designation of a medicinal product as an orphan medicinal product
and definitions of the concepts "similar medicinal product" and
"clinical superiority", an application for the designation of a
drug as an orphan drug must be submitted at any stage of
development of the drug before filing of a MA
application.
The
European Union offers incentives to encourage the development of
designated orphan medicines (protocol assistance, fee reductions,
etc.) and provides opportunities for market exclusivity. Pursuant
to abovementioned Regulation (EC) No. 141/2000, products
receiving orphan designation in the European Union can obtain
market exclusivity for a certain number of years in the European
Union following the marketing approval.
If a
Community MA in respect of an orphan drug is granted, regulatory
authorities will not, for a period of usually ten years,
accept another application for a MA, or grant a MA or accept an
application to extend an existing MA, for the same therapeutic
indication, in respect of a similar drug. This period may however
be reduced to six years if, at the end of the fifth year, it is
established, in respect of the drug concerned, that the
above-mentioned criteria for orphan drug designation are no longer
met, in other words, when it is shown on the basis of available
evidence that the product is sufficiently profitable not to justify
maintenance of market exclusivity.
Pursuant to
Regulation No. 1901/2006, for orphan medicinal products,
instead of an extension of the supplementary protection
certificate, the ten-year period of orphan market exclusivity
should be extended to 12 years if the requirement for data on
use in the pediatric population is fully met (i.e. when the
request contains the results of all studies carried out under the
approved PIP and when the declaration attesting the conformity of
the request to this PIP is included in the MA).
Notwithstanding the
foregoing, a MA may be granted, for the same therapeutic
indication, to a similar drug if:
●
the holder of the
MA for the original orphan drug has given its consent to the second
applicant;
●
the holder of the
MA for the original orphan drug is unable to supply sufficient
quantities of the drug; or
●
the second
applicant can establish in the application that the second drug,
although similar to the orphan drug already authorized, is safer,
more effective or otherwise clinically superior.
The
abovementioned Regulation (EC) No. 141/2000 provides for other
incentives regarding orphan medicinal products.
Post-Approval Controls
The
holder of a MA must comply with EU requirements applicable to
manufacturing, marketing, promotion and sale of medicinal products.
In particular, the holder of the MA must establish and maintain a
pharmacovigilance system and appoint an individual qualified person
for pharmacovigilance, or QPPV, who is responsible for oversight of
that system and who will reside and operate in the EU. Key
obligations include safety expedited reporting of suspected serious
adverse reactions and submission of periodic safety update reports,
or PSURs.
All new
MAs must include a risk management plan, or RMP, to submit to the
EMA, describing the risk management system that we will put in
place and documenting measures to prevent or minimize the risks
associated with the product. The regulatory authorities may also
impose specific obligations as a condition of the MA. Such
risk-minimization measures or post-authorization obligations may
include additional safety monitoring, more frequent submission of
PSURs, or the conduct of additional clinical trials or
post-authorization safety studies. RMPs and PSURs are routinely
available to third parties requesting access, subject to limited
redactions. All advertising and promotional activities for the
product must be consistent with the approved summary of product
characteristics, and therefore all off-label promotion is
prohibited. Direct-to-consumer advertising of prescription
medicines is also prohibited in the European Union. Although
general requirements for advertising and promotion of medicinal
products are established under EU directives, the details are
governed by regulations in each EU Member State and can differ from
one country to another.
Reimbursement
The
European Union provides options for its Member States to restrict
the range of medicinal products for which their national health
insurance systems provide reimbursement and to control the prices
of medicinal products for human use. A Member State may approve a
specific price for the medicinal product, or it may instead adopt a
system of direct or indirect controls on the profitability of the
company placing the medicinal product on the market. For example,
in France, effective market access will be supported by agreements
with hospitals and products may be reimbursed by the Social
Security Fund. The price of medicines covered by national health
insurance is negotiated with the Economic Committee for Health
Products, or CEPS. There can be no assurance that any country that
has price controls or reimbursement limitations for pharmaceutical
products will allow favorable reimbursement and pricing
arrangements for any of our drug candidates. Historically, products
launched in the European Union do not follow price structures of
the United States and generally prices tend to be significantly
lower.
Other European Regulatory Matters
French Regulatory Framework for Clinical Development
In
France, Directive No. 2001/20/EC has been implemented in
French national law, establishing a system of prior authorization
and requiring a prior favorable opinion from an ethics
committee.
Parties
to a clinical trial agreement, or CTA, must use a CTA template
(“unique agreement” or convention unique) to organize the conduct
of interventional clinical trials with commercial purpose,
as well as specific template exhibits to this agreement. Once
concluded, the CTA is communicated for information by the sponsor
to the French national board of physicians (Ordre national des
médecins) without delay.
The
processing of personal data collected during clinical trials has to
comply with the Regulation (EU) 2016/679 of the European
Parliament and of the Council of April 27, 2016 and Law No
2018-493 of June 20, 2018 on the protection of personal data,
implementing the Regulation (EU) 2016/679 requirements.
Regarding automatic processing operations for the purpose of
research or clinical studies, formalities have to be completed
before the French data protection authority, the Commission
Nationale de l'Informatique et des Libertés, or CNIL, so as to
obtain the authorization to process personal data. However, there
are simplified standards.
Law
No. 2011-2012 of December 29, 2011, or Loi Bertrand,
aimed at strengthening the health safety of medicinal and health
products, as amended (and its implementing decrees), introduced
into French law provisions regarding transparency of fees received
by some healthcare professionals from health product industries,
i.e. companies manufacturing or marketing health products
(Article L.1453-1 of the French Public Health Code). These
provisions have been recently extended and redefined by Decree
No. 2016-1939 of December 28, 2016, which clarified
French "Sunshine" regulations. The decree notably provides that
companies manufacturing or marketing health care products
(medicinal products, medical devices, etc.) in France shall
publicly disclose (mainly on a specific public website available
at: https://www.entreprises-transparence.sante.gouv.fr) the
advantages and fees paid to healthcare professionals amounting to
€10 or above, as well as the agreements concluded with the latter,
along with detailed information about each agreement (the precise
subject matter of the agreement, the date of signature of the
agreement, its end date, the total amount paid to the healthcare
professional, etc.). Another declaration must also be filed to the
competent healthcare professional body. Law No. 2011-2012
also reinforced the French anti-gift rules and Order
No. 2017-49 of January 19, 2017 amended the law and
expanded the scope of the general prohibition of payments from
pharmaceutical and device manufacturers to healthcare professionals
to broadly cover any company manufacturing or marketing health
products, regardless of whether or not payment for the products is
reimbursed under the French social security system (new
Articles L. 1453-3 et seq. of the French Public Health
Code). It also changed the procedure related to the prior
submission to the national or departmental board of the relevant
healthcare professional body. Moreover, the penalties incurred for
non-compliance with the requirements of the Anti-Gift Law will be
doubled to a fine of up to €750,000. The changes of the anti-gift
rules will only enter into force after the publication of
implementing measures.
Employees
As of
January 11, 2021, we had ten full-time employees, of whom four were
employed by AzurRx SAS and located in France and six were employed
by us and located in our offices in the United States.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
following section sets forth certain information regarding our
directors. There are no family relationships between any of the
directors and our Named Executive Officers.
|
Director, Title
|
Age
|
|
Edward
J. Borkowski – Chair and Independent Director
|
60
|
|
Charles
J. Casamento – Independent Director
|
75
|
|
Alastair
Riddell, MSc., MBChB., DSc. – Independent Director
|
71
|
|
Vern
L. Schramm, Ph.D. – Independent Director
|
79
|
|
James
Sapirstein – President, Chief Executive Officer and Non-Independent
Director
|
59
|
|
Gregory
Oakes –Independent Director
|
52
|
Edward
J. Borkowski was
appointed to the Board in May 2015, and currently serves as our
Chair. Mr. Borkowski is a healthcare executive who currently serves
as Executive Vice President for Therapeutics MD. He served as
Executive Vice President of MiMedx Group, Inc. (Nasdaq: MDGX) from
April 2018 until December 2019. Mr. Borkowski also served as a
director for Co-Diagnostics, Inc. (Nasdaq: CODX), from May 2017
until June 2019. Previously, he served as the Chief Financial
Officer of Aceto Corporation (Nasdaq: ACET) from
February 2018 to April 2018, and has held several executive
positions with Concordia
International, an international specialty pharmaceutical company,
between May 2015 to February
2018. Mr. Borkowski has
also served as Chief Financial Officer of Amerigen Pharmaceuticals,
a generic pharmaceutical company with a focus on oral, controlled
release products and as the Chief Financial Officer and
Executive Vice President of Mylan N.V. In addition, Mr. Borkowski
previously held the position of Chief Financial Officer with
Convatec, a global medical device company focused on wound care and
ostomy, and Carefusion, a global medical device company for which
he helped lead its spin-out from Cardinal Health into an
independent public company. Mr. Borkowski has also served in senior
financial positions at Pharmacia and American Home Products
(Wyeth). He started his career with Arthur Andersen & Co. after
receiving his MBA in accounting from Rutgers University subsequent
to having earned his degree in Economics and Political Science from
Allegheny College. Mr. Borkowski is currently a Trustee and a
member of the Executive Committee of Allegheny
College.
Mr.
Borkowski’s extensive healthcare and financial expertise, together
with his public company experience provides the Board and
management with valuable insight in the growth of our business
plan.
Charles
J. Casamento was
appointed to the Board in March 2017. Since 2007, Mr. Casamento has
been executive director and principal of The Sage Group, a health
care advisory group. Prior to that, Mr. Casamento was president and
Chief Executive Officer of Osteologix, a startup company which he
oversaw going public, from October 2004 until April 2007. Mr.
Casamento was the founder of Questcor Pharmaceuticals where he was
President, Chief Executive Officer and Chair from 1999 through
2004. During his time at Questcor, the company acquired Acthar, a
product with sales that would eventually exceed $1.0 billion. Mr.
Casamento also served as President, Chief Executive Officer and
Chair of RiboGene Inc. until 1999 when RiboGene was merged another
company to form Questcor. He was also the Co-Founder, President and
Chief Executive Officer of Indevus (formerly Interneuron
Pharmaceuticals) and has held senior management positions at
Genzyme Corporation, where he was Senior Vice President, American
Hospital Supply, where he was Vice President of Business
Development for the Critical Care division, Johnson & Johnson,
Hoffmann-LaRoche and Sandoz. He currently serves as Chairman of the
Board of Directors of Relmada Therapeutics (OTCQB: RLMD) and also
serves on the Board of Directors of Eton Pharmaceuticals (Nasdaq:
ETON), and was previously a Director and Vice Chair of the Catholic
Medical Missions Board, a large not for profit international
organization. Mr. Casamento holds a bachelor's degree in Pharmacy
from Fordham University and an MBA from Iona
College.
Mr.
Casamento’s expertise and knowledge of the financial community
combined with his experience in the healthcare sector makes him a
valued member of the Board
Dr. Alastair Riddell
was appointed to the Board in September 2015. Since June 2016, Dr.
Riddell has served as Chair of Nemesis Biosciences Ltd and Chair of
Feedback plc (LON: FDBK). He has also served as Chair of the South
West Academic Health Science network in the UK since January 2016.
Since his appointment in December 2015, Dr. Riddell has served as
Non-Executive Director of Cristal Therapeutics in The Netherlands.
From September 2012 to February 2016, he served as Chair of
Definigen Ltd., and from November 2013 to September 2015 as Chair
of Silence Therapeutics Ltd., and from October 2009 to November
2012 as Chair of Procure Therapeutics. Between 2007 to
2009, Dr. Riddell served as the Chief Executive Officer of Stem
Cell Sciences plc. and between 2005 to 2007, served at Paradigm
Therapeutics Ltd. as the Chief Executive Officer. Between 1998 to
2005, Dr. Riddell also served as the Chief Executive Officer of
Pharmagene plc. Dr. Riddell began his career as a doctor in general
practice in a variety of hospital specialties and holds a Master of
Science and a Bachelor of Medicine and Surgery degrees. He was
recently awarded a Doctorate of Science, Honoris Causa by Aston
University.
Dr.
Riddell’s medical background coupled with his expertise in the life
sciences industry, directing all phases of clinical trials, before
moving to sales, marketing and general management, makes him a
well-qualified member of the Board.
Dr. Vern L. Schramm
was appointed to the Board in October 2017. Dr. Schramm has served
as Professor of the Albert Einstein College of Medicine since 1987
and Chair of the Department of Biochemistry from 1987 to 2015, and
was awarded the Ruth Merns Endowed Chair in Biochemistry. His
fields of interest include enzymatic transition state analysis,
transition state inhibitor design, biological targets for inhibitor
design, and mechanisms of N-ribosyltransferases. Dr. Schramm was
elected to the National Academy of Sciences in 2007, and served as
the Associate Editor for the Journal of the American Chemical
Society between 2003 to 2012. A frequent lecturer and
presenter in topics related to chemical biology, Dr. Schramm has
been a consultant and advisor to Pico Pharmaceuticals, Metabolon
Inc., Sirtris Pharmaceuticals, and BioCryst Pharmaceuticals. Dr.
Schramm obtained his BS in Bacteriology with an emphasis in
chemistry from South Dakota State College and holds a Master’s
Degree in Nutrition with an emphasis in biochemistry from Harvard
University, a Ph.D. in Mechanism of Enzyme Action from the
Australian National University and completed his postdoctoral
training at NASA Ames Research Center, Biological Sciences, with an
NSF-NRC fellowship.
Dr.
Schramm’s substantial experience in biochemistry and expertise in
the chemistry related to non-systemic biologics makes him a
respected member of the Board and an asset to us specifically in
the development of our product candidates.
James Sapirstein was
appointed to the Board on October 8, 2019 and as our President and
Chief Executive Officer effective that same day. Prior to joining
us, Mr. Sapirstein served as Chief Executive Officer and as a
director of ContraVir Pharmaceuticals, Inc. (now known as Hepion
Pharmaceuticals, Inc.) from March 2014 to October 2018. Previously,
Mr. Sapirstein was the Chief Executive Officer of Alliqua
Therapeutics from October 2012 to February 2014. He founded and
served as Chief Executive Officer of Tobira Therapeutics from
October 2006 to April 2011 and served as Executive Vice President,
Metabolic and Endocrinology for Serono Laboratories from June 2002
to May 2005. Mr. Sapirstein’s earlier career included a number of
senior level positions in the area of marketing and
commercialization, including as Global Marketing Lead for Viread
(tenofovir) while at Gilead Sciences and as Director of
International Marketing of the Infectious Disease Division at
Bristol Myers Squibb. Mr. Sapirstein is currently the Chair
Emeritus of BioNJ, the New Jersey affiliate of the Biotechnology
Innovation Organization, and also serves on the Emerging Companies
and Health Section Boards of the Biotechnology Innovation
Organization. Mr. Sapirstein received his bachelor’s degree in
pharmacy from Rutgers University and holds an MBA degree in
management from Fairleigh Dickinson University.
Mr.
Sapirstein’s nearly 36 years of pharmaceutical industry experience
which spans areas such as drug development and commercialization,
including participation in 23 product launches, six of which were
global launches led by him makes him a valuable asset to the Board
and in his oversight and execution of our business
plan.
Gregory Oakes was appointed to the
Board on April 13, 2020. Mr. Oakes brings over 25 years of
pharmaceutical industry and leadership experience and currently
serves as President, North
America, Relypsa, Inc, Executive Vice President, Vifor Pharma. Mr.
Oakes previously served as Corporate Vice President, Global Integration Lead
for Otezla® (apremilast) at Amgen, Inc. where he was
responsible for the integration and continued success of the brand
with $2 billion in assets. Prior to Amgen from 2017 - 2019, Mr.
Oakes served as Corporate Vice President and U.S. General Manager
at Celgene Corp., a global biopharmaceutical company which develops
and commercializes medicines for cancer and inflammatory disorders.
Mr. Oakes also served as the Global Commercial Integration Lead at
Celgene where he helped steer the $74 billion acquisition by
Bristol-Myers Squibb and the $13.4 billion divestiture of Otezla®.
From 2010 to 2017, Mr. Oakes held several positions at Novartis AG,
the most recent as Head of Sandoz Biopharmaceuticals, North
America. He began his career at Schering-Plough (Merck) where he
held executive roles in both the U.S. and Europe. Mr. Oakes holds a
bachelor's degree in Marketing and Business Administration from
Edinboro University and a M.B.A. from Clemson University. He
currently sits on the Board of BioNJ and previously served on
various Executive Committees at Celgene, Novartis, and Schering-
Plough (Merck).
Mr.
Oakes’ background of over 25 years of pharmaceutical industry and
leadership experience combined with broad experience in
pharmaceutical commercialization and acquisitions makes him a
qualified member of the Board.
Non-Executive
Director Compensation
On
October 1, 2020, our Board adopted a Non-Executive Director
Compensation Policy under which each of our non-executive directors
is entitled to receive the following cash compensation for their
service on the Board (paid quarterly): (i) an annual retainer of
$35,000; (ii) the chairman of the Board is entitled to receive an
annual retainer in the amount of $20,000, (iii) the chair of the
Audit Committee is entitled to receive an annual retainer in the
amount of $10,000, (iv) each non-chairperson member of the Audit
Committee is entitled to receive an annual retainer in the amount
of $5,000, (v) the chair of the Compensation Committee is entitled
to receive an annual retainer in the amount of $7,500, (vi) each
non-chairperson member of the Compensation Committee is entitled to
receive an annual retainer in the amount of $3,500, (vii) the chair
of the Corporate Governance and Nominating Committee is entitled to
receive an annual retainer in the amount of $5,000, and (viii) each
non-chairperson member of the Corporate Governance and Nominating
Committee is entitled to receive an annual retainer in the amount
of $2,500. Additionally, under this policy, each of our
non-executive directors is entitled to receive an annual grant of
80,000 stock options for their service on the Board which will vest
in equal quarterly installments.
The
following table provides information regarding compensation paid to
non-employee directors for the year ended December 31, 2020. Mr.
Sapirstein did not receive compensation for his service on the
Board as employee director for the year ended December 31, 2020.
Information regarding executive compensation paid to Messrs.
Sapirstein during 2020 is reflected in the Summary Compensation
table under “Executive Compensation.”
|
Name
|
Fees Earned or
Paid in Cash
(2)
|
|
|
|
|
|
Edward
J. Borkowski
|
$19,375
|
$-
|
$35,968
|
-
|
$55,343
|
|
Charles
J. Casamento
|
$11,500
|
$-
|
$35,968
|
-
|
$47,468
|
|
Alastair
Riddell
|
$11,500
|
$-
|
$35,968
|
-
|
$47,468
|
|
Vern
L. Schramm
|
$8,750
|
$-
|
$35,968
|
-
|
$44,718
|
|
Gregory
Oakes (1)
|
$8,750
|
$-
|
$30,444
|
-
|
$39,194
|
(1)
Mr. Oakes was
appointed to the board effective April 13, 2020.
(2)
Represents amounts
of accrued and unpaid cash compensation for board services through
December 31, 2020.
(3)
Represents the
aggregate grant date fair value of 80,000 stock options issued to
each of Messrs. Borkowski, Casamento, Riddell and Schramm on April
6, 2020, and 60,000 stock options issued to Mr. Oakes on April 13,
2020, our non-employee directors, calculated in accordance with ASC
Topic 718.
Compensation
Committee Interlocks and Insider Participation
None of
our executive officers currently serves, or has served during the
last three years, on the Compensation Committee of any other entity
that has one or more officers serving as a member of our
Board.
CORPORATE
GOVERNANCE AND BOARD MATTERS
Board
Leadership Structure
Currently, Mr.
James Sapirstein serves as our President and Chief Executive
Officer and Mr. Edward J. Borkowski serves as Chair of our
Board. Our Board of Directors has determined that it is in the
best interests of the Board and us to maintain separate the roles
for the Chief Executive Officer and Chair of the Board. The Board
believes this structure increases the Board’s independence from
management and, in turn, leads to better monitoring and oversight
of management. Although the Board believes we are currently best
served by separating the role of Board Chairman and Chief Executive
Officer, the Board of Directors will review and consider
the continued appropriateness of this structure on an annual
basis.
Director
Independence
The
Board has determined that all of its members, other than Mr.
Sapirstein, our President and Chief Executive Officer are
“independent” within the meaning of Nasdaq Listing Rule 5605(a)(2)
under the rules of the Nasdaq Stock Market (“Nasdaq”), and the
Securities and Exchange Commission (“SEC”) rules regarding
independence.
Director
Nomination Process
The
Corporate Governance and Nominating Committee identifies director
nominees by first considering those current members of the Board
who are willing to continue service. Current members of the Board
with skills and experience that are relevant to our business and
are willing to continue their service as a director are considered
for re-election, balancing the value of continuity of service by
existing members of the Board with that of obtaining a new
perspective. Nominees for director are selected by a majority of
the members of the Board. Although we do not have a formal
diversity policy, in considering the suitability of director
nominees, the Corporate Governance and Nominating Committee
considers such factors as it deems appropriate to develop a Board
and its committees that are diverse in nature and comprised of
experienced and seasoned advisors. Factors considered by the
Corporate Governance and Nominating Committee include sound
judgment, knowledge, skill, diversity, integrity, experience with
businesses and other organizations of comparable size, including
experience in the biopharma industry, clinical studies, U.S. Food
and Drug Administration (“FDA”) compliance, intellectual property,
business, finance, administration or public service, the relevance
of a candidate’s experience to our needs and experience of other
Board members, experience with accounting rules and practices, the
desire to balance the considerable benefit of continuity with the
periodic injection of the fresh perspective provided by new
members, and the extent to which a director candidate would be a
desirable addition to the Board and its committees.
The
Board may consider suggestions for persons to be nominated for
director that are submitted by stockholders. The Corporate
Governance and Nominating Committee will evaluate stockholder
suggestions for director nominees in the same manner as it
evaluates suggestions for director nominees made by management,
then-current directors or other appropriate sources.
The
Role of the Board in Risk Oversight
Our
Board oversees a company-wide approach to risk management,
determines our appropriate risk level in general, assesses the
specific risks faced by us and reviews steps taken by management to
manage those risks. Although our Board has ultimate oversight
responsibility for the risk management process, specific areas of
risk are overseen by designation of such duties and
responsibilities to certain committees of the Board.
Specifically, the
Board has designated certain fiduciary duties to its Compensation
Committee, which is responsible for overseeing the management of
risks relating to our executive compensation plans and
arrangements, and the incentives created by the compensation awards
it administers. The Board has also designated specific fiduciary
duties to its Audit Committee, which is responsible for overseeing
the management of enterprise risks and financial risks, as well as
potential conflicts of interests. The Board is responsible for
overseeing the management of risks associated with the independence
of the Board.
Code
of Business Conduct and Ethics
The
Board adopted a code of business conduct and ethics (the “Code”)
that applies to our directors, officers and employees. A copy of
this Code is available on our website at www.azurrx.com/investors. We
intend to disclose on our website any amendments to and waivers of
the Code that apply to our principal executive officer, principal
financial officer, principal accounting officer, controller, or
persons performing similar functions.
Stockholder
Communications
If you
wish to communicate with the Board, you may send your communication
in writing to AzurRx BioPharma, Inc., Attention: Chief Financial
Officer – 1615 South
Congress Avenue, Suite 103, Delray Beach, Florida
33445.
You
must include your name and address in the written communication and
indicate whether you are a stockholder of the Company. The Chief
Financial Officer will review any communication received from a
stockholder, and all material and appropriate communications from
stockholders will be forwarded to the appropriate director or
directors or committee of the Board based on the subject
matter.
Meetings
of the Board
Each of
our directors who served during the year ended December 31, 2020
attended or participated in no less than 75% or more of the
aggregate of (i) the total number of meetings of the Board;
and (ii) the total number of meetings held by all committees
of the Board on which such director served as a member during such
year. Although directors are not required to attend our annual
meeting of stockholders, they are encouraged to
attend.
The
following table represents the composition of each committee of the
Board and meetings held as well as actions taken by unanimous
written consent (“UWC”) in lieu of holding a meeting, during the
fiscal year ended December 31, 2020:
|
|
|
Committees
|
|
Director
|
Board
|
Audit
|
Compensation
|
Corporate
Governance and Nominating
|
|
|
Edward
J. Borkowski
|
C
|
CC
|
X
|
CC
|
|
|
Charles
J. Casamento
|
X
|
X
|
X
|
X
|
|
|
Alastair
Riddell
|
X
|
X
|
CC
|
X
|
|
|
Vern L.
Schramm
|
X
|
|
|
|
|
|
James
Sapirstein
|
X
|
|
|
|
|
|
Gregory
Oakes
|
X
|
|
|
|
|
|
Meetings
Held During 2020
|
6
|
4
|
3
|
-
|
|
|
Actions
Taken by UWC During 2020
|
9
|
-
|
1
|
2
|
|
|
C – Chair of the
Board
CC – Committee
Chair
X –
Member
|
|
|
|
|
|
Board
Committees
The
standing committees of the Board consist of the Audit Committee,
Compensation Committee, and Corporate Governance and Nominating
Committee. Our Board has adopted written charters for each of these
committees, copies of which are available on our website at
www.azurrx.com/investors. Our
Board may establish other committees as it deems necessary or
appropriate from time to time.
Audit Committee
The
duties and responsibilities of the Audit Committee include but are
not limited to:
●
appointing,
compensating, retaining, evaluating, terminating, and overseeing
our independent registered public accounting firm;
●
discussing with our
independent registered public accounting firm the independence of
its members from its management;
●
reviewing with our
independent registered public accounting firm the scope and results
of their audit;
●
approving all audit
and permissible non-audit services to be performed by our
independent registered public accounting firm;
●
overseeing the
financial reporting process and discussing with management and our
independent registered public accounting firm the interim and
annual financial statements that are filed with the
SEC;
●
reviewing and
monitoring our accounting principles, accounting policies,
financial and accounting controls, and compliance with legal and
regulatory requirements;
●
coordinating
oversight of the Code and our disclosure controls and procedures on
behalf of the Board;
●
establishing
procedures for the confidential and/or anonymous submission of
concerns regarding accounting, internal controls or auditing
matters; and
●
reviewing and
approving related-person transactions.
The
rules of Nasdaq require our Audit Committee to consist of at least
three directors, all of whom must be deemed to be independent
directors under Nasdaq rules. The Board has affirmatively
determined that Messrs. Borkowski and Casamento, and Dr. Riddell,
each meet the definition of “independent director” for purposes of
serving on an Audit Committee under Nasdaq rules. Additionally, the
Board has determined that Messrs. Borkowski and Casamento each
qualify as an “audit committee financial expert,” as such term is
defined in Item 407(d)(5) of Regulation
S-K.
Compensation Committee
The
duties and responsibilities of the Compensation Committee include
but are not limited to:
●
reviewing key
employee compensation goals, policies, plans and
programs;
●
reviewing and
approving the compensation of our directors and executive
officers;
●
reviewing and
approving employment agreements and other similar arrangements
between us and our executive officers; and
●
appointing and
overseeing any compensation consultants or advisors to the
Company.
The
rules of Nasdaq require our Compensation Committee to consist
entirely of independent directors. The Board has affirmatively
determined that Mr. Borkowski and Dr. Riddell meet the definition
of “independent director” for purposes of serving on the
Compensation Committee under Nasdaq rules.
Corporate Governance and Nominating Committee
The
duties and responsibilities of the Corporate Governance and
Nominating Committee include but are not limited to:
●
assisting the Board
in identifying qualified individuals to become members of the
Board;
●
determining the
composition of the Board and monitoring the activities of the Board
to assess overall effectiveness; and
●
developing and
recommending to our Board corporate governance guidelines
applicable to the Company and advising our Board on corporate
governance matters.
The
following table sets forth information regarding our current
executive officers as appointed by the Board, each to serve in such
position until their respective successors have been duly appointed
and qualified or until their earlier death, resignation or removal
from office.
|
Executive Officer
|
Age
|
Title
|
|
James
Sapirstein
|
58
|
President,
Chief Executive Officer and Director
|
|
Daniel
Schneiderman
|
42
|
Chief
Financial Officer
|
|
James
E. Pennington
|
77
|
Chief
Medical Officer
|
Our
executive officers are appointed by and serve at the discretion of
the Board, subject to the terms of any employment agreements they
may have with us. The following is a brief description of the
qualifications and business experience of each of our current
executive officers.
James Sapirstein.
Please see Mr. Sapirstein’s biography under the “Directors” section
of this proxy statement.
Daniel
Schneiderman was appointed
as our Chief Financial Officer on January 2, 2020. Prior to joining
us, from November 2018 through December 2019 Mr. Schneiderman
served as Chief Financial Officer of Biophytis SA, (ENXTPA: ALBPS)
and its U.S. subsidiary, Biophytis, Inc., a European-based,
clinical-stage biotechnology company focused on the development of
drug candidates for age-related diseases, with a primary focus on
neuromuscular diseases. From February 2012 through August 2018, Mr.
Schneiderman served as Vice President of Finance, Controller and
Secretary of MetaStat, Inc. (OTCQB: MTST), a publicly traded
biotechnology company with a focus on Rx/Dx precision medicine
solutions to treat patients with aggressive (metastatic) cancer.
From 2008 through February 2012, Mr. Schneiderman was Vice
President of Investment Banking at Burnham Hill Partners LLC, a
boutique investment bank providing capital raising, advisory and
merchant banking services. From 2004 through 2008, Mr. Schneiderman
served in various roles and increasing responsibilities, including
as Vice President of Investment Banking at Burnham Hill Partners, a
division of Pali Capital, Inc. Previously, Mr. Schneiderman worked
at H.C. Wainwright & Co., Inc. in 2004 as an investment banking
analyst. Mr. Schneiderman holds a bachelor’s degree in
economics from Tulane University.
Dr. James E.
Pennington was appointed as our Chief Medical Officer in May
2018. Prior to joining us, Dr.
Pennington served as Senior Clinical Fellow from 2010 to 2018 and
as Executive Vice President and Chief Medical Officer from 2007 to
2010 at Anthera Pharmaceuticals, Inc. (Nasdaq: ANTH). From 2004 to
2007, Dr. Pennington served as Executive Vice President and Chief
Medical Officer at CoTherix, Inc., and has held various executive
positions at a number of pharmaceutical companies, including
InterMune Inc., Shaman Pharmaceuticals and Bayer Corporation. He
has served on several editorial boards, and has authored numerous
original research publications and reviews. Dr. Pennington is
currently a Clinical Professor of Medicine with the University of
California San Francisco, where he has taught since 1986. Prior to
that, he was a professor at Harvard Medical School. Dr. Pennington
received a Bachelor of Arts from the University of Oregon and a
Doctor of Medicine from the University of Oregon School of
Medicine, and is Board Certified in internal medicine and
infectious diseases.
Summary
Compensation
The
table set forth below reflects certain information regarding the
compensation paid or accrued during the years ended December 31,
2020 and 2019 to our Chief Executive Officer and our executive
officers, other than our Chief Executive Officer, who were serving
as an executive officer as of December 31, 2020, and whose annual
compensation exceeded $100,000 during such year (collectively the
“Named Executive Officers”).
As
previously reported on our Current Report on Form 8-K filed on
March 28, 2019, Dr. Dupret retired and resigned from his position
as President of AzurRx SAS, a wholly owned French subsidiary of the
Company effective July 1, 2019. Due to the resignation of Mr. Spoor
as President and Chief Executive Officer effective October 8, 2019,
Mr. Sapirstein was appointed as our President and Chief Executive
Officer effective that same day. Compensation paid to Dr. Dupret
and Mr. Spoor during the year ended December 31, 2019 is reflected
in the table below.
|
Executive Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
Current Named Executive Officers
|
|
|
|
|
|
|
|
|
|
James
Sapirstein
|
2020
|
$462,500
|
$159,505
|
(2)
|
$ 837,840
|
(3)
|
|
$1,459,845
|
|
President
and Chief Executive Officer
|
2019
|
102,404
|
-
|
|
232,900
|
(4)
|
-
|
335,304
|
|
|
|
|
|
|
|
|
|
James
Pennington
|
2020
|
260,000
|
64,799
|
(2)
|
209,460
|
(3)
|
-
|
534,259
|
|
Chief
Medical Officer
|
2019
|
255,000
|
75,000
|
|
115,000
|
(4)
|
-
|
445,000
|
|
|
|
|
|
|
|
|
|
Daniel
Schneiderman
|
2020
|
285,000
|
71,029
|
(2)
|
451,352
|
(3)
|
-
|
807,381
|
|
Chief
Financial officer
|
2019
|
-
|
-
|
|
-
|
(5)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Former Named Executive Officers (1)
|
|
|
|
|
John
M. (Thijs) Spoor
|
2020
|
-
|
-
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-
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-
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-
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Former
President, Chief Executive Officer and Director (6)
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2019
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340,177
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-
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157,500
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(4)
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-
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497,677
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Maged
Shenouda
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2020
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-
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-
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-
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-
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-
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Former
Chief Financial Officer (7)
|
2019
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308,035
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-
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105,000
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(4)
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-
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413,035
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Daniel
Dupret
|
2020
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-
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-
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-
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-
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-
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Former
Chief Scientific Officer
|
2019
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151,393
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-
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-
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-
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151,393
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(1)
Mr. Spoor’s employment with us as President and Chief Executive
Officer terminated effective October 8, 2019 due to his
resignation. In addition, Mr. Spoor resigned as a member of the
Board on April 29, 2020.
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Mr. Shenouda’s employment with us as
Chief Financial Officer terminated effective November 30, 2019 due
to his resignation.
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Dr. Dupret retired and resigned from
his position as President of AzurRx SAS, a wholly owned French
subsidiary of ours effective July 1, 2019.
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(2)
Represents accrued and unpaid bonuses during 2020, as of December
31, 2020.
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(3) Represents the grant date fair value of
restricted stock and stock options issued during the year ended
December 31, 2020, calculated in accordance with ASC Topic 718. The
assumptions used in the calculation of these amounts are included
in Note 13 of the notes to the consolidated financial statements
contained in our Annual Report, filed with the SEC on
March 30, 2020.
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(4)
Represents the grant date fair value of restricted stock and stock
options issued during the year ended December 31, 2019, calculated
in accordance with ASC Topic 718. The assumptions used in the
calculation of these amounts are included in Note 13 of the notes
to the consolidated financial statements contained in the Company’s
Annual Report, filed with the SEC on March 30, 2020.
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(5)
Mr. Schneiderman received no compensation during this period or
prior to his appointments as our Chief Financial Officer, which
became effective January 2, 2020.
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(6)
On June 28, 2019, we accrued an incentive bonus in the amount of
$255,000 payable to Mr. Spoor. Subsequent to Mr. Spoor’s
resignation, the Compensation Committee reviewed the accrued bonus
and determined that such amount was not owed to Mr. Spoor, which
determination is currently being challenged by Mr. Spoor. As a
result of the Board’s and management’s determination, we reversed
the accrual in the quarter ended December 31, 2019. This bonus has
been excluded from the table.
In addition, all unvested shares of
restricted stock and stock options subject to time and other
performance-based vesting conditions have been forfeited in
connection with Mr. Spoor's resignation as our President and Chief
Executive Officer. Mr. Spoor also forfeited the right to receive
241,667 earned, but unissued shares of restricted stock in
connection with his resignation from the Board on April 29,
2020.
On July 9, 2020, we and Mr. Spoor
entered into a settlement and general release (the “Spoor
Settlement and Release”), effective July 9, 2020 (the “Spoor
Settlement Date”), of certain claims relating to Mr. Spoor's
separation from the Company on October 8, 2019. In connection with
the Spoor Settlement and Release, on July 14, 2020, we granted Mr.
Spoor warrants to purchase an aggregate of 150,000 shares of Common
Stock, which had a grant date fair value of $85,770. In addition,
Mr. Spoor legally released all claims to a discretionary bonus in
the amount of $255,000, which we originally accrued in June 2019
but was subsequently reversed during the quarter ended December 31,
2019, legally released all claims relating to $348,400 due to JIST
Consulting, a company controlled by Mr. Spoor and we also paid Mr.
Spoor's legal expenses in the amount of
$51,200.
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(7)
On June 28, 2019, we accrued an incentive bonus in the amount of
$100,000 payable to Mr. Shenouda. Subsequent to Mr. Shenouda’s
resignation, the Compensation Committee reviewed the accrued bonus
and determined that such amount was not owed, and we reversed the
accrual in the quarter ended December 31, 2019. This bonus has been
excluded from the table.
On July 2, 2020, we and Maged
Shenouda, entered into a settlement and general release (the
“Shenouda Settlement and Release”), of certain claims relating to
Mr. Shenouda’s s separation from the Company effective November 30,
2019. In connection with the Shenouda Settlement and Release, we
paid a total of $15,000 to Mr. Shenouda, which amount includes
$10,000 of accounts payable of the Company due to Mr. Shenouda for
services provided and $5,000 for legal expenses, and Mr. Shenouda
legally released all claims relating to a discretionary bonus in
the amount of $100,000 we originally accrued in June 2019, but was
subsequently reversed during the quarter ended December 31,
2019
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Employment
Arrangements and Potential Payments upon Termination or Change of
Control
Sapirstein Employment Agreement.
Effective October 8, 2019, we entered into an employment agreement
with Mr. Sapirstein to serve as our President and Chief Executive
Officer for a term of three years, subject to further renewal upon
agreement of the parties. The employment agreement with Mr.
Sapirstein provides for a base salary of $450,000 per year. In
addition to the base salary, Mr. Sapirstein is eligible to receive
(i) a bonus of up to 40% of his base salary on an annual basis,
based on certain milestones that are yet to be determined; (ii) 1%
of net fees received by us upon entering into license agreements
with any third-party with respect to any product current in
development or upon the sale of all or substantially all of our
assets; (iii) a grant of 200,000 restricted shares of our Common
Stock which are subject to vest as follows (a) 100,000 upon the
first commercial sale of MS1819 in the United States, and (b)
100,000 upon our total market capitalization exceeding $1.0 billion
for 20 consecutive trading days; (iv) a grant of 300,000 10-year
stock options to purchase shares of our Common Stock which are
subject to vest as follows (a) 50,000 upon us initiating our next
Phase 2 clinical trial in the United States for MS1819, (b) 50,000
upon us completing our next or subsequent Phase 2 clinical trial in
the United States for MS1819, (c) 100,000 upon us initiating a
Phase 2I clinical trial in the United States for MS1819, and (d)
100,000 upon us initiating a Phase I clinical trial in the United
States for any product other than MS1819. Mr. Sapirstein is
entitled to receive 20 days of paid vacation, participate in full
employee health benefits and receive reimbursement for all
reasonable expenses incurred in connection with his services to
us.
In
the event that Mr. Sapirstein’s employment is terminated by us for
Cause, as defined in his employment agreement, or by Mr. Sapirstein
voluntarily, then will not be entitled to receive any payments
beyond amounts already earned, and any unvested equity awards will
terminate. In the event that Mr. Sapirstein’s employment is
terminated as a result of an Involuntary Termination Other than for
Cause, as defined in the Agreement, Mr. Sapirstein will be entitled
to receive the following compensation: (i) severance in the form of
continuation of his salary (at the Base Salary rate in effect at
the time of termination, but prior to any reduction triggering Good
Reason) for a period of 12 months following the termination date;
(ii) payment of Executive’s premiums to cover COBRA for a period of
12 months following the termination date; and (iii) a prorated
annual bonus.
Schneiderman Employment
Agreement. Effective January 2,
2020, we entered into an employment agreement with Mr. Schneiderman
to serve as our Chief Financial Officer for a term of three years,
subject to further renewal upon agreement of the parties. The
employment agreement with Mr. Schneiderman provides for a base
salary of $285,000 per year. In addition to the base salary, Mr.
Schneiderman is eligible to receive (a) an annual milestone cash
bonus based on certain milestones that will be established by our
Board or the Compensation Committee, (b) grants of stock options to
purchase such number of shares equal to one and a quarter percent
(1.25%) of the issued and outstanding Common Stock on January 2,
2020, or 335,006 shares of Common Stock with an exercise price of
$1.03 per share, which shall vest in over a term of three years.
Mr. Schneiderman is entitled to receive 20 days of paid vacation,
participate in full employee health benefits and receive
reimbursement for all reasonable expenses incurred in connection
with his service to us. We may terminate Mr. Schneiderman’s
employment agreement at any time, with or without Cause, as such
term is defined in his employment agreement. Effective July 16,
2020, our Board approved an amended and restated option grant to
Mr. Schneiderman, amending and restating the grant previously made
on January 2, 2020, to reduce the amount of shares issuable upon
exercise of such option to be the maximum number of shares Mr.
Schneiderman was eligible to receive under the Amended and Restated
2014 Omnibus Equity Incentive Plan (the “2014 Plan”) on the
original grant date (or 300,000 shares), due to the 2014 Plan
provisions relating to Section 162(m)
limitations.
In the
event that Mr. Schneiderman’s employment is terminated by us for
Cause, as defined in Mr. Schneiderman’s employment agreement, or by
Mr. Schneiderman voluntarily, then he will not be entitled to
receive any payments beyond amounts already earned, and any
unvested equity awards will terminate. If we terminate his
employment agreement without Cause, not in connection with a Change
of Control, as such term is defined in Mr. Schneiderman’s
employment agreement, he will be entitled to (i) all salary owed
through the date of termination; (ii) any unpaid annual milestone
bonus; (iii) severance in the form of continuation of his salary
for the greater of a period of six months following the termination
date or the remaining term of the employment agreement; (iv)
payment of premiums to cover COBRA for a period of six months
following the termination date; (v) a prorated annual bonus equal
to the target annual milestone bonus, if any, for the year of
termination multiplied by the formula set forth in the agreement.
If we terminate Mr. Schneiderman’s employment agreement without
Cause, in connection with a Change of Control, he will be entitled
to the above and immediate accelerated vesting of any unvested
options or other unvested awards.
Pennington Employment Agreement.
Effective May 28, 2018, we entered into an employment agreement
with Mr. Pennington to serve as our Chief Medical Officer. The
employment agreement with Dr. Pennington provides for a base annual
salary of $250,000. In addition to his salary, Dr. Pennington is
eligible to receive an annual milestone bonus, awarded at the sole
discretion of the Board based on his attainment of certain
financial, clinical development, and/or business milestones
established annually by the Board or Compensation Committee. The
employment agreement is terminable by either party at any time. In
the event of termination by us other than for cause, Dr. Pennington
is entitled to three months’ severance payable over such period. In
the event of termination by us other than for cause in connection
with a Change of Control, Dr. Pennington will receive six months’
severance payable over such period.
Spoor Employment Agreement. On January
3, 2016, we entered into an employment agreement with our former
President and Chief Executive Officer, Johan Spoor. The employment
agreement provided for a term expiring January 2, 2019. Although
Mr. Spoor’s employment agreement expired, he remained employed as
our President and Chief Executive Officer under the terms of his
prior employment agreement through his resignation as President and
Chief Executive Officer on October 8, 2019. In addition, Mr. Spoor
resigned as a member of the Board on April 29, 2020.
The
employment agreement with Mr. Spoor provided for a base salary of
$425,000 per year. At the sole discretion of the Board or the
Compensation Committee of the Board, following each calendar year
of employment, Mr. Spoor was eligible to receive an additional cash
bonus based on his attainment of certain financial, clinical
development, and/or business milestones to be established annually
by the Board or the Compensation Committee. Mr. Spoor’s employment
agreement was terminable by either party at any time. In the event
of termination by us without Cause or by Mr. Spoor for Good Reason
not in connection with a Change of Control, as those terms are
defined in Mr. Spoor’s employment agreement, he was entitled to
twelve months’ severance payable over such period. In the event of
termination by us without Cause or by Mr. Spoor for Good Reason in
connection with a Change of Control, as those terms are defined in
Mr. Spoor’s employment agreement, he was eligible to receive
eighteen months’ worth of his base salary in a lump sum as
severance.
Mr.
Spoor was originally entitled to 10-year stock options to purchase
380,000 shares of Common Stock, pursuant to the 2014 Plan. During
the year ended December 31, 2017, stock options to purchase 100,000
shares of Common Stock with an exercise price of $4.48 per share
with a grant date fair value of $386,900 were granted and vested.
On September 29, 2017, Mr. Spoor was granted 100,000 shares of
restricted Common Stock subject to milestone-based vesting, in
satisfaction of our obligation to issue an additional 280,000
options to Mr. Spoor, with an estimated grant date fair value of
$425,000. During the year ended December 31, 2018, all 100,000
shares of restricted Common Stock vested, but the separate stock
options covering 100,000 shares of Common Stock were cancelled as a
result of Mr. Spoor’s resignation as our President and Chief
Executive Officer.
Mr.
Spoor resigned from his position as our President and Chief
Executive Office effective October 8, 2019. Mr. Spoor received no
additional or severance compensation and all unvested stock options
and shares of restricted Common Stock granted to Mr. Spoor were
cancelled as a result of Mr. Spoor’s resignation. Mr. Spoor has a
period of twelve months following his resignation to exercise all
vested stock options.
On June
29, 2019, we accrued an incentive bonus in the amount of $255,000.
Subsequent to Mr. Spoor’s resignation, the Compensation Committee
reviewed the accrued bonus and determined that such amount was not
owed and we reversed the accrual in the quarter ended December 31,
2019, which determination was challenged by Mr. Spoor. As part of a
settlement and general release effective July 9, 2020, Mr. Spoor
waived all claims to the incentive bonus in the amount of $255,000
and also waived all claims to an amount of $348,000 due to JIST
Consulting, a company controlled by Mr. Spoor. Also, in connection
with the settlement and general release, Mr. Spoor received
warrants to purchase an aggregate of 150,000 shares of Common Stock
with an exercise price of $1.00 per share and an expiration term of
five years and we agreed to pay Mr. Spoor’s legal expenses in the
amount of $51,200.
Mr.
Spoor received no additional or severance compensation and all
unvested stock options and shares of restricted Common Stock
granted to Mr. Spoor were cancelled as a result of Mr. Spoor’s
resignation. As of December 31, 2019, there were 241,667 earned but
unissued shares of restricted Common Stock due to Mr. Spoor.
However, Mr. Spoor forfeited the right to receive these shares on
April 29, 2020 in connection with his resignation from the
Board.
Shenouda Employment Agreement.
On September 26, 2017, we entered into an employment agreement
with Mr. Shenouda to serve as our Executive Vice-President of
Corporate Development and Chief Financial Officer for a term of
three years, during which time he received a base salary of
$275,000. In addition to the base salary, Mr. Shenouda was eligible
to receive an annual milestone cash bonus based on the achievement
of certain financial, clinical development, and/or business
milestones, which milestones were established annually at the sole
discretion of our Board or the Compensation Committee. Mr.
Shenouda’s employment agreement provided for the issuance of stock
options to purchase 100,000 shares of Common Stock, pursuant to the
2014 Plan, with an exercise price of $4.39 per share and a term of
ten years. These stock options vested upon the achievement of
certain strategic milestones during the year ended December 31,
2018.
Mr.
Shenouda’s employment agreement was terminable by us any time, with
or without Cause, as such term is defined in the agreement. If we
terminated the agreement without Cause, or if the agreement was
terminated due to a Change of Control, as such term is defined in
the agreement, Mr. Shenouda was entitled to (i) all salary owed
through the date of termination; (ii) any unpaid annual milestone
bonus; (iii) severance in the form of continuation of his
salary for the greater of a period of 12 months following the
termination date or the remaining term of his employment agreement;
(iv) payment of premiums to cover COBRA for a period of 12 months
following the termination date; (v) a prorated annual bonus equal
to the target annual milestone bonus, if any, for the year of
termination multiplied by the formula set forth in the agreement;
and (vi) immediate accelerated vesting of any unvested options or
other unvested awards.
Mr.
Shenouda resigned from his position as our Chief Financial Officer
effective November 30, 2019. Mr. Shenouda received no additional or
severance compensation and all unvested stock options and shares of
restricted Common Stock granted to Mr. Shenouda were cancelled as a
result of Mr. Shenouda’s resignation. Mr. Shenouda has a period of
twelve months following his resignation to exercise all vested
stock options.
On June
28, 2019, the Compensation Committee had approved the accrual of an
incentive bonus in the amount of $100,000. Subsequent to Mr.
Shenouda’s resignation, the Compensation Committee reviewed the
accrued bonus and determined that such amount was not owed, and we
reversed the accrual in the quarter ended December 31, 2019. As
part of a settlement and general release entered into on July 2,
2020, Mr. Shenouda waived all claims to the incentive bonus in the
amount of $100,000 and we agreed to pay Mr. Shenouda a settlement
sum of $15,000, which includes $10,000 due to Mr. Shenouda
reflected in our accounts payable as of June 30, 2020.
Outstanding
Equity Incentive Awards at Fiscal Year-End
The
following table sets forth information regarding unexercised
options, stock that has not vested and equity incentive awards held
by each of the Named Executive Officers outstanding as of
December 31, 2020 and 2019:
|
Name
|
Grant
Date
|
Number
of Securities underlying unexercised
options (#)
exercisable
|
Equity incentive plan awards: Number
of underlying unexercised
unearned options (#)
|
|
Option exercise price
($)
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Number
of Shares or units of stock that
have not vested
(#)
|
Market
value of shares or units of stock
that have not vested
($)
|
Equity incentive plan awards: Number
of Unearned shares, units or other
rights that have not vested
(#)
|
Equity incentive plan awards: market or
payout value of unearned shares, units
or other rights that have not vested
($)
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Current Named Executive Officers
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James
Sapirstein
|
10/8/2019
|
-
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300,000
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(1)
|
$0.56
|
|
-
|
-
|
-
|
$-
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|
10/8/2019
|
-
|
-
|
|
$-
|
-
|
-
|
-
|
200,000(2)
|
$112,000
|
|
7/16/2020
|
-
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1,200,000
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(3)
|
$0.85
|
|
-
|
-
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|
$-
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Daniel
Schneiderman
|
1/2/2020
|
-
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300,000
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(4)
|
$1.03
|
|
-
|
-
|
|
$-
|
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