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20-year limitation was eliminated for losses incurred after January
1, 2018, giving the taxpayer the ability to carry forward losses
indefinitely. However, NOL carry forward arising after January 1,
2018, will now be limited to 80% of taxable income. The $105.8
million available at June 30, 2022 includes $51.0 million of post
2017 NOLs without expiration dates and $54.8 million of pre-2018
NOLs expiring from 2024 to
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
|
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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FOR THE FISCAL YEAR ENDED JUNE 30, 2022
OR
☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ________ TO __________
Commission File Number: 001-37357
INNOVATION PHARMACEUTICALS
INC.
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(Exact name of registrant as specified in its charter)
|
Nevada
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30-0565645
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(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S.
Empl.Ident. No.)
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301 Edgewater Place- Suite 100
Wakefield, MA
01880
(Address of principal executive offices, Zip Code)
(978)
921-4125
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
none
Securities registered under Section 12(g) of the Exchange Act:
common stock, Class A, par value $0.0001 per
share
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large Accelerated Filer
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☐
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Accelerated Filer
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☐
|
Non-accelerated Filer
|
☒
|
Smaller reporting company
|
☒
|
|
|
Emerging growth company
|
☐
|
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 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates on December 31,
2021 was $22,052,667 (441,053,335 shares), based on the closing
price of the registrant’s common stock of $0.05.
The number of shares outstanding of each of the issuer’s classes of
common equity, as of September 22, 2022 is as follows:
Class of Securities
|
|
Shares Outstanding
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Common Stock Class A, $0.0001 par value
|
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488,225,673
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Common Stock Class B, $0.0001 par value
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15,641,463
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INNOVATION PHARMACEUTICALS INC.
FORM 10-K
For the Fiscal Year Ended June 30, 2022
TABLE OF CONTENTS
PART I
PRELIMINARY NOTES
References in this report to “Innovation Pharmaceuticals,”
“Company,” “we,” “us,” and “our” refer to Innovation
Pharmaceuticals Inc., unless the context requires otherwise.
References herein to our common stock refer to our Class A common
stock, par value $0.0001 per share, unless the context requires
otherwise. The Company’s common stock is traded under the stock
symbol “IPIX” on the OTCQB.
Our fiscal year ends on June 30. When we refer to a fiscal year or
quarter, we are referring to the year in which the fiscal year ends
and the quarters during that fiscal year. Therefore, fiscal 2022
refers to the fiscal year ended June 30, 2022.
GLOSSARY OF TERMS
Set forth below are definitions of certain technical terms used in
this report that are commonly used in the pharmaceutical and
biotechnology industries.
ABSSSI: Acute Bacterial Skin and Skin Structure
Infection.
Coronavirus, SARS, SARS-CoV-2, COVID-19: Coronavirus
Disease-2019 (COVID-19) is the disease caused by SARS-CoV-2, which
is a new strain of coronavirus. SARS-CoV-2 is a positive sense,
single-strand enveloped RNA virus. The Coronavirus name is derived
from the Latin corona, meaning crown. The viral envelope under
electron microscopy appears crown-like due to small bulbar
projections formed by the viral spike (S) peplomers. SARS is the
acronym for Severe Acute Respiratory Syndrome.
EMA: The European Medicines Agency.
Emergency Use Authorization: An Emergency Use
Authorization (EUA) is a mechanism to facilitate the availability
and use of medical countermeasures during public health
emergencies, such as the current COVID-19 pandemic.
FDA: The U.S. Food and Drug Administration.
HNC: Head and Neck Cancer. Head and neck cancer is a term
used to define cancer that develops in the mouth, throat, nose,
salivary glands, oral cancers or other areas of the head and neck.
Most of these cancers are squamous cell carcinomas, or cancers that
begin in the lining of the mouth, nose and throat.
IBD: Inflammatory Bowel Disease. An umbrella term for
chronic, hard-to-treat conditions of the Gastrointestinal tract,
with ulcerative colitis, and Crohn’s disease being common examples
of extensive forms of the disease and ulcerative proctitis /
proctosigmoiditis being more limited in distribution.
IND: Investigational New Drug. A substance that has been
tested in the laboratory and has been approved by the FDA for
testing in people.
In Vitro: Refers to the technique of performing a given
experiment in a test tube, or, generally, in a controlled
environment outside a living organism.
NDA: A New Drug Application with the FDA.
OM: Oral Mucositis. Oral mucositis is a common
complication of cancer chemotherapy/ chemoradiation or radiation
therapy. Oral mucositis causes the mucosal lining of the mouth to
atrophy and break down, forming ulcers.
Small Molecule Drug: A medicinal drug compound having a
low molecular weight.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended.
Any statements contained in this report that are not statements of
historical fact may be forward-looking statements. When we use the
words “intends,” “estimates,” “predicts,” “potential,” “continues,”
“anticipates,” “plans,” “expects,” “believes,” “should,” “could,”
“may,” “will” or the negative of these terms or other comparable
terminology, we are identifying forward-looking statements. These
forward-looking statements include, but are not limited to, any
statements regarding our future financial performance, results of
operations or sufficiency of capital resources to fund our
operating requirements; statements relating to potential licensing,
partnering or similar arrangements concerning our drug compounds;
statements concerning our future drug development plans and
projected timelines for the initiation and completion of
preclinical and clinical trials; the potential for the results of
ongoing preclinical or clinical trials; other statements regarding
our future product development and regulatory strategies, including
with respect to specific indications; and any other statements
which are other than statements of historical fact. Forward-looking
statements involve risks and uncertainties, which may cause our
actual results, performance or achievements to be materially
different from those expressed or implied by forward-looking
statements. These factors include, but are not limited to, our
ability to continue as a going concern and our capital needs; our
ability to fund and successfully progress internal research and
development efforts; our ability to create effective,
commercially-viable drugs; our ability to effectively and timely
conduct clinical trials; our ability to ultimately distribute our
drug candidates; our ability to achieve certain future regulatory,
development and commercialization milestones under our license
agreement with Alfasigma S.p.A.; and compliance with regulatory
requirements, as well as other factors described elsewhere in this
report and our other reports filed with the Securities and Exchange
Commission (the “SEC”). Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
Forward-looking statements speak only as of the date on which
they are made. Except as may be required by applicable law, we do
not undertake or intend to update or revise our forward-looking
statements, and we assume no obligation to update any
forward-looking statements contained in this report as a result of
new information or future events or developments. Thus, you should
not assume that our silence over time means that actual events are
bearing out as expressed or implied in such forward-looking
statements. You should carefully review and consider the various
disclosures we make in this report and our other reports filed with
the SEC that attempt to advise interested parties of the risks,
uncertainties and other factors that may affect our business.
Readers are cautioned not to put undue reliance on forward-looking
statements.
For further information about these and other risks,
uncertainties and factors, please review the disclosure included in
this report under “Part I, Item 1A, Risk Factors.”
SUMMARY RISK FACTORS
The following is a summary of the risks and uncertainties that
could cause the Company’s business, financial condition or
operating results to be harmed. Prospective investors should
carefully consider all of the information in this report and, in
particular, the disclosure included in this report under “Part I,
Item 1A, Risk Factors,” before deciding whether to invest in the
Company’s common stock.
Risks Related to Our Business
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There are doubts about our ability
to continue as a going concern. |
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We need to raise substantial
additional capital in the future to fund our operations and we may
be unable to raise such funds. |
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Our business could be adversely
affected by the effects of health epidemics, including the global
COVID-19 pandemic. |
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We have no products approved for
commercial sale to generate revenue. |
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In our existing or any future
potential collaborations or partnerships, we will likely not be
able to control all aspects of the development and
commercialization of our compounds. |
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We depend on license agreements for
the development and commercialization of certain compounds. |
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We have limited experience in drug
and formulation development and may not be able to successfully
develop any drugs. |
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Development of pharmaceutical
products is a risky and time-consuming process subject to a number
of factors, many of which are outside of our control and we are
subject to regulatory authority permissions and approvals, most
importantly the FDA. |
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We have limited experience in
conducting or supervising clinical trials and must outsource all
clinical trials. |
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Success in early clinical trials
may not be predictive or indicative of results in current ongoing
clinical trials or potential future clinical trials. |
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We are subject to risks inherent in
conducting clinical trials. |
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Delays in the commencement or
completion of clinical testing could result in increased costs to
us and delay or limit our ability to generate revenues. |
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We must comply with significant and
complex government regulations. |
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We or third-party manufacturers we
rely on may encounter failures or difficulties in manufacturing or
formulating clinical development and commercial supplies of
drugs. |
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We can provide no assurance that
our drug candidates will obtain regulatory approval or that the
results of clinical studies will be favorable. |
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Even if we obtain regulatory
approvals, our marketed drug candidates will be subject to ongoing
regulation. |
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All of our Polymedix drug product
candidates are licensed from or based upon licenses from the
University of Pennsylvania. |
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We or our third-party manufacturers
may fail to comply with manufacturing regulations. |
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Controls we or our third-party
service providers have in place to ensure compliance with laws may
not be effective to ensure compliance with all applicable laws and
regulations. |
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The Company is exposed to product
liability, clinical and preclinical liability risks which could
place a substantial financial burden upon the Company should it be
sued. |
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Confidentiality agreements with
employees and others may not adequately prevent disclosure of trade
secrets and other proprietary information. |
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We may be unable to obtain or
protect intellectual property rights relating to our products, and
we may be liable for infringing upon the intellectual property
rights of others. |
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Our potential collaborative
relationships with third parties could cause us to expend
significant resources and incur substantial business risk. |
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We may not be able to attract and
retain highly skilled personnel or consultants. |
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We depend upon our senior
management and their loss or unavailability could put us at a
competitive disadvantage. |
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The biotechnology and
biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. |
Risks Related to the Securities Markets and Investments in
Our Class A Common Stock
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In addition to potential dilution
associated with future fundraising transactions, we currently have
significant numbers of securities outstanding that are exercisable
for our common stock. |
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Because our common stock is quoted
on the OTC, your ability to sell your shares in the secondary
trading market may be limited. |
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Because our Class A Common Stock is
considered “penny stock” you may have difficulty selling them in
the secondary trading market. |
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Our stock price may be volatile and
your investment in our Class A Common Stock could suffer a decline
in value. |
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Our directors and executive
officers own or control a sufficient number of shares of our common
stock to control our Company. |
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We do not intend to pay any cash
dividends in the foreseeable future. |
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We may issue additional equity
shares to fund the Company’s operational requirements which would
dilute your share ownership. |
ITEM 1. BUSINESS
OVERVIEW OF OUR BUSINESS
Overview
Innovation Pharmaceuticals Inc. is a clinical stage pharmaceutical
company developing innovative therapies with anti-infective,
oncology, anti-inflammatory and dermatology applications. The
Company’s lead drug candidate Brilacidin is in a class of compounds
called defensin-mimetics, small compounds that mimic the structure
and function of defensins, also known as host defense peptides. The
Company’s efforts are primarily focused on advancement of
Brilacidin in Oral Mucositis and in infectious diseases. Ongoing
activities include Brilacidin drug manufacturing, scientific report
writing, and supportive research activities. The Company also
acquired an interest in BT BeaMedical Technologies Ltd. (formerly
known as Squalus Medical Ltd.), a private company developing a
novel image guided surgical laser platform. Management is focused
on other avenues of business development, including, but not
limited to, joint ventures, mergers and acquisitions, strategic
investments, and licensing agreements, for the purpose of
diversifying corporate assets, although there can be no assurances
that any agreement will be consummated in the future.
Recent Developments
As of the date of this filing, Brilacidin is being studied by
independent researchers funded by US Government grants, as a
potential broad-spectrum antiviral therapeutic for the treatment of
viruses. We anticipate these studies to continue as long as
researchers remain positive about the antiviral properties and
therapeutic potential of Brilacidin and government funding is
available.
On June 15, 2022, the Company announced acquiring a stake in BT
BeaMedical Technologies Ltd. (formerly known as Squalus Medical
Ltd.), a private company developing a novel image guided surgical
laser platform for treating previously inoperable cases of epilepsy
and for enabling new treatment options for cancer cases in multiple
key specialties.
On June 23, 2022, the Company reported Brilacidin inhibited the
Omicron, Delta, Gamma and Alpha variants of SARS-CoV-2 based on
in vitro testing conducted by NIH-sponsored and Rutgers
University researchers. Results from the Brilacidin Phase 2
COVID-19 clinical trial and from Brilacidin in vitro
testing in over 20 viruses were also reported as being prepared for
publication.
On June 28, 2022, the Company announced new antiviral research on
Brilacidin in bunyaviruses and alphaviruses was accepted for
presentation at the 2022 Military Health System Research
Symposium.
On July 22, 2022, the Company reported additional information based
on provider and payer analysis supporting the potential
commercialization of Brilacidin as a novel oral mucositis drug
candidate.
On August 5, 2022, the Company announced NIH-NIAID-affiliated
researchers were to evaluate Brilacidin for its treatment potential
against the monkeypox virus. Initial in vitro testing to
establish potential proof-of-concept is to be conducted in
poxviruses related to monkeypox.
In September 2022, the Company, after a review of its assets and
opportunities, discontinued its Kevetrin program in oncology due to
reduced patent life and the added research and development costs
for oral delivery of the compound. The Company’s research and
development efforts going forward will be focused on advancement of
Brilacidin, which has shown therapeutic potential in treating
multiple indications.
Business Development and Licensing
The Company is actively engaged in business development and
licensing initiatives with specialty and global pharmaceutical
companies. The Company may also seek to enter into agreements with
other third-party entities for research, development, and
commercialization of other types of technologies or products. The
goal of these efforts is to diversify and add value to the
Company’s assets. From time to time, the Company may be party to
various indications of interest and term sheets and participate in
preliminary discussions and negotiations regarding potential
licensing or partnership arrangements. It remains the Company’s
primary objective to complete licensing deals, territorial and/or
global, to provide access to non-dilutive capital to advance
clinical assets forward in the most expeditious and cost-effective
manner. The Company can make no assurance that partnerships will
occur, but is committed toward executing on these potential
alliance and partnership opportunities.
In July 2019, the Company entered into a license agreement with
Alfasigma S.p.A. (“Alfasigma”), granting Alfasigma the worldwide
right to develop, manufacture and commercialize rectally
administered Brilacidin for ulcerative proctitis/ulcerative
proctosigmoiditis (“UP/UPS”). The license agreement provides
Alfasigma with a right of first refusal for Brilacidin for the
treatment of more extensive forms of inflammatory bowel disease
(IBD), such as ulcerative colitis and Crohn’s disease, as well as a
right of first negotiation for Brilacidin in other gastrointestinal
indications. Phase 1 studies in healthy volunteers using Brilacidin
in a proprietary Alfasigma formulation have successfully completed,
and Alfasigma has notified the Company that Phase 2 multinational
clinical trial planning/regulatory submissions have commenced;
Brilacidin drug substance has been manufactured under direction of
the Company for delivery to Alfasigma for use in this study. The
Company is eligible to receive $24 million in upfront and milestone
payments, and a 6 percent royalty (net sales) upon the successful
marketing of Brilacidin for UP/UPS.
On July 22, 2020, the Company and Fox Chase Chemical Diversity
Center, Inc. (“FCCDC”) amended an earlier collaborative research
agreement related to antifungal drug discovery work to which the
Company had rights. In exchange for a six (6) percent fee tied to
all potential future proceeds, the Company granted FCCDC all
discovery, intellectual property and commercialization rights
related to its share of their joint antifungal drug program.
Development Programs
Compound
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Target/Indication
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Clinical Status
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Brilacidin
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Oral Mucositis (OM)
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Phase 2 Study (completed)
Phase 3 planned, contingent upon sufficient funding
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Inflammatory Bowel Disease (IBD)
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Phase 2 UP/UPS Proof of Concept Study (completed)
Phase 1 Safety/toleration/PK of oral dosage form (completed)
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ABSSSI (Acute Bacterial Skin and Skin Structure Infection)
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Phase 2 (completed)
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We have no product sales to date and we will not receive any
product revenue until we receive approval from the FDA or
equivalent foreign regulatory agencies to begin marketing a
pharmaceutical product. Milestone payments from our licensee are
also dependent on clinical/regulatory milestones. We are actively
engaged in business development for partnering Brilacidin.
Developing pharmaceutical products, however, is a lengthy and very
expensive process and there can be no assurance that we will
complete such development or commercialize such pharmaceutical
products for several years, if ever. Advancement of our Brilacidin
clinical programs is dependent on securing sufficient working
capital.
The Company devotes most of its efforts and resources on
Brilacidin. We expect to concentrate on product development and
engage in a limited way in product discovery, avoiding the
significant investment of time and financial resources that is
generally required for a promising compound to be identified and
brought into clinical trials.
Set forth below is an overview of our most recent research and
development efforts on Brilacidin through the date of this Annual
Report on Form 10-K:
Brilacidin
COVID-19 (SARS-CoV-2), Additional
Viruses
In December 2020, the U.S. Food and Drug Administrations (FDA)
approved the Company’s Investigational New Drug (IND) application
to proceed with initiation of a randomized, placebo-controlled
Phase 2 clinical trial (NCT04784897) of Brilacidin in
moderate-to-severe hospitalized patients with COVID-19. Similar
regulatory approval was obtained from the Russian Ministry of
Health. This Phase 2 clinical trial of intravenously-administered
Brilacidin (3- and 5-day dosing) for COVID-19 conducted at sites in
the United States and Russia has since completed (n=120). While the
trial’s primary endpoint of time to sustained recovery through Day
29 was not met, patients who started study treatment within fewer than 7 days of
onset of COVID-19 symptoms achieved sustained recovery more quickly
(Brilacidin 5-dose group versus pooled placebo, p=0.03). Other
beneficial treatment effects based on the trial’s primary endpoint
of sustained recovery were also observed in subgroups of patients
with the highest (upper quartile) baseline values for key COVID-19
biomarkers. On two secondary endpoints, more patients treated with
Brilacidin (5-dose group) achieved clinical improvement by 10 days
as measured by National Emergency Warning Score 2 (NEWS2) criteria,
and the mean change from baseline in NEWS2 was greater for
Brilacidin treatment groups at all assessment timepoints.
Additionally, under compassionate use of Brilacidin in critical
cases of COVID-19, where Brilacidin was administered more
frequently and over a longer duration than in the Phase 2 trial,
investigators reported positive changes to subject status. Pursing
a biomarker-driven approach, increasing Brilacidin dosing,
targeting different patient populations, testing Brilacidin in
combination with other drugs (e.g., remdesivir, given synergistic
in vitro data) -- all are areas under consideration for
potential future Brilacidin COVID-19 clinical trials pending
obtaining government, partnership-based or other financial support.
Antiviral data on Brilacidin in non-SARS-CoV-2 viruses has been
generated and presented at scientific conferences. Results from the
Brilacidin COVID-19 clinical trial, as well as findings from in
vitro testing of Brilacidin in multiple viruses, are being
prepared for publication.
IBD, Ulcerative Proctitis/Proctosigmoiditis (UP/UPS)
study - A Phase 2a trial has previously been
completed by the Company, comprised of three sequential cohorts,
with progressive dose escalation by cohort: cohort A (6 patients) -
50 mg, cohort B (6 patients) - 100 mg, and cohort C (5 patients) -
200 mg, respectively. Treatment with Brilacidin by daily enema
administration was performed for 42 days. The primary efficacy
endpoint of clinical remission (accounting for stool frequency,
rectal bleeding and endoscopy findings subscores) was met by the
majority of patients across the cohorts. Brilacidin was generally
well-tolerated. Patient quality of life (as assessed by the short
inflammatory bowel disease questionnaire, or SIBDQ) showed notable
improvements. Limited systemic exposure to Brilacidin was
demonstrated as measured by plasma Brilacidin concentrations. In
July 2019, the Company entered into a license agreement with
Alfasigma, granting Alfasigma the worldwide right to develop,
manufacture and commercialize rectally administered Brilacidin for
UP/UPS. Phase 1 studies in healthy volunteers using Brilacidin in a
proprietary Alfasigma formulation have successfully completed, and
Alfasigma has notified the Company that Phase 2 multinational
clinical trial planning/regulatory submissions have commenced;
Brilacidin drug substance has been manufactured under direction of
the Company for delivery to Alfasigma for use in this study.
IBD, Ulcerative Colitis (UC) - Brilacidin
has also been developed as a treatment in more extensive forms of
IBD. Development of a delayed release oral formulation has been in
progress, with development work expanding into immediate release
formulations due to unexpected findings encountered. Such findings
appear due to the inherent physiochemical properties of the
compound, and those of polymers used to achieve delayed release. An
immediate release, multi-particulate, capsule formulation has been
developed, although further work has since been halted due to
instability of that formulation being identified. Hence, further
advancement in the indication of ulcerative colitis requires
conduct of additional formulation development work prior to Phase 1
testing of that oral formulation. Completion of
formulation/analytical development work, clinical trial supply
manufacturing, and subsequent progression into clinical trials, are
pending securing sufficient drug supply and working capital.
Oral Mucositis (OM) study - In a
randomized, double-blind Phase 2 study of Brilacidin for the
prevention and control of OM in patients receiving chemoradiation
for treatment of Head and Neck Cancer (HNC), Brilacidin
(administered three times daily as an oral rinse) markedly reduced
the rate of severe OM (WHO Grade ≥ 3), delayed onset of severe OM
and decreased duration of severe OM. The Company and the FDA have
completed an End-of-Phase 2 meeting concerning the continuing
development of Brilacidin oral rinse to decrease the incidence of
severe OM in HNC patients receiving chemoradiation. Both parties
agreed to an acceptable Brilacidin Phase 3 development pathway,
including studying Brilacidin oral rinse effects on severe OM when
cisplatin, the preferred chemotherapy regimen in HNC care, is
administered in higher concentrations (80-100 mg/m2) every 21 days, and at lower
concentrations (30-40 mg/m2) administered weekly as part of the
chemoradiation regimen.
An optimized oral rinse formulation has been developed, and ongoing
stability testing will be completed by January, 2023.. Further
advancement in the indication of oral mucositis requires additional
drug formulation/analytical work, followed by clinical trial supply
manufacturing prior to progressing to Phase 3 clinical trials.
Given the low price per share of our common stock and the many
multiple million dollar costs associated with a Phase 3 program, at
this time clinical trial supply manufacturing and Phase 3 clinical
trial conduct are delayed, with such activities pending securing
sufficient working capital and/or partnership.
ABSSSI - In February 2016, the Company
submitted a Special Protocol Assessment (SPA) request, along with a
final protocol, to the FDA, for a Phase 3 clinical trial of
Brilacidin for the treatment of Acute Bacterial Skin and Skin
Structure Infection (ABSSSI) caused by gram-positive bacteria,
including methicillin-resistant Staphylococcus aureus (MRSA). We
received from the FDA comments and considerations for incorporation
into our study design. Management decided to delay its response to
the FDA due to the low price per share of our common stock and the
many multiple million dollar costs associated with a Phase 3
program. Our strategy, for now, is to achieve success with other
trials and attract partnering opportunities that may provide
significant upfront payments and milestone payments, which can then
be used to fund the ABSSSI program. We see ABSSSI as the
appropriate gateway indication in infectious diseases, enabling
potential further studies of Brilacidin’s use for implant coating
and biofilm infections.
Expenditures on Brilacidin were approximately $3.3 million and $5.0
million during the years ended June 30, 2022 and 2021,
respectively.
We have no product sales to date and we will not receive any
product revenue until we receive approval from the FDA or
equivalent foreign regulatory agencies to begin marketing a
pharmaceutical product. Developing pharmaceutical products,
however, is a lengthy and very expensive process and there can be
no assurance that we will complete such development or
commercialize such for several years, if ever.
BT BEAMEDICAL TECHNOLOGIES LTD. (FORMERLY KNOWN AS SQUALUS
MEDICAL LTD.)
On June 9, 2022, the Company entered into a Series A Preferred
Share Purchase Agreement (the “Purchase Agreement”) with BT
BeaMedical Technologies Ltd. (formerly known as Squalus Medical
Ltd.) (“BeaMedical”), the inventing company and developer of a
novel laser-based thermal ablation technology designed for
treatment of previously inoperable cases of epilepsy and for
improvement of outcomes and enablement of new treatment options for
oncology procedures, including those treating brain, prostate,
liver, breast and lung cancers.
The new fiber optic technology with an advanced laser console and
computerized intelligent control is being designed to allow a match
between the structure of tumors and epileptic focal points and the
energy delivery, while protecting vital functional areas against
thermal damage. The console integrates advanced imaging modalities,
and guides the physician, making sure the treatment is adjusted to
the specific patient needs with real time energy control.
BeaMedical is pursuing the FDA 510(k) pathway for marketing
clearance in the U.S. and the corresponding process for a CE Mark
in Europe.
Pursuant to the Purchase Agreement, the Company purchased 55,556
shares of BeaMedical’s Series A Redeemable Preferred Shares (the
“Series A Shares”) and a warrant to purchase 27,778 Series A Shares
for aggregate consideration of $4,000,000, or approximately $72.00
per Series A Share. Following the closing under the Purchase
Agreement, the Company owns approximately 35.7% of BeaMedical’s
issued and outstanding equity securities and approximately 41.6% of
BeaMedical’s equity securities on a fully diluted basis. The
Company also entered into customary investor rights and
indemnification agreements with BeaMedical.
INTELLECTUAL PROPERTY
As of June 30, 2022, we had 8 issued patents, and 1 pending patent
application relating to Brilacidin, in the United States and other
countries. Our issued patents expire between 2024 and 2036. We rely
on a combination of patents and trade secrets, as well as
confidentiality and non-use agreements to protect our intellectual
property. Our patent strategy is designed to facilitate
commercialization of our current and future product candidates, and
create barriers to entry.
Patent Write Off
During the fiscal years ended June 30, 2022 and 2021, the Company
has written off the patent costs relating to Kevetrin of
approximately $141,000 and $0, respectively and included these in
general and administrative expenses.
Payments Related to Assignment of
Compounds
In September 2013, the Company acquired substantially all of the
assets of Polymedix Inc, and Polymedix Pharmaceuticals, Inc.
(together, “Polymedix”), including Polymedix’s rights to Brilacidin
under a patent license agreement with the Trustees of the
University of Pennsylvania (“Penn”). Under the terms of the patent
license agreement, the Company will pay to Penn a royalty on gross
sales of the compounds licensed thereunder ranging from 0.5% to
3.0%, plus certain other payments as provided therein. In addition,
the Company will pay Penn 10% of all consideration received from
sublicensees.
MANUFACTURING
The Company does not intend to establish manufacturing capabilities
or facilities. The Company believes it can contract or partner with
third parties for manufacturing at sites registered with the FDA
and contract with third-party scientists for pharmaco-kinetic,
pharmaco-dynamic and toxicology studies. Such studies generally
must be completed prior to filing an investigational new drug (IND)
application with the FDA, and an IND is necessary to begin human
safety and efficacy trials (Phase 1, 2 and 3).
GOVERNMENT REGULATION
Our operations and activities are subject to extensive regulation
by numerous government authorities in the United States and other
countries. In the United States, drugs are subject to rigorous
regulation by the FDA. The Federal Food, Drug, and Cosmetic Act
(FDCA) and other federal and state statutes and regulations govern
the testing, development, manufacture, quality control,
distribution, safety, effectiveness, labeling, storage, record
keeping, reporting, approval, advertising and promotion, and import
and export of our investigational products. Failure to comply with
FDA requirements may result in enforcement action, including
warning letters, fines, civil or criminal penalties, suspension or
delays in clinical development, recall or seizure of products,
partial or total suspension of production or withdrawal of a
product from the market. Although the discussion below focuses on
regulation in the United States, which is our primary initial
focus, we anticipate seeking approval to market our products in
other countries. Generally, our activities in other countries will
be subject to regulation that is similar in nature and scope as
that imposed in the U.S., although there can be important
differences.
Development and Approval
Product development and the product approval process are very
expensive and time consuming, and we cannot be certain that the FDA
will grant approval for any of our drug product candidates on a
timely basis, if at all. Under the FDCA, the FDA must approve any
new drug before it can be sold in the United States. The general
process for obtaining FDA approval of a drug is as follows:
Preclinical Testing
Before we can test a drug candidate in humans, we must develop
extensive preclinical data, generally derived from laboratory
evaluations of product chemistry and formulation, as well as
toxicological and pharmacological studies in animals, to generate
data to support the drug’s quality and potential safety and
benefits. Certain animal studies must be performed in compliance
with the FDA’s Good Laboratory Practice, or GLP, regulations and
the U.S. Department of Agriculture’s Animal Welfare Act.
We submit this preclinical data and other information to the FDA in
an IND. Human clinical trials cannot commence until an IND
application is submitted and becomes effective. Based on the data
and information contained in the IND, the FDA must determine
whether there is an adequate basis for testing the drug candidate
in initial clinical studies in human volunteers. Unless the FDA
raises concerns, the IND becomes effective 30 days following its
receipt by the FDA.
Clinical Trials
Once the IND goes into effect, we study an investigational drug in
human clinical trials to determine if the drug is safe and
effective for a particular use. Clinical trials involve the
administration of the drug to healthy human volunteers or to
patients under the supervision of a qualified investigator. The
conduct of clinical trials is subject to extensive regulation,
including compliance with the FDA’s bioresearch monitoring
regulations and Good Clinical Practice, or GCP, requirements, which
establish standards for conducting, recording data from, and
reporting the results of clinical trials, and are intended to
assure that the data and reported results are credible and
accurate, and that the rights, safety, and well-being of study
participants are protected. Clinical trials must be conducted under
protocols that detail the study objectives, parameters for
monitoring safety, and the efficacy criteria, if any, to be
evaluated. FDA reviews each protocol that is submitted to the IND.
In addition, each clinical trial must be reviewed and approved by,
and conducted under the auspices of, an Institutional Review Board,
or IRB, for each institution conducting the clinical trial.
Companies sponsoring the clinical trials, investigators, and IRBs
also must comply with regulations and guidelines for obtaining
informed consent from the study subjects, complying with the
protocol and investigational plan, adequately monitoring the
clinical trial, and timely reporting adverse events. Foreign
studies conducted under an IND must meet the same requirements that
apply to studies being conducted in the U.S. Data from a foreign
study not conducted under an IND may be submitted in support of an
NDA if the study was conducted in accordance with GCP and, if
necessary, the FDA is able to validate the data through an on-site
inspection, if the agency deems such inspection necessary.
In general, clinical trials involve three separate phases that
often overlap, can take many years to complete, and are very
expensive. These three phases are as follows:
Phase 1. The investigational drug is given to a small number of
human subjects to test for safety, dose tolerance,
pharmacokinetics, metabolism, distribution and excretion. In most
disease states Phase 1 studies are performed in healthy volunteers.
In cancer, Phase 1 studies generally are performed in cancer
patients.
Phase 2. The investigational drug is given to a limited patient
population to determine the initial effect of the drug in treating
the disease, the best dose of the drug, and the possible side
effects and safety risks of the drug. Phase 2 trials typically are
controlled studies.
Phase 3. If Phase 2 clinical trials of a compound yield promising
data regarding safety and effectiveness, the compound may be
advanced to Phase 3 clinical trials to confirm those results. Phase
3 clinical trials typically are long-term, involve a significantly
larger population of patients, are conducted at numerous sites in
different geographic regions, and are carefully designed to provide
reliable and conclusive data regarding the safety and benefits of a
drug and to form the basis for labeling. It is not uncommon for a
drug that appears promising in Phase 2 clinical trials to fail in
the more rigorous and reliable Phase 3 clinical trials.
At any point in this process, the development of a drug could be
stopped for a number of reasons, including safety concerns and lack
of treatment benefit. We cannot be certain that any clinical trials
that we are currently conducting, or any that we conduct in the
future, will be completed successfully or within any specified time
period. We may choose, or the FDA or an IRB may require us, to
delay or suspend our clinical trials at any time if, for example,
it appears that the patients are being exposed to an unacceptable
health risk or if the drug candidate does not appear to have
sufficient treatment benefit. Success in early-stage clinical
trials does not assure success in later-stage clinical trials, and
data obtained from clinical activities are not always conclusive
and may be subject to alternative interpretations that could delay,
limit or prevent further development and regulatory approval.
FDA Approval Process
If we believe that the data from the Phase 3 clinical trials show
an adequate level of safety and effectiveness, we will file a new
drug application (NDA) with the FDA seeking approval to sell the
drug for a particular use. When an NDA is submitted, the FDA
conducts a preliminary review to determine whether the application
is sufficiently complete to be accepted for filing. If it is not,
the FDA may refuse to file the application and request additional
information, in which case the application must be resubmitted with
the supplemental information, and review of the application is
delayed.
Upon accepting the NDA for filing, the FDA will review the NDA and
may hold a public hearing where an independent advisory committee
of expert advisors considers key questions regarding the drug. This
advisory committee makes a recommendation to the FDA, which is not
binding on the FDA, but is generally followed.
Under the Pediatric Research Equity Act, certain applications for
approval must include an assessment, generally based on clinical
study data, of the safety and effectiveness of the subject drug in
relevant pediatric populations. The FDA may waive or defer the
requirement for a pediatric assessment, either at the company’s
request or by the agency’s initiative. The FDA may determine that a
Risk Evaluation and Mitigation Strategy, or REMS, is necessary to
ensure that the benefits of a new product outweigh its risks. A
REMS may include various elements, ranging from a medication guide
or patient package insert to limitations on who may prescribe or
dispense the drug, depending on what the FDA considers necessary
for the safe use of the drug.
Before approving an NDA, the FDA will inspect the facilities at
which the product will be manufactured. The FDA will not approve
the product unless it determines that the manufacturing processes
and facilities for the drug, including those of companies who
manufacture our drugs for us and including foreign establishments
that may manufacture the product for sale in the U.S., comply with
cGMP requirements (described below) and are adequate to assure
consistent production of the product within required
specifications.
If the FDA concludes that an NDA does not meet the regulatory
standards for approval, the FDA typically issues a Complete
Response letter communicating the agency’s decision not to approve
the application and outlining the deficiencies in the submission.
The Complete Response letter also may request further information,
including additional preclinical or clinical data or improvements
to manufacturing processes, procedures, or facilities. Even if such
additional information and data are submitted, the FDA may decide
that the NDA still does not meet the standards for approval.
The FDA may reject an application because, among other reasons, it
believes that the drug is not safe enough, or effective enough, or
because it does not believe that the data submitted are reliable or
conclusive. FDA may interpret data differently than the sponsor.
Obtaining regulatory approval often takes a number of years,
involves the expenditure of substantial resources, and depends on a
number of factors, including the nature of the disease or condition
the drug is intended to address, the availability of alternative
treatments, and the risks and benefits demonstrated in clinical
trials.
If the FDA agrees that the drug candidate has met the required
level of safety and effectiveness for a particular use, it will
approve the NDA, allowing the Company to sell the drug in the
United States for that use. As a condition of approval, the FDA may
impose restrictions that could affect the commercial success of a
drug. For example, the FDA could require post-approval commitments,
including completion within a specified time period of additional
clinical studies, which often are referred to as “Phase 4” or
“post-marketing” studies. The FDA also may limit the scope of the
approved uses of the drug. Certain post-approval modifications to
the drug product, such as changes in indications, labeling, or
manufacturing processes or facilities, may require a sponsor to
develop additional data or conduct additional preclinical or
clinical trials, to be submitted in a new or supplemental NDA,
which would require FDA approval.
Should our products be approved for marketing, we would also be
subject to various other state and federal laws concerning the
marketing and cost reimbursement of our products.
Major jurisdictions outside the United States, such as the European
Union, Japan and Canada, have similarly rigorous regulatory
processes. They may also require studies not required by the FDA,
which can add to the cost and risk of development. Products
approved by the FDA might not be approved in these other countries.
After review by the health authorities, pricing and cost
reimbursement are also subject to separate approvals in many of
these countries.
Post-Approval Regulation
Even if regulatory approval is granted, a marketed drug product is
subject to continuing comprehensive requirements under federal,
state and foreign laws and regulations, including requirements and
restrictions regarding adverse event reporting, recordkeeping,
marketing, and compliance with current good manufacturing practices
(cGMP). Adverse events reported after approval of a drug can result
in additional restrictions on the use of a drug or requirements for
additional post-marketing studies or clinical trials. The FDA or
similar agencies in other countries may also require labeling
changes to products at any time based on new safety information. If
ongoing regulatory requirements are not met or if safety problems
occur after the product reaches the market, the FDA or similar
agencies in other countries may at any time withdraw product
approval or take actions that would suspend marketing or
approval.
Good Manufacturing Practices. Companies engaged in
manufacturing drug products or their components must comply with
applicable cGMP requirements and product-specific regulations
enforced by the FDA and other regulatory agencies. If, after
approval, a company makes a material change in manufacturing
equipment, location, or process (all of which are, to some degree,
incorporated in the NDA), additional regulatory review and approval
may be required. The FDA also conducts regular, periodic visits to
re-inspect equipment, facilities, and processes following the
initial approval of a product. Failure to comply with applicable
cGMP requirements and conditions of product approval may lead the
FDA to seek sanctions, including fines, civil penalties,
injunctions, suspension of manufacturing operations, operating
restrictions, withdrawal of FDA approval, seizure or recall of
products, and criminal prosecution.
Advertising and Promotion. The FDA and other federal
regulatory agencies closely regulate the marketing and promotion of
drugs through, among other things, standards and regulations for
advertising, promotion to physicians and patients, communications
regarding unapproved uses, and industry-sponsored scientific and
educational activities. Failure to comply with applicable FDA
requirements and other restrictions in this area may subject a
company to adverse publicity and enforcement action by the FDA, the
Department of Justice, the Office of the Inspector General of the
Department of Health and Human Services, and state authorities, as
well as civil and criminal fines and agreements that may materially
restrict the manner in which a company promotes or distributes drug
products.
Other Requirements. In addition, companies that
manufacture or distribute drug products or that hold approved NDAs
must comply with other regulatory requirements, including
submitting annual reports, reporting information about adverse drug
experiences, submitting establishment registrations and drug
listings, and maintaining certain records.
Orphan Drug Exclusivity
The Orphan Drug Act established incentives for the development of
drugs intended to treat rare diseases or conditions, which
generally are diseases or conditions affecting less than 200,000
individuals in the U.S. at the time of the request for orphan
designation. If a sponsor demonstrates that a drug is intended to
treat a rare disease or condition and meets other applicable
requirements, the FDA grants orphan drug designation to the product
for that use. The benefits of orphan drug designation include tax
credits for clinical testing expenses and exemption from user fees.
A drug candidate that is approved for the orphan drug designated
use typically is granted seven years of orphan drug exclusivity.
During that period, the FDA generally may not approve any other
application for the same product for the same indication, although
there are exceptions, most notably when the later product is shown
to be clinically superior to the product with exclusivity. There
may be opportunities for the Company to pursue Orphan Drug
designation for Brilacidin.
Pediatric Exclusivity
Section 505A of the FDCA provides for six months of additional
exclusivity if an NDA sponsor submits pediatric data that fairly
respond to a written request from the FDA for such data. The data
do not need to show the product to be safe and effective in the
pediatric population studied; rather, if the clinical trial is
deemed to fairly respond to the FDA’s request, the additional
protection is granted. If reports of requested pediatric studies
are submitted to and accepted by the FDA within the statutory time
limits, whatever statutory or regulatory periods of exclusivity or
Orange Book listed patent protection that cover the drug are
extended by six months.
Qualified Infectious Disease Product
Exclusivity
The Generating Antibiotic Incentives Now (GAIN) Act amended the
FDCA to encourage pharmaceutical companies to develop new
antimicrobial drugs to treat serious and life-threatening
infections. Among other measures, GAIN grants an additional five
years of marketing exclusivity for new antibacterial or antifungal
human drugs designated under the law as a “qualified infectious
disease product” (QIDP). This five-year period of exclusivity is in
addition to any existing regulatory exclusivity, including
Hatch-Waxman, orphan drug, or pediatric exclusivity. In addition,
QIDPs are eligible for fast-track designation and priority review
to facilitate expedited development and review processes with the
FDA. Our investigational drug Brilacidin has been granted QIDP
designation as a potential new treatment for ABSSSI. There may be
additional opportunities for the Company to pursue QIDP designation
for Brilacidin.
Fast Track Designation and Priority
Review
Brilacidin, for the indications of SARS-CoV-2 and Oral Mucositis,
has been awarded Fast Track designation. The Fast Track program is
intended to expedite or facilitate the process for reviewing new
drugs that demonstrate the potential to address unmet medical needs
involving serious or life-threatening diseases or conditions. If a
drug receives Fast Track designation, the FDA may consider
reviewing sections of the NDA on a rolling basis, rather than
requiring the entire application to be submitted to begin the
review. Products with Fast Track designation also may be eligible
for more frequent meetings and correspondence with the FDA about
the product’s development.
Brilacidin, also may qualify for priority review. Priority review
is available to a drug that treats a serious condition and that, if
approved, would provide a significant improvement in safety or
effectiveness. Priority review designation provides for a six-month
review goal for an NDA, rather than the standard 10-month review
timeframe.
Other FDA programs intended to expedite development and review
include accelerated approval, which allows the FDA to approve a
drug on the basis of a surrogate endpoint that is reasonably likely
to predict clinical benefit, and Breakthrough Therapy designation,
which is intended to expedite the development and review of drugs
for serious or life-threatening conditions and where preliminary
clinical evidence shows that the drug may have substantial
improvement on at least one clinically significant endpoint over
available therapy.
Even if a product qualifies for Fast Track designation or
Breakthrough Therapy designation, the FDA may later decide that the
product no longer meets the conditions for qualification and may
rescind the designation. Moreover, none of these programs assures
ultimate approval of an investigational product. FDA may determine
that the product does not meet the standards for approval.
Expanded Access
Sometimes called “compassionate use”, expanded access is a
potential pathway for a patient with an immediately
life-threatening condition or serious disease or condition to gain
access to an investigational medical product (drug, biologic, or
medical device) for treatment outside of clinical trials when no
comparable or satisfactory alternative therapy options are
available.
Expanded access may be appropriate when all the following
apply:
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Patient has a serious disease or
condition, or whose life is immediately threatened by their disease
or condition. |
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There is no comparable or
satisfactory alternative therapy to diagnose, monitor, or treat the
disease or condition. |
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Patient enrollment in a clinical
trial is not possible. |
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Potential patient benefit justifies
the potential risks of treatment. |
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Providing the investigational
medical product will not interfere with investigational trials that
could support a medical product’s development or marketing approval
for the treatment indication. |
Investigational drugs, biologics or medical devices have not yet
been approved or cleared by FDA and FDA has not found these
products to be safe and effective for their specific use.
Furthermore, the investigational medical product may, or may not,
be effective in the treatment of the condition, and use of the
product may cause unexpected serious side effects.
PAYCHECK PROTECTION PROGRAM
On May 10, 2020 and April 19, 2021, the Company received loan
proceeds in the amount of approximately $93,000 and $79,000,
respectively, under the Paycheck Protection Program (“PPP”) and it
was recorded under loan payable. The PPP, established as part of
the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), provides for loans to qualifying businesses for amounts up
to 2.5 times of the average monthly payroll expenses of the
qualifying business. The loans and accrued interest are forgivable
after eight weeks as long as the borrower uses the loan proceeds
for eligible purposes, including payroll, benefits, rent and
utilities, and maintains its payroll levels. The amount of loan
forgiveness will be reduced if the borrower terminates employees or
reduces salaries during the eight-week period.
During the years ended June 30, 2022, the Company obtained the
approval of the forgiveness of the above mentioned two loans, and
the Company recorded the total loan forgiveness of $172,000 under
other income.
COMPETITION
Competition in the pharmaceutical and biotechnology industries is
intense and upon any successful drug approval we will have to
compete with existing therapies. In addition, a large number of
companies are pursuing the development of pharmaceuticals that
target the same diseases and conditions that we are targeting. Many
pharmaceutical or biotechnology companies have products on the
market and are actively engaged in the research and development of
products that are competitive with our potential products. Many of
these companies and institutions, either alone or together with
their collaborative partners, have substantially greater financial,
manufacturing, sales, distribution and technical resources and more
experience in research and development, clinical trials and
regulatory matters, than we do. In addition, our competitors may
succeed in developing technologies and drugs that are more
effective, better tolerated or less costly than any which are being
developed by us or which would render our technology or potential
drugs obsolete or noncompetitive.
With respect to Brilacidin, our drug candidate, there are many
drugs approved to treat illnesses and infections in the therapeutic
areas we are targeting, including inflammatory bowel disease,
ABSSSI and COVID-19, and many more in the publicly disclosed
development pipeline. There is no drug yet approved for preventing
severe oral mucositis in head and neck cancer patients.
Several pharmaceutical companies have received FDA approval or an
Emergency Use Authorization (EUA) for their COVID-19 treatments and
vaccines, which are currently being distributed in the U.S., and
abroad. While the widespread distribution of such treatments and
vaccines have helped mitigate the pandemic, both in reducing the
number of severely infected patients and providing relief to those
infected, the virus continues to evolve. Mutations, in the form of
variants, are showing signs of overcoming current COVID-19
treatments and vaccines, leading to rising case numbers and more
breakthrough infections.
The key competitive factors affecting the success of our drug
candidate, if approved, is likely to be its efficacy, safety,
convenience and price, the effectiveness of alternative products,
the level of competition and the availability of coverage and
adequate reimbursement from government and other third-party
payors.
Our commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize products or therapies that
are safer, more effective, have fewer or less severe side effects,
are more convenient or are less expensive than any product that we
may develop. Our competitors also may obtain FDA, European
Medicines Agency (EMA), or other regulatory approval for their
products more rapidly than we may obtain approval for ours, which
could result in our competitors establishing a strong market
position before we are able to enter the market. In addition, our
ability to compete may be affected in many cases by insurers or
other third-party payors seeking to encourage the use of generic
products.
Our success depends on our ability to identify types of these
respective diseases where our drug has an advantage over existing
therapies and those in the publicly disclosed development
pipeline.
EMPLOYEES
As of June 30, 2022, the Company had 4 employees. The Company also
conducts its operations using contractors and consultants.
CORPORATE INFORMATION
Innovation Pharmaceuticals Inc. was incorporated on August 1, 2005
in the State of Nevada. The Company has as its corporate
headquarters 301 Edgewater Place - Suite 100, Wakefield, MA 01880,
a facility that maintains our virtual offices, and if needed, the
use of physical offices, meeting rooms, and business support
services on a fee for use basis. All our employees and consultants
work remotely. The Company’s telephone number is (978) 921-4125.
The Company maintains an internet website at
www.IPharmInc.com. The Company makes available, free of
charge, through the Investors section of its website, its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act,
as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC. The
information on the Company’s website is not, and shall not be
deemed to be, a part hereof or incorporated into this or any of our
other filings with the SEC.
ITEM 1A. RISK FACTORS
Investing in the Company’s common stock involves a high degree
of risk. Prospective investors should carefully consider the risks
described below, together with all of the other information
included or referred to in this Annual Report on Form 10-K, before
purchasing shares of the Company’s common stock. There are numerous
and varied risks, known and unknown, that may prevent the Company
from achieving its goals. The risks described below are not the
only ones the Company will face. If any of these risks actually
occur, the Company’s business, financial condition or results of
operation may be materially adversely affected. In such case, the
trading price of the Company’s common stock could decline and
investors in the Company’s common stock could lose all or part of
their investment.
Risks Related to Our Business
There are doubts about our ability to continue as a
going concern.
We have generated revenue of $18,000 and $0 for the fiscal years
ended June 30, 2022 and 2021, respectively and have an accumulated
deficit of $122.2 million through June 30, 2022. These factors
raise substantial doubt about our ability to continue as a going
concern.
There can be no assurance that sufficient funds required during the
next year or thereafter will be generated from operations or that
funds will be available from external sources, such as debt or
equity financings or other potential sources. The lack of
additional capital resulting from the inability to generate cash
flow from operations, or to raise capital from external sources
would force us to substantially curtail or cease operations and
would, therefore, have a material adverse effect on its business.
Furthermore, there can be no assurance that any such required
funds, if available, will be available on attractive terms or that
they will not have a significant dilutive effect on our existing
stockholders.
We seek to overcome the circumstances that impact our ability to
remain a going concern through a combination of the growth of
revenues, with interim cash flow deficiencies being addressed
through additional equity and debt financing. We anticipate raising
additional funds through public or private financing, strategic
relationships or other arrangements in the near future to support
our business operations; however, we may not have commitments from
third parties for a sufficient amount of additional capital. We
cannot be certain that any such financing will be available on
acceptable terms, or at all, and our failure to raise capital when
needed could limit our ability to continue operations. Our ability
to obtain additional funding will determine the Company’s ability
to continue as a going concern. Failure to secure additional
financing in a timely manner and on favorable terms would have a
material adverse effect on our financial performance, results of
operations and stock price and require us to curtail or cease
operations, sell off our assets, seek protection from our creditors
through bankruptcy proceedings, or otherwise. Furthermore,
additional equity financing may be dilutive to the holders of our
common stock, and debt financing, if available, may involve
restrictive covenants, and strategic relationships, if necessary,
to raise additional funds, and may require that we relinquish
valuable rights.
We need to raise substantial additional capital in the
future to fund our operations and we may be unable to raise such
funds when needed and on acceptable terms, which could prevent us
from fully implementing our business, operating and development
plans.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has
a history of losses, primarily due to being a mid-stage
developmental pharmaceutical company. The Company intends on
financing its future development activities largely from a variety
of sources, including the sale of equity securities and seeking
relationships with partners to help fund future clinical trial
costs. However, there is no assurance these plans will be realized
and that any additional financing will be available to us on
satisfactory terms and conditions, if at all. In the event that we
are unable to raise additional funds, we may be required to delay,
reduce or severely curtail our operations or otherwise impede our
ongoing efforts to develop our drug candidates, which could have a
material adverse effect on our business, operating results,
financial condition and long-term prospects.
We currently have an approximate $3.2 million cash balance as of
the date of this filing, but that is insufficient to complete the
development and commercialization of any of our proposed products.
We expect to incur costs of approximately $4.2 million in the
upcoming fiscal year ending June 30, 2023 to operate our business
in accordance with our business plans and budgets.
If we raise additional funds by issuing equity securities, our
stockholders will experience dilution. Debt financing, if
available, would result in increased fixed payment obligations and
may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring
dividends. Any debt financing or additional equity that we raise
may contain terms, such as liquidation and other preferences, which
are not favorable to us or our stockholders. If we raise additional
funds through collaboration and licensing arrangements with third
parties, it may be necessary to relinquish valuable rights to our
technologies, future revenue streams or product candidates or to
grant licenses on terms that may not be favorable to us.
Should the financing we require to sustain our working capital
needs be unavailable or prohibitively expensive when we require it,
it may be necessary to significantly reduce our current rate of
spending through reductions in staff and delaying, scaling back or
stopping certain research and development programs, including
costly Phase 2 and Phase 3 clinical trials, and our business,
operating results, financial condition and prospects could be
materially and adversely affected and we may be unable to continue
our operations. In the event that we cannot obtain acceptable
financing, we would be unable to complete preclinical development
projects, and further clinical trials for Brilacidin. This will
delay:
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research and development
programs; |
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preclinical studies and clinical
trials; |
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material characterization
studies; |
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regulatory processes; |
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drug substance and drug product
manufacturing; and |
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establishment of our own laboratory
or a search for third party marketing partners to market our
products for us. |
The amount of capital we may require will depend on many factors,
including the:
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progress, timing and scope of our
research and development programs; |
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progress, timing and scope of our
preclinical studies and clinical trials; |
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time and cost necessary to obtain
regulatory approvals; |
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time and cost necessary to
establish our own marketing capabilities or to seek marketing
partners; |
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time and cost necessary to respond
to technological and market developments; |
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changes made or new developments in
our existing collaborative, licensing and other commercial
relationships; and |
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new collaborative, licensing and
other commercial relationships that we may establish. |
Our fixed expenses, such as contractual commitments, may increase
in the future, as we may:
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enter into leases for new
facilities and capital equipment; and |
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enter into additional licenses and
collaborative agreements. |
Our business could be adversely affected by the effects
of health epidemics, including the global COVID-19
pandemic.
In December 2019, a novel strain of coronavirus, since named
SARS-CoV-2, causing COVID-19 disease, was reported in China. Since
then, COVID-19 has spread globally, including throughout the United
States. The spread of COVID-19 has resulted in the World Health
Organization (WHO) declaring the outbreak of COVID-19 as a
“pandemic,” or a worldwide spread of a new disease, on March 11,
2020. Many countries around the world, including the United States,
have imposed quarantines and restrictions on travel and mass
gatherings to slow the spread of the virus, and have closed
non-essential businesses.
As local jurisdictions continue to put restrictions in place, our
ability to plan and enroll patients in clinical trials, manufacture
our product candidates and pursue collaborations, may also be
limited. Such events may result in a period of business and
manufacturing disruption, and in reduced operations, any of which
could materially affect our business, financial condition and
results of operations.
The continued spread of COVID-19 globally could also adversely
affect our future clinical trial operations, including our ability
to initiate the trials on the expected timelines and 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. Further, COVID-19 could
result in delays in our clinical trials due to prioritization of
hospital resources toward the outbreak, restrictions in travel,
potential unwillingness of patients to enroll in trials at this
time, or the inability of patients to comply with clinical trial
protocols as quarantines or travel restrictions impede patient
movement or interrupt healthcare services. In addition, we rely on
independent clinical investigators, contract research organizations
and other third-party service providers to assist us in managing,
monitoring and otherwise carrying out our preclinical studies and
clinical trials, and the outbreak may affect their ability to
devote sufficient time and resources to our programs or to travel
to sites to perform work for us.
Additionally, COVID-19 may also result in delays in receiving
approvals from local and foreign regulatory authorities, delays in
necessary interactions with local and foreign regulators, ethics
committees and other important agencies and contractors due to
limitations in employee resources or forced furlough of government
employees, and refusals to accept data from clinical trials
conducted in these affected geographies.
The global outbreak of COVID-19 continues to evolve. The extent to
which COVID-19 may impact our business, operations and clinical
trials will depend on future developments, including the duration
of the outbreak, travel restrictions and social distancing in the
United States and other countries, the effectiveness of actions
taken in the United States and other countries to contain and treat
the disease and whether the United States and additional countries
are required to move to complete lock-down status. The ultimate
long-term impact of COVID-19 is highly uncertain and cannot be
predicted with confidence.
We have no products approved for commercial sale to
generate revenue, however we signed an Exclusive License Agreement
in 2019.
We currently have no products approved for commercial sale. On July
18, 2019, the Company entered into an Exclusive License Agreement
(the “License Agreement”) with Alfasigma S.p.A., a global
pharmaceutical company (“Alfasigma”), granting Alfasigma the
worldwide right to develop, manufacture and commercialize
locally-administered Brilacidin for the treatment of ulcerative
proctitis/ulcerative proctosigmoiditis (UP/UPS).
Our ability to generate revenue depends heavily on:
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successful demonstration in
clinical trials that our drug candidate, Brilacidin, is safe and
effective; |
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our ability to seek and obtain
regulatory approvals, including with respect to the indications we
are seeking; |
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the successful commercialization of
our product candidates; and |
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market acceptance of our
products. |
If we and/or our licensee do not successfully develop and
commercialize Brilacidin, we will not achieve revenues or
profitability in the foreseeable future, if at all. If we are
unable to generate revenues or achieve profitability, we may be
unable to continue our operations.
In our existing or any future potential collaborations
or partnerships, we will likely not be able to control all aspects
of the development and commercialization of our drug candidate
(compound). This lack of control could subject us to additional
risks that could harm our business.
Collaborations or license agreements involving our compound,
including our current license agreement with Alfasigma S.p.A. and
any future collaboration or partnering arrangement with other
pharmaceutical companies, are subject to numerous risks, which may
include:
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partners have significant
discretion in determining the efforts and resources that they will
apply to collaborations; |
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partners may not pursue development
and commercialization of our compound or may elect not to continue
or renew development or commercialization programs based on
clinical study results, changes in their strategic focus due to the
acquisition of competitive products, availability of funding, or
other external factors, such as a business combination that diverts
resources or creates competing priorities; |
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partners may delay clinical
studies, provide insufficient funding for a clinical study program,
stop a clinical study, abandon a product candidate, repeat or
conduct new clinical studies, or require a new formulation of a
product candidate for clinical testing; |
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partners could independently
develop, or develop with third parties, products that compete
directly or indirectly with our compound; |
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a partner with marketing,
manufacturing, and distribution rights to one or more compound may
not commit sufficient resources to or otherwise not perform
satisfactorily in carrying out these activities; |
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we could grant exclusive rights to
our partners that would prevent us from collaborating with
others; |
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partners may not properly maintain
or defend our intellectual property rights or may use our
intellectual property or proprietary information in a way that
gives rise to actual or threatened litigation that could jeopardize
or invalidate our intellectual property or proprietary information
or expose us to potential liability; |
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partners may not aggressively or
adequately pursue litigation concerning our compound or may settle
such litigation on unfavorable terms, as they may have different
economic interests than ours, and such decisions could negatively
impact any royalties we may receive under our license
agreements; |
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disputes may arise between us and a
partner that causes the delay or termination of the research,
development, or commercialization of our current or future
compounds or that results in costly litigation or arbitration that
diverts management attention and resources; |
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agreements may be terminated,
possibly at-will, without penalty, and, if terminated, may result
in a need for additional capital to pursue further development or
commercialization of the applicable compound; |
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partners may own or co-own
intellectual property covering our products that results from our
collaborating with them, and in such cases, we would not have the
exclusive right to commercialize such intellectual property;
and |
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a partner’s sales and marketing
activities or other operations may not be in compliance with
applicable laws resulting in civil or criminal proceedings. |
We depend on license agreements for the development and
commercialization of certain compounds.
On July 18, 2019, we entered into a license agreement with
Alfasigma, under which we granted Alfasigma the worldwide right to
develop, manufacture and commercialize locally-administered
Brilacidin for the treatment of ulcerative proctitis/ulcerative
proctosigmoiditis (UP/UPS). Pursuant to the terms of the license
agreement, Alfasigma is obligated to use commercially reasonable
efforts (as defined in the license agreement) to develop,
manufacture and commercialize Brilacidin for UP/UPS, and to achieve
specified developmental milestones.
Under the terms of the license agreement, Alfasigma will make
payments of up to $24.0 million to the Company based upon the
achievement of certain milestones. In addition, Alfasigma will pay
a royalty to the Company equal to six percent of net sales of
Brilacidin for UP/UPS, subject to adjustment as provided in the
license agreement.
The right to potential future payments under the license agreement
represents a significant portion of the value of the license
agreement to us. We cannot be certain that we will receive any
future payments under the license agreement, which would adversely
affect the trading price of our common stock and our business
prospects.
Additionally, if Alfasigma were to breach or terminate the license
agreement, we may not be able to obtain, or may be delayed in
obtaining, marketing approvals for Brilacidin for UP/UPS and will
not be able to, or may be delayed in our efforts to, successfully
commercialize Brilacidin for UP/UPS. We may not be able to seek and
obtain a viable, alternative collaborator to partner for the
development and commercialization of the licensed products on
similar terms or at all.
In addition, on July 22, 2020, the Company granted to Fox Chase
Chemical Diversity Center, Inc. (“FCCDC”) all discovery,
intellectual property and commercialization rights related to its
share of their joint antifungal drug program in exchange for a six
percent fee tied to all potential future proceeds. Acquisitions of
royalties from development-stage biopharmaceutical product
candidates are subject to a number of uncertainties, and there can
be no assurance that the FDA, the EMA or other regulatory
authorities will approve such products or that such products will
be brought to market timely or at all, or that the market will be
receptive to such products.
We have limited experience in drug and formulation
development, the conduct of clinical trials, and may not be able to
successfully develop any drugs.
We have limited experience in drug and formulation development and
may not be able to successfully develop any drugs or drug
formulations necessary to achieve a drug’s potential as seen in
preclinical research and early clinical studies. Our ability to
achieve revenues and profitability in our business will depend,
among other things, on our ability to:
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develop products internally or
obtain rights to them from others on favorable terms; |
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complete laboratory testing and
human clinical studies; |
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obtain and maintain necessary
intellectual property rights to our products; |
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successfully fulfill regulatory
requirements to obtain requisite marketing approvals from
governmental agencies; |
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enter into arrangements with third
parties to manufacture our products on our behalf; and |
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enter into arrangements with third
parties to provide sales and marketing functions. |
We have limited experience conducting clinical trials and obtaining
regulatory approvals, and we may not be successful in some or all
of these activities. We have not previously conducted a Phase 3 or
later stage clinical trial such as the Phase 3 clinical trials
planned (contingent upon sufficient funding) for our drug candidate
Brilacidin.
We have no experience as a company in the sales, marketing and
distribution of pharmaceutical products and do not currently have a
sales and marketing organization. To the extent we are unable to,
or determine not to develop these resources internally, we may be
forced to rely on third parties for these capabilities, which could
subject us to costs and to delays that are outside our control. If
we are unable to establish adequate capabilities independently or
with others, we may be unable to generate product revenues for
certain candidates. If we are unable to achieve revenues and
profitability, then we will be forced to cease operations, which
could cause you to lose all of your investment.
Development of pharmaceutical products is a risky and
time-consuming process subject to a number of factors, many of
which are outside of our control. We are subject to regulatory
authority permissions and approvals, most importantly the FDA. Our
drug candidate(s)/indications are at early and mid-stages of
development. Consequently, we can provide no assurance of the
successful and timely development of new drugs, and the failure to
do so could cause us to cease operations.
The drug discovery and development process is highly uncertain and
we have not developed, and may never develop, a drug candidate that
ultimately leads to a commercially viable drug. Our drug candidate,
Brilacidin, is in early and mid-stages of development, and has only
completed Phase 2 testing. Further development and extensive
testing will be required to determine their technical feasibility
and commercial viability.
Conducting clinical trials is a complex, time-consuming and
expensive process that requires an appropriate number of trial
sites and patients to support the product label claims being
sought. The length of time, number of trial sites and number of
patients required for clinical trials vary substantially according
to their type, complexity, novelty and the drug candidate’s
intended use, and we may spend several years completing certain
trials. The time within which we can complete our clinical trials
depends in large part on the ability to enroll eligible patients
who meet the enrollment criteria and who are in proximity to the
trial sites. We face competition with other clinical trials for
eligible patients. As a result, there may be limited availability
of eligible patients, which can result in increased development
costs, delays in regulatory approvals and associated delays in drug
candidates reaching the market. We experienced these issues in our
psoriasis and oral mucositis clinical trials.
At any time, we, the FDA (or foreign regulatory authority) or an
institutional review board (“IRB”), may temporarily or permanently
stop a clinical trial, for a variety of reasons. We may experience
numerous unforeseen events during, or as a result of, the clinical
development process that could delay or prevent our drug candidates
from being approved, including:
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failure to achieve clinical trial
results that indicate a candidate is effective in treating a
specified condition or illness in humans; |
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presence of harmful side
effects; |
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determination by the FDA that the
submitted data do not satisfy the criteria for approval; |
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lack of commercial viability of the
drug; |
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failure to acquire, on reasonable
terms, intellectual property rights necessary for
commercialization; and |
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existence of alternative
therapeutics that are more effective. |
As our drug candidate advances to later stage clinical trials, it
is customary that various aspects of the development program, such
as manufacturing, formulation and other processes, and methods of
administration, may be altered to optimize the candidates and
processes for scale-up necessary for later stage clinical trials
and potential approval and commercialization. These changes may not
produce the intended optimization, including production of drug
substance and drug product of a quality and in a quantity
sufficient for Phase 3 clinical stage development or for
commercialization, which may cause delays in the initiation or
completion of clinical trials and greater costs. We may also need
to conduct “bridging studies” to demonstrate comparability between
newly manufactured drug substance and/or drug product for
commercialization relative to previously manufactured drug
substance and/or drug product for clinical trials. Demonstrating
comparability may require us to incur additional costs or delay
initiation or completion of clinical trials and, if unsuccessful,
could require us to complete additional preclinical studies or
clinical trials.
If we fail to adequately manage the increasing number, size and
complexity of clinical trials, the clinical trials and
corresponding regulatory approvals may be delayed or we or our
partners may fail to gain approval for our drug candidates
altogether. Even if we successfully conduct clinical trials, we may
not obtain favorable clinical trial results and may not be able to
obtain regulatory approval on this basis. If we are unable to
market and sell our drug candidate or are unable to obtain
approvals in the time frame needed to execute our product
strategies, our business and results of operations would be
materially adversely affected.
Our success will depend on our ability to achieve scientific and
technological advances and to translate such advances into
reliable, commercially competitive drugs on a timely basis. The
length of time required to complete clinical studies, submit an
application for marketing approval, and obtain approval can vary
considerably from one product to another, and may be difficult to
predict or control. Drugs that we may develop are not likely to be
commercially available for several years, if ever. The proposed
development schedules for our drug candidate may be affected by a
variety of factors, including technological difficulties,
proprietary technology of others, and changes in government
regulation, many of which will not be within our control.
Any delay in the development, introduction or marketing of our drug
candidate could result either in such a drug being marketed at a
time when their cost and performance characteristics would not be
competitive in the marketplace or in the shortening of their
commercial lives. In light of the long-term nature of our projects,
the unproven technology involved and the other factors described
elsewhere in “Risk Factors”, we may not be able to complete
successfully the development or marketing of our drug
candidate.
We may fail to successfully develop and commercialize our drug
candidate for multiple reasons, including because it:
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is found to be unsafe or
ineffective in clinical trials; |
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does not receive necessary approval
from the FDA or foreign regulatory agencies; |
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has manufacturing production
problems, costs, pricing or reimbursement issues, or other factors
that make the product not economical; |
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is hampered by the proprietary
rights of others and their competing products and
technologies; |
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fails to conform to a changing
standard of care for the diseases it seeks to treat; or |
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is less effective or more expensive
than current or alternative treatment methods. |
Drug development failure can occur at any stage of clinical trials
and as a result of many factors and there can be no assurance that
we will reach any clinical targets. Promising results in
preclinical development or early clinical trials may not be
predictive of results obtained in later clinical trials. Many
pharmaceutical companies have experienced significant setbacks in
advanced clinical trials, even after obtaining promising results in
earlier preclinical studies and clinical trials. Clinical results
are susceptible to varying interpretations that may delay, limit,
or prevent regulatory approvals.
Even if we complete our clinical trials, we do not know what the
long-term effects of exposure to our drug candidate will be.
Furthermore, our drug candidate may be used in combination with
other treatments and there can be no assurance that such use will
not lead to unique safety issues. Failure to complete clinical
trials or to prove that our drug candidate is safe and effective
would have a material adverse effect on our ability to generate
revenue and could require us to reduce the scope of or discontinue
our operations, which could cause you to lose all of your
investment.
At any time, we may decide to discontinue the development of, or to
not commercialize, a drug candidate, such as our decision in
December 2018 to discontinue the Prurisol psoriasis program, and
our decision in September 2022 to discontinue the Kevetrin oncology
program. If we terminate a program in which we have invested
significant resources, we will not receive any return on our
investment and we will have missed the opportunity to allocate
those resources to potentially more productive uses.
We have limited experience in conducting or supervising
clinical trials and must outsource all clinical trials, which
exposes us to risks which could have a materially adverse effect on
our business.
We have limited experience in conducting and supervising clinical
trials that must be performed to obtain data to submit in
applications for approval by the FDA. Because we have limited
experience in conducting or supervising clinical trials, we
outsource a significant amount of the work relating to our clinical
trials to third parties. We therefore have less control over the
conduct of our clinical trials, the timing and completion of the
trials, the required reporting of adverse events, and the
management of data developed through the trials than would be the
case if we were relying entirely upon our own staff.
We also have more limited control over compliance with procedures
and protocols used to complete clinical trials. If these
contractors fail to meet applicable regulatory standards, the
testing of our drugs would be adversely affected, causing a delay
in our ability to engage in revenue-generating operations that
could have a materially adverse effect on our business.
Communicating with outside parties can also be challenging,
potentially leading to mistakes, as well as difficulties in
coordinating activities. Outside parties may have staffing
difficulties, may undergo changes in priorities or may become
financially distressed, adversely affecting their willingness or
ability to conduct our trials. We may experience unexpected cost
increases that are beyond our control. Problems with the timeliness
or quality of the work of a contract research organization may lead
us to seek to terminate the relationship and use an alternative
service provider. However, making this change may be costly and may
delay our trials and contractual restrictions may make such a
change difficult or impossible. Additionally, it may be impossible
to find a replacement organization that can conduct our trials in
an acceptable manner and at an acceptable cost.
Success in early clinical trials may not be predictive
or indicative of results in current ongoing clinical trials or
potential future clinical trials. Likewise, preliminary data from
clinical trials should be considered carefully and with caution
since the final data may be materially different from the
preliminary data, particularly as more patient data become
available.
A number of new drugs and biologics have shown promising results in
preclinical studies and initial clinical trials, but subsequently
have failed to establish sufficient safety and efficacy data to
obtain necessary regulatory approvals to initiate commercial sale.
There is typically an extremely high rate of attrition from the
failure of product candidates proceeding through clinical trials.
Data obtained from preclinical and clinical activities are subject
to varying interpretations, which may delay, limit or prevent
regulatory approval. Product candidates in later stages of clinical
trials may fail to show the desired benefit-risk profile despite
having progressed through preclinical studies and initial clinical
trials. As a result, data from our preclinical studies and Phase 1
and Phase 2 clinical trials of our drug candidate, Brilacidin, as
well as the results of the past or future internal data reviews,
should not be relied upon as predictive or indicative of future
clinical results. The results we have previously obtained, as well
as any future results, may not predict the future therapeutic
benefit of our drug candidate.
In addition, from time-to-time, preliminary or interim data from
clinical trials or other research, such as relating to the
Brilacidin Phase 2, open-label, UP/UPS Proof-of-Concept (PoC)
clinical trial, the Brilacidin Phase 2 COVID-19 clinical trial, the
ongoing research relating to Brilacidin as a potential therapeutic
for the treatment of viruses, or potential future clinical trials,
may be reported or announced by us or the clinical investigators
and medical institutions with which we work. Such data are
preliminary and the data from any final analysis may be materially
different. Even if final safety and/or efficacy data are positive,
significant additional clinical testing will be necessary to
advance the future development of our drug candidate. Preliminary
or interim results may also not be reproduced in any potential
future clinical trials. Accordingly, preliminary or interim data
should be considered carefully and with caution.
We are subject to risks inherent in conducting clinical
trials. Non-compliance with the
FDA-approved good clinical practices by
clinical investigators, clinical sites, or data management services
could delay or prevent us from developing or commercializing our
drug candidate, which could cause us to cease
operations.
Agreements with clinical investigators and medical institutions for
clinical testing and with other third parties for data management
services place substantial responsibilities on these parties, which
could result in delays in, or termination of, our clinical trials
if these parties fail to perform as expected. For example, if any
of our clinical trial sites fail to comply with FDA-approved good
clinical practices, we may be unable to use the data gathered at
those sites. If these clinical investigators, medical institutions
or other third parties do not carry out their contractual duties or
obligations or fail to meet expected deadlines, or if the quality
or accuracy of the clinical data they obtain is compromised due to
their failure to adhere to our clinical protocols or for other
reasons, our clinical trials may be extended, delayed or
terminated, and we may be unable to obtain regulatory approval for
or successfully commercialize our drug candidate.
We or regulators may suspend or terminate our clinical trials for a
number of reasons. We may voluntarily suspend or terminate our
clinical trials if at any time we believe that they present an
unacceptable risk to the patients enrolled in our clinical trials.
In addition, regulatory agencies may order the temporary or
permanent discontinuation of our clinical trials at any time 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 the patients enrolled in our
clinical trials. In addition, clinical trials may have independent
monitoring boards composed of experts in the field. These boards
may also have the authority to suspend or terminate clinical
trials.
Our clinical trial operations are and will be subject to regulatory
inspections at any time. If regulatory inspectors conclude that we
or our clinical trial sites are not in compliance with applicable
regulatory requirements for conducting clinical trials, we may
receive reports of observations or warning letters detailing
deficiencies, and we will be required to implement corrective
actions. If regulatory agencies deem our responses to be
inadequate, or are dissatisfied with the corrective actions that we
or our clinical trial sites have implemented, our clinical trials
may be temporarily or permanently discontinued, we may be fined, we
or our investigators may be precluded from conducting any ongoing
or any future clinical trials, the government may refuse to approve
our marketing applications or allow us to manufacture or market our
drug candidate or we may be criminally prosecuted. If we are unable
to complete clinical trials and have our products approved due to
our failure to comply with regulatory requirements, we will be
unable to commence revenue-generating operations, which could force
us to cease operations.
Delays in the commencement or completion of clinical
testing could result in increased costs to us and delay or limit
our ability to generate revenues.
Delays in the commencement or completion of clinical testing of our
products or products could significantly affect our product
development costs and our ability to generate revenue. We do not
know whether the FDA will agree with the trial designs for future
clinical trials or whether future clinical trials will begin on
time or be completed on schedule, if at all. The commencement and
completion of clinical trials can be delayed for a number of
reasons, including delays related to our ability to do the
following:
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provide sufficient safety, efficacy
or other data regarding a drug candidate to support the
commencement of a Phase 3 or other clinical trial; |
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reach agreement on acceptable terms with prospective contract
manufacturers, contract research organizations (CROs) and trial
sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different third parties;
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select CROs, trial sites and, where
necessary, contract manufacturers that do not encounter any
regulatory compliance problems; |
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manufacture sufficient quantities
of a product candidate for use in clinical trials; |
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obtain IRB approval to conduct a
clinical trial at a prospective site; |
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recruit and enroll patients to participate in clinical trials,
which can be impacted by many factors outside our or our contracted
parties’ control, including competition from other clinical trial
programs for the same or similar indications; and
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retain patients who have initiated
a clinical trial but may be prone to withdraw due to side effects
from the therapy, lack of efficacy or personal issues. |
Clinical trials may also be delayed as a result of ambiguous or
negative interim results. In addition, a clinical trial may be
suspended or terminated by us or our partner, the FDA, an IRB, a
clinical trial site with respect to that site, or other regulatory
authorities due to a number of factors, including:
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failure to conduct the clinical
trial in accordance with regulatory requirements, including GCP, or
our protocol; |
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inspection of the clinical trial
operations, trial sites or manufacturing facility by the FDA or
other regulatory authorities resulting in findings of
non-compliance and the imposition of a clinical hold; |
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unforeseen safety issues or results
that do not demonstrate efficacy; and |
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lack of adequate funding to
continue the clinical trial. |
Additionally, we may need to amend clinical trial protocols for a
variety of reasons, including changes in regulatory requirements
and guidance. Such amendments may require us to, for example,
resubmit our clinical trial protocols to IRBs for reexamination,
which may impact the costs, timing or successful completion of a
clinical trial. We may decide to terminate a clinical study for
commercial reasons including increased market availability of
generic treatments. If we experience delays in completion of, or if
we terminate, any of our clinical trials, the commercial prospects
for our product candidates may be harmed and our ability to
generate product revenues will be delayed and/or reduced. In
addition, many of the factors that cause, or lead to, a delay in
the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of a product
candidate.
We must comply with significant and complex government
regulations, compliance with which may delay or prevent the
commercialization of our drug candidate, which could have a
materially adverse effect on our business.
The Research and Development (R&D), manufacture and marketing
of drug candidates are subject to regulation, primarily by the FDA
in the United States, and by comparable authorities in other
countries. These national agencies and other federal, state, local
and foreign entities regulate, among other things, R&D
activities (including testing in animals and in humans) and the
testing, manufacturing, handling, labeling, storage, record
keeping, approval, advertising and promotion of the products that
we are developing. Noncompliance with applicable requirements can
result in various adverse consequences, including approval delays
or refusals to approve drug licenses or other applications,
suspension or termination of clinical investigations, revocation of
approvals previously granted, fines, criminal prosecution, recalls
or seizures of products, injunctions against shipping drugs and
total or partial suspension of production and/or refusal to allow a
company to enter into governmental supply contracts.
The process of obtaining FDA approval for a drug has historically
been costly and time consuming. Current FDA requirements for a new
human drug or biological product to be marketed in the United
States include: (i) the successful conclusion of pre-clinical
laboratory and animal tests, if appropriate, to gain preliminary
information on the product’s safety; (ii) filing with the FDA of an
IND application to conduct human clinical trials for drugs or
biologics; (iii) the successful completion of adequate and
well-controlled human clinical investigations to establish the
safety and efficacy of the product for its recommended use; and
(iv) filing by a company and acceptance and approval by the FDA of
a New Drug Application (“NDA”), for a drug product or a biological
license application (“BLA”), for a biological product to allow
commercial distribution of the drug or biologic. A delay in one or
more of the procedural steps outlined above could be harmful to the
Company in terms of getting our drug candidates through clinical
testing and to market.
The FDA reviews the results of the clinical trials and may order
the temporary or permanent discontinuation of clinical trials at
any time if it believes the drug candidate exposes clinical
subjects to an unacceptable health risk. Investigational drugs used
in clinical studies must be produced in compliance with cGMP rules
pursuant to FDA regulations.
Sales outside the United States of products that we may develop
will also be subject to additional regulatory requirements
governing human clinical trials and marketing for drugs and
biological products and devices. The requirements vary widely from
country to country, but typically the registration and approval
process takes several years and requires significant resources.
We also are subject to the following risks and obligations, related
to the approval of our products:
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The FDA or foreign regulators may
interpret data from pre-clinical testing and clinical trials in
different ways than we interpret them. |
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If regulatory approval of a product
is granted, the approval may be limited to specific indications or
limited with respect to its distribution. In addition, many foreign
countries control pricing and coverage under their respective
national social security systems. |
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The FDA or foreign regulators may
not approve our manufacturing processes or manufacturing
facilities. |
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The FDA or foreign regulators may
change their approval policies or adopt new regulations. |
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Even if regulatory approval for any
of our product is obtained, the corresponding marketing license
will be subject to continual review, and newly discovered or
developed safety or effectiveness data may result in suspension or
revocation of the marketing license. |
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If regulatory approval of the
product candidate is granted, the marketing of that product would
be subject to adverse event reporting requirements and a general
prohibition against promoting products for unapproved uses. |
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In some foreign countries, we may
be subject to official release requirements that require each batch
of the product we produce to be officially released by regulatory
authorities prior to its distribution by us. |
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We will be subject to continual
regulatory review and periodic inspection and approval of
manufacturing modifications, including compliance with cGMP
regulations. |
If we do not have the requisite resources to comply with all
applicable regulations, then we could be forced to cease
operations, which could cause you to lose all of your
investment.
We or third-party manufacturers we rely on may
encounter failures or difficulties in manufacturing or formulating
clinical development and commercial supplies of drugs, which could
delay the clinical development or regulatory approval of our drug
candidates, or their ultimate commercial production if
approved.
Currently, third parties manufacture our drug candidates on our
behalf. Third-party manufacturers may lack capacity to meet our
needs, go out of business or fail to perform. In addition, supplies
of raw materials needed for manufacturing or formulation of
clinical supplies may not be available or in short supply.
Furthermore, should we obtain FDA or EMA approval for any of our
drug candidates, we expect to rely, at least to some extent, on
third-party manufacturers for commercial production. Our dependence
on others for the manufacture of our drug candidates may adversely
affect our ability to develop and deliver such drug candidates on a
timely and competitive basis.
The most recent manufacturing campaign activities for production of
Brilacidin drug substance are ongoing; the process conducted at
scale has encountered delays at the third party manufacturing
facility with cost overruns. There is no assurance the drug
substance from this campaign will meet specifications or be
received timely.
Any performance failure on the part of a third-party manufacturer
could delay clinical development, regulatory approval or,
ultimately, sales of our drug candidate. Our third-party
manufacturers may encounter difficulties involving production
yields, regulatory compliance, lot release, quality control and
quality assurance, as well as shortages of qualified personnel.
Approval of our drug candidate could be delayed, limited or denied
if the FDA does not approve our or a third-party manufacturer’s
processes or facilities. Moreover, the ability to adequately and
timely manufacture and supply a drug candidate is dependent on the
uninterrupted and efficient operation of the manufacturing
facilities, which is impacted by many manufacturing variables
including:
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availability or contamination of
raw materials and components used in the manufacturing process,
particularly those for which we have no other source or
supplier; |
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capacity of our facilities or those
of our contract manufacturers; |
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facility contamination by
microorganisms or viruses or cross contamination; |
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compliance with regulatory
requirements, including Form 483 notices and Warning Letters; |
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changes in forecasts of future
demand; |
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timing and actual number of
production runs; |
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production success rates and bulk
drug yields; and |
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timing and outcome of product
quality testing. |
In addition, our third-party manufacturers may encounter delays and
problems in manufacturing our drug candidate or drug for a variety
of reasons, including accidents during operation, failure of
equipment, delays in receiving materials, natural or other
disasters, political or governmental changes, or other factors
inherent in operating complex manufacturing facilities. Supply
chain management is complex, and involves sourcing from a number of
different companies and foreign countries. Commercially available
starting materials, reagents and excipients may become scarce or
more expensive to procure, and we may not be able to obtain
favorable terms in agreements with contractors or subcontractors.
Our third-party manufacturers may not be able to operate their
respective manufacturing facilities in a cost-effective manner or
in a time frame that is consistent with our expected future
manufacturing needs. If we or our third-party manufacturers cease
or interrupt production or if our third-party manufacturers and
other service providers fail to supply materials, products or
services to us for any reason, such interruption could delay
progress on our programs, or interrupt the commercial supply, with
the potential for additional costs and lost revenues. If this were
to occur, we may also need to seek alternative means to fulfill our
manufacturing needs.
We may not be able to enter into agreements for the manufacture of
our drug candidate with manufacturers whose facilities and
procedures comply with applicable law. Manufacturers are subject to
ongoing periodic unannounced inspection by the FDA and
corresponding state and foreign authorities to ensure strict
compliance with cGMP and other applicable government regulations
and corresponding foreign standards. We do not have control over a
third-party manufacturer’s compliance with these regulations and
standards. If one of our manufacturers fails to maintain
compliance, we or they could be subject to enforcement, the
production of our drug candidates could be interrupted or
suspended, and/or our product could be recalled or withdrawn, among
other consequences. Any of these events could result in delays,
additional costs and potentially lost revenues.
We can provide no assurance that our drug candidate
will obtain regulatory approval or that the results of clinical
studies will be favorable, and if we fail to obtain such approval
or if clinical studies are not favorable, we could be forced to
cease operations.
Our drug candidate Brilacidin will require lengthy and costly
studies in humans to obtain approval from the FDA before it can be
marketed. We cannot predict with any certainty that the study
results will be satisfactory to the FDA for approval to ultimately
be granted. Preclinical and clinical trials may reveal that one or
more products are ineffective or unsafe, in which event further
development of such products could be seriously delayed or
terminated.
Approval of a drug candidate as safe and effective for use in
humans is never certain and regulatory agencies may delay or deny
approval of drug candidates for commercialization. For example,
even though our product candidate Brilacidin has received QIDP
designation, such designation may not result in a faster
development process, review, or approval than drugs considered for
approval under conventional FDA procedures; nor does such
designation assure ultimate approval by the FDA or related
exclusivity benefits. Regulatory agencies also may delay or deny
approval based on additional government regulation or
administrative action, changes in regulatory policy during the
period of clinical trials in humans and regulatory review, or the
availability of alternative treatments.
Delays in obtaining, or failure to obtain, FDA or any other
necessary regulatory approvals of any proposed drugs would have an
adverse effect on the drug’s potential commercial success and on
our business, prospects, financial condition and results of
operations. In addition, it is possible that a proposed drug may be
found to be ineffective or unsafe due to conditions or facts that
arise after development has been completed and regulatory approvals
have been obtained. In this event, we may be required to withdraw
such drug from the market. To the extent that our success will
depend on any regulatory approvals from government authorities
outside of the United States that perform roles similar to that of
the FDA, uncertainties similar to those stated above will also
exist.
Even if we obtain regulatory approvals, our marketed
drug candidate will be subject to ongoing regulation. If we fail to
comply with U.S. and foreign regulations, we could be subject to
adverse consequences, including loss of our approvals to market the
drug, and our business would be seriously harmed.
Following any initial regulatory approval of our drug candidate, we
will also be subject to continuing regulation of the manufacture,
labeling, storage, recordkeeping, reporting, distribution,
advertising, promotion, marketing, sale, import, and export of
those drugs. Such regulation includes review of adverse experiences
and the results of any clinical trials completed after our drug
candidate is made commercially available, including any post
marketing requirements that were required as a condition of
approval. The contract manufacturers that make our drug candidate
will also be subject to periodic review and inspection by the FDA.
If our products, if approved, or the manufacturing facilities for
our products fail to comply with applicable regulatory
requirements, a regulatory agency may suspend any ongoing clinical
trials; issue warning letters or untitled letters; suspend or
withdraw regulatory approval; refuse to approve pending
applications or supplements to applications; suspend or impose
restrictions on operations; seize or detain products, prohibit the
export or import of products, or require us to initiate a product
recall; or seek other monetary or injunctive remedies, or impose
civil or criminal penalties. We do not have, and currently do not
intend to develop, the ability to manufacture material for our
clinical trials or on a commercial scale. Reliance on third-party
manufacturers entails risks to which we would not be subject if we
manufactured the drug ourselves, including reliance on the
third-party manufacturer for regulatory compliance.
Our drug promotion and advertising also would be subject to
regulatory requirements and continuing FDA review. Our marketing of
a drug also may be heavily scrutinized by the Department of
Justice, the Department of Health and Human Services’ Office of
Inspector General, state attorneys general, members of Congress and
the public. Our promotional activities will be regulated not only
by the FDCA and FDA regulations, but also by federal and state laws
pertaining to health care “fraud and abuse,” such as:
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the federal anti-kickback law
prohibiting bribes, kickbacks or other remuneration for the order,
purchase or recommendation of items or services reimbursed by
federal health care programs; |
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the federal False Claims Act,
imposing criminal and civil penalties for knowingly presenting or
causing to be presented claims to the federal government that are
false or fraudulent; and |
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the federal Physician Payment
Sunshine Act, requiring pharmaceutical manufacturers to engage in
extensive tracking of physician and teaching hospital payments,
maintenance of a payments database and public reporting of the
payment data. |
Many states have similar laws applicable to items or services
reimbursed by commercial insurers. Violations of fraud and abuse
laws can result in costly litigation, fines and/or imprisonment,
exclusion from participation in federal health care programs, and
burdensome reporting and compliance obligations.
Compliance with ongoing regulation consumes substantial financial
and management resources and may expose us to the potential for
other adverse circumstances. For example, approval for a drug may
be conditioned on costly post-marketing follow-up studies. Based on
these studies, if a regulatory authority does not believe that the
drug demonstrates an appropriate benefit-risk profile to patients,
it could limit the indications for which a drug may be sold or
revoke the drug’s marketing approval. In addition, identification
of certain side effects after a drug is on the market may result in
the subsequent withdrawal of approval, reformulation of a drug,
additional preclinical and clinical trials, changes in labeling or
distribution. Alternatively, we may be required by the FDA to
develop and implement a REMS to ensure the safe use of our
products. REMS may include costly risk management measures such as
enhanced safety surveillance, restricted distribution and use,
patient education, enhanced labeling, special packaging or
labeling, expedited reporting of certain adverse events,
pre-approval of promotional materials and restrictions on
direct-to-consumer advertising. Any of these events could delay or
prevent us from generating revenue, or limit the revenue, from the
commercialization of a drug and/or cause us to incur significant
additional costs.
Any of these events could prevent us from achieving or maintaining
market acceptance of a particular product candidate, if approved,
and could significantly harm our business, results of operations
and prospects. If we are required to withdraw all or most of our
drug from the market as a result of actions or inactions on our
part or that of a third party, we may be unable to continue
revenue-generating operations, which could cause you to lose all of
your investment.
All of our Polymedix drug product candidates are
licensed from or based upon licenses from the University of
Pennsylvania. Upon our purchase of the Polymedix Assets we assumed
all contractual rights and obligations of the licenses. If any of
these license agreements are terminated, our ability to advance our
Polymedix product candidates or develop new product candidates will
be materially adversely affected which could have a materially
adverse effect on our business.
We now depend, and will continue to depend, on our Polymedix
licenses and potentially on other licensing arrangements and/or
strategic relationships with third parties for the research,
development, manufacturing and commercialization of our Polymedix
product candidates. If any of our licenses or relationships are
terminated or breached, we may:
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lose our rights to develop and
market our Polymedix product candidates; |
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lose patent and/or trade secret
protection for our Polymedix product candidates; |
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experience significant delays in
the development or commercialization of our Polymedix product
candidates; |
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not be able to obtain any other
licenses on acceptable terms, if at all; and/or |
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incur liability for damages. |
If we experience any of the foregoing, it could have a materially
adverse effect on our business and could force us to cease
operations which could cause you to lose all of your
investment.
We or our third-party manufacturers may fail to comply
with manufacturing regulations.
All facilities and manufacturing processes used in the production
of active pharmaceutical ingredient, or API, and drug products for
clinical use in the U.S. must be operated in conformity with cGMP
as established by the FDA. Similar requirements in other countries
exist for manufacture of drug products for clinical use. These
requirements include, among other things, quality control, quality
assurance and the maintenance of records and documentation. Before
we can commercialize a drug, we must obtain regulatory approval of
our cGMP manufacturing facility and process, if any, or the cGMP
manufacturing facility and process of the third party or parties
with whom we may outsource our manufacturing activities.
In connection with any application for commercial approval, and if
any drug candidate is approved by the FDA or other regulatory
agencies for commercial sale, a significant scale-up in
manufacturing may require additional validation studies. If we are
unable to successfully increase the manufacturing capacity for a
drug candidate, the regulatory approval or commercial launch of
that drug candidate may be delayed, or there may be a shortage of
supply, which could limit our ability to develop or commercialize
the drug.
Our manufacturing facilities, if any in the future, and the
manufacturing facilities of our third-party manufacturers will be
subject to inspection by the FDA and other state, local and foreign
regulatory authorities, before and after product approval. We
cannot guarantee that we, or any potential third-party manufacturer
of our products, will be able to comply with the cGMP regulations
or other applicable manufacturing regulations.
Failure on our or our third party manufacturers’ part to comply
with applicable regulations and specific requirements or
specifications of other countries could result in the termination
of ongoing research, disqualification of data for submission to
regulatory authorities, delays or denials of new product approvals,
warning letters, fines, consent decrees restricting or suspending
manufacturing operations, injunctions, civil penalties, recall or
seizure of products and criminal prosecution. Any of these
consequences could have a materially adverse effect on our
business.
Controls we or our third-party service providers have
in place to ensure compliance with laws may not be effective to
ensure compliance with all applicable laws and
regulations.
The development of our investigational products and our general
operations are subject to extensive regulation in the U.S. and in
foreign countries. Although we have developed and instituted
controls to comply with applicable regulatory requirements, we
cannot assure you that we, our employees, our consultants or our
contractors will operate at all times in full compliance with all
potentially applicable U.S. federal and state regulations and/or
laws or all potentially applicable foreign law and/or regulations.
Further, we have a limited ability to monitor and control the
activities of third-party service providers, suppliers and
manufacturers to ensure compliance by such parties with all
applicable regulations and/or laws. We may be subject to direct
liabilities or be required to indemnify such parties against
certain liabilities arising out of any failure by them to comply
with such regulations and/or laws. If we or our employees,
consultants or contractors fail to comply with any of these
regulations and/or laws a range of consequences could result,
including, but not limited to, the termination of clinical trials,
the failure to obtain approval of a product candidate, restrictions
on our products or manufacturing processes, withdrawal of our
products from the market, significant fines, exclusion from
government healthcare programs or other sanctions or litigation
that could adversely affect our results of operations.
The Company is exposed to product liability, clinical
and preclinical liability risks which could place a substantial
financial burden upon the Company should it be
sued.
The Company could be exposed to potential product liability and
other liability risks that are inherent in the testing,
manufacturing and marketing of pharmaceutical products. In
addition, the use in the Company’s clinical trials of its
investigational products and the potential subsequent sale of these
products by the Company or its potential collaborators may cause
the Company to bear some or all of the associated product liability
risks. A successful liability claim or series of claims brought
against the Company could have a material adverse effect on its
business, financial condition and results of operations.
The Company has $5,000,000 per occurrence / $10,000,000 in
aggregate in liability insurance for our clinical trials. The
Company cannot assure that such insurance will provide adequate
coverage against the Company’s potential liabilities. Claims or
losses in excess of any product liability insurance coverage
obtained by the Company could have a material adverse effect on our
business, financial condition and results of operations.
Confidentiality agreements with employees and others
may not adequately prevent disclosure of trade secrets and other
proprietary information. Disclosure of our trade secrets or
proprietary information could compromise any competitive advantage
that we have, which could have a materially adverse effect on our
business.
We depend upon confidentiality and non-use agreements with our
officers, employees, consultants, and subcontractors to maintain
the proprietary nature of the technology. These measures may not
afford us sufficient or complete protection, and may not afford an
adequate remedy in the event of an unauthorized disclosure of
confidential information. In addition, others may independently
develop technology similar to ours, otherwise avoiding the
confidentiality agreements, or produce patents that would
materially and adversely affect our business, prospects, financial
condition, and results of operations.
We may be unable to obtain or protect intellectual
property rights relating to our products, and we may be liable for
infringing upon the intellectual property rights of others, which
could have a materially adverse effect on our
business.
Our ability to compete effectively will depend on our ability to
maintain the proprietary nature of our compounds and the
proprietary compounds of others with which we have entered into
licensing agreements. We have filed patent applications and expect
to file a number of additional patent applications in the coming
years. There can be no assurance that any of these patent
applications will ultimately result in the issuance of a patent
with respect to the proprietary compounds owned by us or licensed
to us. The patent position of pharmaceutical or biotechnology
companies, including ours, is generally uncertain and involves
complex legal and factual considerations. The standards that the
United States Patent and Trademark Office use to grant patents are
not always applied predictably or uniformly and can change. There
is also no uniform, worldwide policy regarding the subject matter
and scope of claims granted or allowable in pharmaceutical or
biotechnology patents. Accordingly, we do not know the degree of
future protection for our proprietary rights or the breadth of
claims that will be allowed in any patents issued to us or to
others. Further, we rely on a combination of trade secrets,
know-how, technology and nondisclosure, and other contractual
agreements and technical measures to protect our rights in the
proprietary compounds. If any trade secret, know-how or other
proprietary information and/or compounds not protected by a patent
were to be disclosed to or independently developed by a competitor,
our business and financial condition could be materially adversely
affected.
We do not believe that the compounds we are currently developing
infringe upon the rights of any third parties nor are they
infringed upon by third parties; however, there can be no assurance
that our compounds will not be found in the future to infringe upon
the rights of others or be infringed upon by others. In such a
case, others may assert infringement claims against us, and should
we be found to infringe upon their patents, or otherwise
impermissibly utilize their intellectual property, we might be
forced to pay damages, potentially including treble damages, if we
are found to have willfully infringed on such parties’ patent
rights. In addition to any damages we might have to pay, we may be
required to obtain licenses from the holders of this intellectual
property, enter into royalty agreements, or redesign our drug
candidates so as not to utilize this intellectual property, each of
which may prove to be uneconomical or otherwise impossible.
Conversely, we may not always be able to successfully pursue our
claims against others that infringe upon our proprietary compounds.
Thus, the proprietary nature of our technology or technology
licensed by us may not provide adequate protection against
competitors.
Moreover, the cost to us of any litigation or other proceeding
relating to our patents and other intellectual property rights,
even if resolved in our favor, could be substantial, and the
litigation would divert our management’s efforts. Uncertainties
resulting from the initiation and continuation of any litigation
could limit our ability to continue our operations.
Our potential collaborative relationships with third
parties could cause us to expend significant resources and incur
substantial business risk with no assurance of financial return,
which could have a materially adverse effect on our
business.
We may have to rely substantially upon strategic collaborations for
R&D, marketing and commercialization. Our business will depend
on our ability to sell drugs to both government agencies and to the
general pharmaceutical market. We may have to sell our drugs
through strategic partnerships with other pharmaceutical companies.
If we are unable to establish or manage such strategic
collaborations on terms favorable to us in the future, our revenue
and drug development may be limited. To date, we have not yet
commercialized any of our drug candidates.
If we determine to enter into R&D collaborations during the
early phases of drug development, our success will in part depend
on the performance of our research collaborators. We will not
directly control the amount or timing of resources devoted by our
research collaborators to activities related to our drug
candidates. Our research collaborators may not commit sufficient
resources to our programs. If any research collaborator fails to
commit sufficient resources, our preclinical or clinical
development programs related to this collaboration could be delayed
or terminated. Also, our collaborators may pursue existing or other
development-stage products or alternative technologies in
preference to those being developed in collaboration with us.
Finally, if we fail to make required milestone or royalty payments
to our collaborators, or to observe other obligations in our
agreements with them, our collaborators may have the right to
terminate those agreements.
Management of our relationships with our collaborators will
require:
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significant time and effort from
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coordination of our marketing and
R&D programs with the marketing and R&D priorities of our
collaborators; and |
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effective allocation of our
resources to multiple projects. |
Establishing strategic collaborations is difficult and
time-consuming. Our discussion with potential collaborators may not
lead to the establishment of collaborations on favorable terms, if
at all. Potential collaborators may reject collaborations based
upon their assessment of our financial, regulatory or intellectual
property position. Even if we successfully establish new
collaborations, these relationships may never result in the
successful development or commercialization of our drug candidates
or the generation of sales revenue. To the extent that we enter
into collaborative arrangements, our drug revenues are likely to be
lower than if we directly marketed and sold any drugs that we may
develop.
We may not be able to attract and retain highly skilled
personnel or consultants, which could have a materially adverse
effect on our business.
Our ability to attract and retain highly skilled personnel or
consultants is critical to our operations and expansion. We face
competition for these types of personnel from other pharmaceutical
companies and more established organizations, many of which have
significantly larger operations and greater financial, technical,
human and other resources than us. We may not be successful in
attracting and retaining qualified personnel or consultants on a
timely basis, on competitive terms, or at all. If we are not
successful in attracting and retaining these personnel or
consultants, our business, prospects, financial condition and
results of operations will be materially adversely affected.
We depend upon our senior management and their loss or
unavailability could put us at a competitive
disadvantage.
We depend upon the efforts and abilities of our senior management
team. Leo Ehrlich, the Company’s Chief Executive and Financial
Officer presently has no employment agreement with the Company. The
loss of a member of the senior management team could have an
adverse impact on our business. Competition for senior management
is intense, and we may not be successful in attracting and
retaining key personnel to replace such loss of a member of the
senior management team, the inability of which could have an
adverse effect on our business and results of operations.
The biotechnology and biopharmaceutical industries are
characterized by rapid technological developments and a high degree
of competition. We may be unable to compete with enterprises
equipped with more substantial resources than us, which could cause
us to cease operations.
The biotechnology and biopharmaceutical industries are
characterized by rapid technological developments and a high degree
of competition based primarily on scientific and technological
factors. These factors include the availability of patent and other
protection for technology and products, the ability to
commercialize technological developments and the ability to obtain
government approval for testing, manufacturing and marketing.
We compete with biopharmaceutical firms in the United States,
Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their
operations. Many biopharmaceutical companies have focused their
development efforts in the human therapeutics area, including
cancer. Many major pharmaceutical companies have developed or
acquired internal biotechnology capabilities or made commercial
arrangements with other biopharmaceutical companies. These
companies, as well as academic institutions, government agencies
and private research organizations, also compete with us in
recruiting and retaining highly qualified scientific personnel and
consultants. Our ability to compete successfully with other
companies in the pharmaceutical field will also depend to a
considerable degree on the continuing availability of capital on
terms and conditions acceptable to us.
We are aware of numerous products under development or manufactured
by competitors that are used for the prevention or treatment of
certain diseases we have targeted for drug development. Various
companies are developing biopharmaceutical products that
potentially directly compete with our drug candidate even though
their approach to such treatment is different.
For example, with respect to Brilacidin, numerous drugs are already
FDA approved for the treatment of IBD, ABSSSI, and COVID-19.
Although there is presently no drug approved for the prevention and
treatment of oral mucositis for head and neck cancers, there are
numerous clinical trials in progress and Kepivance is approved for
limited use in patients with hematologic malignancies.
Our competition will be determined in part by the potential
indications for which our investigational drug is developed and
ultimately approved by regulatory authorities. Additionally, the
timing of the market introduction of our potential drug or of
competitors’ products may be an important competitive factor.
Accordingly, the relative speed with which we can develop a drug;
complete pre-clinical testing, clinical trials, and approval
processes; and supply commercial quantities to market are likely to
be important competitive factors. We expect that competition among
drugs approved for sale will be based on various factors, including
product efficacy, safety, reliability, availability, price and
patent protection.
The successful development of biopharmaceuticals is highly
uncertain. A variety of factors, including, but not limited to,
unfavorable pre-clinical study results or failure to obtain
regulatory approvals, could cause us to abandon development of our
drug candidate, which could also cause us to cease operations and
you may lose your entire investment.
Risks Related to the Securities Markets and Investments in
Our Class A Common Stock
In addition to potential dilution associated with
future fundraising transactions, we currently have significant
numbers of securities outstanding that are exercisable for our
common stock, which will result in significant additional dilution
and downward pressure on our stock price.
As of September 22, 2022, there were 488.2 million shares of our
Class A common stock outstanding and 15.6 million shares of our
Class B common stock outstanding. In addition, as of June 30, 2022,
there were outstanding stock options, a convertible note and
preferred stock representing the potential issuance of
approximately an additional 44.8 million shares of our common
stock. The issuance of these shares in the future would result in
significant dilution to our current stockholders and could
adversely affect the price of our common stock and the terms on
which we could raise additional capital. In addition, the issuance
and subsequent trading of shares could cause the supply of our
common stock available for purchase in the market to exceed the
purchase demand for our common stock. Such supply in excess of
demand could cause the market price of our common stock to
decline.
Because our common stock is
quoted on the OTC your ability to sell your shares in
the secondary trading market may be limited.
Our Class A Common Stock is currently quoted on the OTC.
Consequently, the liquidity of our Class A Common Stock is
impaired, not only in the number of shares that are bought and
sold, but also through delays in the timing of transactions, and
coverage by security analysts and the news media, if any, of our
Company. As a result, prices for shares of our Class A Common Stock
may be lower than might otherwise prevail if our Class A Common
Stock were listed on a national securities exchange.
Because our Class A Common Stock is considered “penny
stock” you may have difficulty selling them in the secondary
trading market.
Federal regulations under the Securities Exchange Act of 1934 (the
“Exchange Act”) regulate the trading of so-called “penny stocks,”
which are generally defined as any security not listed on a
national securities exchange, priced at less than $5.00 per share
and offered by an issuer with limited net tangible assets and
revenues. Since our Class A Common Stock currently is quoted on the
OTC at less than $5.00 per share, our shares are “penny stocks” and
may not be traded unless a disclosure schedule explaining the penny
stock market and the risks associated therewith is delivered to a
potential purchaser prior to any trade.
In addition, because our Class A Common Stock is not listed on any
national securities exchange and currently is quoted at and trades
at less than $5.00 per share, trading in our Class A Common Stock
is subject to Rule 15g-9 under the Exchange Act. Under this rule,
broker-dealers must take certain steps prior to selling a “penny
stock,” which steps include:
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obtaining financial and investment information from the
investor;
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obtaining a written suitability questionnaire and purchase
agreement signed by the investor; and
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providing the investor a written identification of the shares being
offered and the quantity of the shares.
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If these penny stock rules are not followed by the broker-dealer,
the investor has no obligation to purchase the shares. The
application of these comprehensive rules will make it more
difficult for broker-dealers to sell our Class A Common Stock and
our stockholders, therefore, may have difficulty in selling their
shares in the secondary trading market.
Our stock price may be volatile and your investment in
our Class A Common Stock could suffer a decline in
value.
As of June 30, 2022, the last closing price of our Class A Common
Stock, as quoted on the OTC, was $0.03 per share, and on September
22, 2022, the last closing price was $0.04 per share. The
price may fluctuate significantly in response to a number of
factors, many of which are beyond our control. These factors
include:
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progress of our products through the regulatory process;
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results of preclinical studies and clinical trials;
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announcements of technological innovations or new products by us or
our competitors;
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government regulatory action affecting our products or our
competitors’ products in both the United States and foreign
countries;
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developments or disputes concerning patent or proprietary
rights;
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general market conditions for emerging growth and pharmaceutical
companies;
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economic conditions in the United States or abroad;
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actual or anticipated fluctuations in our operating results;
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broad market fluctuations; and
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changes in financial estimates by securities analysts.
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Our directors and executive officers own or control a
sufficient number of shares of our common stock to control our
Company, which could discourage or prevent a takeover, even if an
acquisition would be beneficial to our
stockholders.
At September 22, 2022, our directors and executive officers
beneficially own or control approximately 25% of the outstanding
voting power of our common stock. Mr Ehrlich holds 15,641,463
shares of our Class B common stock, each of which has ten votes per
share, giving Mr. Ehrlich significantly greater voting power than
if all of his shares were Class A shares. Accordingly, our
directors and executive officers, individually and as a group, may
be able to influence the outcome of stockholder votes, involving
votes concerning the election of directors, the adoption or
amendment of provisions in our Articles of Incorporation and bylaws
and the approval of certain mergers or other similar transactions,
such as sales of substantially all of our assets. Such control by
existing stockholders could have the effect of delaying, deferring
or preventing a change in control of our Company.
We do not intend to pay any cash dividends in the
foreseeable future and, therefore, any return on your investment in
our Class A Common Stock must come from increases in the fair
market value and trading price of the Class A Common
Stock.
We have not paid any cash dividends on our Class A Common Stock and
do not intend to pay cash dividends on our Class A Common Stock in
the foreseeable future. We intend to retain future earnings, if
any, for reinvestment in the development and expansion of our
business. Any credit agreements, which we may enter into with
institutional lenders, may restrict our ability to pay dividends.
Whether we pay cash dividends in the future will be at the
discretion of our board of directors and will be dependent upon our
financial condition, results of operations, capital requirements
and any other factors that the board of directors decides is
relevant. Therefore, any return on your investment in our Class A
Common Stock must come from increases in the fair market value and
trading price of the Class A Common Stock.
We may issue additional equity shares to fund the
Company’s operational requirements which would dilute your share
ownership.
The Company’s continued viability depends on its ability to raise
capital. Changes in economic, regulatory or competitive conditions
may lead to cost increases. Management may also determine that it
is in the best interest of the Company to develop new services or
products. In any such case additional financing is required for the
Company to meet its operational requirements. There can be no
assurances that the Company will be able to obtain such financing
on terms acceptable to the Company and at times required by the
Company, if at all. In such event, the Company may be required to
materially alter its business plan or curtail all or a part of its
operational plans.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None
ITEM 2. PROPERTIES
Our current Company headquarters is located at 301 Edgewater Place
- Suite 100, Wakefield, MA 01880, a suite that maintains our
virtual offices, and if needed, the use of physical offices,
meeting rooms, and business support services on a fee for use
basis. All our employees and consultants work remotely.
ITEM 3. LEGAL PROCEEDINGS
On January 22, 2020, the Company filed a complaint against Cummings
Properties, LLC in the Superior Court of the Commonwealth of
Massachusetts (C.A. No. 20-77CV00101), seeking, among other things,
declaratory relief that the lease for the Company’s prior principal
executive offices did not automatically extend for an additional
five years from September 2018, return of the Company’s security
deposit, and damages. This action is in the preliminary stages and
the Company is currently unable to determine the probability of the
outcome or reasonably estimate the loss or gain, if any.
The information called for by this item is incorporated herein by
reference to the information set forth in Note 10. Commitment and
contingencies of the Notes to Consolidated Financial Statements
included in Part II, Item 8 in this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY
DISCLOSURES
None
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
The Company’s Class A Common Stock symbol is “IPIX” and is quoted
on the OTCQB. Quotations on the OTCQB reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not
represent actual transactions.
Number of Shareholders
As of September 22, 2022, a total of approximately 488,225,673
shares of the Company’s Class A common stock are outstanding and
held by approximately 66 shareholders of record, including Cede
& Co., the nominee for the Depository Trust & Clearing
Corporation and consequently that number does not include
beneficial owners of our common stock who hold their stock in
“street name” through their brokers. In addition, as of September
22, 2022, a total of shares of 15,641,463 shares of the Company’s
Class B common stock are outstanding and held by one stockholder of
record.
Dividends
The Company has not paid any cash dividends to our shareholders
since its inception. The Company currently intends to retain any
earnings for use in its business, and therefore does not anticipate
paying cash dividends to holders of our common stock in the
foreseeable future. The accrued dividend on the balance sheet
represents a portion of the unpaid accrued dividend to our Series B
5% convertible preferred stockholders. See Notes 15 and 16 of the
Notes to Consolidated Financial Statements included in Part II,
Item 8 in this Annual Report on Form 10-K.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements about our expectations related to the
progress, continuation, timing and success of drug discovery and
development activities conducted by the Company, other statements
regarding our future product development and regulatory strategies,
including with respect to specific indications; our ability to
obtain additional capital to fund our operations, changes in our
research and development spending, realizing new revenue streams
and obtaining future out-licensing or collaboration agreements that
include up-front, milestone and/or royalty payments, our ability to
realize up-front milestone and royalty payments under current and
future agreements, future research and development spending and
projections relating to the level of cash we expect to use in
operations, our working capital requirements and our future
headcount requirements. In some cases, forward-looking statements
can be identified by the use of terms such as “anticipates,”
“believes,” “hopes,” “estimates,” “looks,” “expects,” “plans,”
“intends,” “goal,” “potential,” “may,” “suggest,” “will,” or
“continue,” or the negative thereof or other comparable terms.
These statements are based on current expectations, projections and
assumptions made by management and are not guarantees of future
performance. Although we believe that the expectations reflected in
the forward-looking statements contained herein are reasonable,
these expectations or any of the forward-looking statements could
prove to be incorrect and actual results could differ materially
from those projected or assumed in the forward-looking statements.
Our future financial condition, as well as any forward-looking
statements are subject to significant risks and uncertainties
including, but not limited to the factors set forth under the
heading “Item 1A. Risk Factors” under Part I of this Annual Report
on Form 10-K, and in other reports we file with the SEC. All
forward-looking statements are made as of the date of this report
and, unless required by law, we undertake no obligation to update
any forward-looking statements.
The following discussion of our financial condition and results of
operations should be read in conjunction with our accompanying
audited financial statements and related notes to those statements
included elsewhere in this Annual Report on Form 10-K.
Our fiscal year ends on June 30. When we refer to a fiscal year, we
are referring to the year in which the fiscal year ends. Therefore,
fiscal 2022 refers to the fiscal year ended June 30, 2022.
Management’s Plan of Operation
The Company historically devoted most of its efforts and resources
on drug development, regulatory matters, and clinical trials.
Presently, the Company does not have sufficient financial resources
to advance our drug candidates meaningfully. Contingent upon
sufficient funding, we anticipate that our efforts would primarily
focus on advancement of our drug candidate Brilacidin for
decreasing the incidence of severe oral mucositis as a complication
of chemoradiation in Oral Mucositis. We expect to concentrate on
product development and engage in a limited way in product
discovery, avoiding the significant investment of time and
financial resources that is generally required for a promising
compound to be identified and brought into clinical trials.
In the ordinary course of business, we engage in a continual review
of opportunities to license our drug compound(s)/ indications and
enter into partnering, joint development or similar arrangements
with other companies. We may generally at any time have such
opportunities in various stages of active review, including, for
example, entry into indications of interest and term sheets and
participation in preliminary discussions and negotiations. Any such
transaction could be material to us.
The Company is monitoring BeaMedical’s progress in advancing its
novel laser-based thermal ablation technology platform targeting
epilepsy and oncology procedures, and we have been informed that
BeaMedical’s first FDA-related development milestone via the 510(k)
pathway is anticipated to occur within the year.
Critical Accounting Policies and
Estimates
Management’s discussion and analysis of financial condition and
results of operations are based upon our accompanying financial
statements, which have been prepared in conformity with U.S.
generally accepted accounting principles, or U.S. GAAP, and which
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. Note 3.
Significant Accounting Policies and Recent Accounting
Pronouncements, to the financial statements included in Part II,
Item 8 of this Annual Report on Form 10-K, describes the
significant accounting policies and methods used in the preparation
of the Company’s financial statements. We base our estimates on
historical experience and on various other assumptions that we
believe are reasonable under the circumstances. These estimates are
the basis for our judgments about the carrying values of assets and
liabilities, which in turn may impact our reported revenue and
expenses. Our actual results could differ significantly from these
estimates under different assumptions or conditions.
Recently Issued Accounting
Pronouncements
See Note 3. Significant Accounting Policies and Recent Accounting
Pronouncements to the consolidated financial statements, included
in Part II, Item 8 of this Annual Report on Form 10-K, for a
discussion of recent accounting pronouncements and their effect, if
any, on our financial statements.
Results of
Operations
We expect to incur losses from operations for the next few years.
Contingent upon sufficient funding, we expect to incur increasing
research and development expenses, including expenses related to
additional clinical trials for our proprietary programs. We
currently anticipate that future budget expenditures will be
approximately $4.2 million for the next 12 months, including
approximately $2.2 million for development activities, supportive
research, and drug manufacturing. However, continuing operations
for the next 12 months from the date of this filing is very much
dependent upon our ability to raise capital from existing or new
financing sources. There can be no assurance as to the availability
or terms upon which such financing and capital might be
available.
Revenue
We generated revenue of $18,000 and $0 for the fiscal years ended
June 30, 2022 and 2021, respectively. Revenue during the fiscal
year ended June 30, 2022 represented the payment from the exclusive
license agreement signed with Alfasigma (see Note 8. Exclusive
License Agreement and Patent Assignment Agreement of the Notes to
Consolidated Financial Statements included in Part II, Item 8 in
this Annual Report on Form 10-K).
We incurred operating expenses of approximately $6.9 million and
$9.0 million for the fiscal years ended June 30, 2022 and 2021,
respectively.
Research and Development Expenses for Proprietary
Programs
Below is a summary of our research and development expenses for our
proprietary programs by categories of costs for the fiscal years
presented (rounded to nearest thousand):
|
|
Year ended
|
|
|
Change
|
|
|
|
June 30,
|
|
|
2022 vs. 2021
|
|
|
|
2022
|
|
|
2021
|
|
|
$
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical studies and development research
|
|
$ |
3,631,000 |
|
|
$ |
6,056,000 |
|
|
|
(2,425,000 |
) |
|
|
(40 |
)% |
Employees payroll and payroll tax expenses related to R&D
department
|
|
|
641,000 |
|
|
|
398,000 |
|
|
|
243,000 |
|
|
|
61 |
% |
Stock-based compensation - employee
|
|
|
100,000 |
|
|
|
59,000 |
|
|
|
41,000 |
|
|
|
69 |
% |
Stock-based compensation - consultants
|
|
|
60,000 |
|
|
|
125,000 |
|
|
|
(65,000 |
) |
|
|
(52 |
)% |
Depreciation and amortization expenses
|
|
|
382,000 |
|
|
|
378,000 |
|
|
|
4,000 |
|
|
|
1 |
% |
Total
|
|
$ |
4,814,000 |
|
|
$ |
7,016,000 |
|
|
|
(2,202,000 |
) |
|
|
(31 |
)% |
Fiscal 2022 compared to Fiscal 2021 -
Research and development expenses for proprietary programs
decreased during the year ended June 30, 2022 compared with the
year ended June 30, 2021, primarily due to less spending on our
Brilacidin program for the fiscal year 2022.
Employees payroll and payroll tax expenses increased during the
year ended June 30, 2022 compared with the year ended June 30,
2021, due to a new hire of an employee during the first quarter of
fiscal 2022.
Stock-based compensation for employees increased during the year
ended June 30, 2022 due to one new issuance of 500,000 stock
options to purchase shares of Company’s common stock to the
Company’s Senior Vice President, Clinical Sciences and Portfolio
Management in October, 2021 (see note 14. Equity Incentive Plans,
Stock-Based Compensation, Exercise of Options and Warrants
Outstanding of the Notes to Consolidated Financial Statements
included in Part II, Item 8 in this Annual Report on Form
10-K).
Stock-based compensation - consultants decreased during the year
ended June 30, 2022 due to less options being issued to consultants
during the year ended June 30, 2022 compared with the year ended
June 30, 2021.
Our research and development expenses include costs related to
preclinical and clinical trials, outsourced services and
consulting, officers’ payroll and related payroll tax expenses,
other wages and related payroll tax expenses, stock-based
compensation, depreciation and amortization expenses. Clinical
studies and development expenses may decrease in future reporting
periods depending on the Company’s current and future financial
liquidity. We manage our proprietary programs based on scientific
data and achievement of research plan goals. Accordingly, the
accurate assignment of time and costs to a specific project is
difficult and may not give a true indication of the actual costs of
a particular project. As a result, we do not report costs on an
individual program basis.
General and Administrative Expenses
General and administrative expenses consist mainly of compensation
and associated fringe benefits not included in the cost of research
and development expenses for proprietary programs and include other
management, business development, accounting, information
technology and administration costs, including patent filing and
prosecution, recruiting, consulting and professional services,
travel and meals, sales commissions, facilities, depreciation and
other office expenses.
Below is a summary of our general and administrative expenses
(rounded to nearest thousand):
|
|
Year ended
|
|
|
Change
|
|
|
|
June 30,
|
|
|
2022 vs. 2021
|
|
|
|
2022
|
|
|
2021
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and health expense
|
|
$
|
277,000
|
|
|
$
|
405,000
|
|
|
|
(128,000
|
)
|
|
|
(32
|
)%
|
Directors’ fees
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
—
|
|
|
|
-
|
%
|
Rent and utility expense
|
|
|
74,000
|
|
|
|
100,000
|
|
|
|
(26,000
|
)
|
|
|
(26
|
)%
|
Stock-based compensation - officers & directors
|
|
|
423,000
|
|
|
|
—
|
|
|
|
423,000
|
|
|
|
-
|
%
|
Business development expense
|
|
|
29,000
|
|
|
|
141,000
|
|
|
|
(112,000
|
)
|
|
|
(79
|
)%
|
Patent write off
|
|
|
141,000
|
|
|
|
—
|
|
|
|
141,000
|
|
|
|
-
|
%
|
Other G&A
|
|
|
129,000
|
|
|
|
167,000
|
|
|
|
(38,000
|
)
|
|
|
(23
|
)%
|
Total
|
|
$
|
1,223,000
|
|
|
$
|
963,000
|
|
|
|
260,000
|
|
|
|
27
|
%
|
Fiscal 2022 compared to Fiscal 2021 -
General and administrative expenses increased during the year ended
June 30, 2022, primarily due to the increase in stock-based
compensation - officers & directors of $423,000 and increase in
patent write off relating to Kevetrin of $141,000, offset by a
decrease in insurance expense of $128,000 and a decrease in other
G&A expense of $38,000 due to less business development
consultants’ fees and business events during the year ended June
30, 2022. Stock-based compensation for officers and directors
increased during the year ended June 30, 2022 due to one new
issuance of 3 million stock options to purchase shares of the
Company’s common stock to the Company’s two independent directors
and the CEO in October, 2021 (see note 14. Equity Incentive Plans,
Stock-Based Compensation, Exercise of Options and Warrants
Outstanding of the Notes to Consolidated Financial Statements
included in Part II, Item 8 in this Annual Report on Form
10-K).
Officers’ payroll and payroll tax
expenses
Below is a summary of our Officers’ payroll and payroll tax
expenses (rounded to nearest thousand):
|
|
Year ended
|
|
|
Change
|
|
|
|
June 30,
|
|
|
2022 vs. 2021
|
|
|
|
2022
|
|
|
2021
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers’ payroll and payroll tax expenses
|
|
$
|
428,000
|
|
|
$
|
499,000
|
|
|
|
(71,000
|
)
|
|
|
(14
|
)%
|
Fiscal 2022 compared to Fiscal 2021 - The
decrease in officers’ payroll and payroll tax expenses for the
Company during the year ended June 30, 2022 was due to the
adjustment to officer’s accrued payroll taxes.
Professional fees
Below is a summary of our Professional fees (rounded to nearest
thousand):
|
|
Year ended
|
|
|
Change
|
|
|
|
June 30,
|
|
|
2022 vs. 2021
|
|
|
|
2022
|
|
|
2021
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fee, legal and professional fees
|
|
$
|
452,000
|
|
|
$
|
537,000
|
|
|
|
(85,000
|
)
|
|
|
(16
|
)%
|
Fiscal 2022 compared to Fiscal 2021 -
Professional fees decreased during the year ended June 30, 2022,
primarily related to fewer transactions in fiscal 2022 compared to
the prior year. Professional fees during the year ended June 30,
2021 primarily related to the 2020 Securities Purchase Agreement
and issuance of Series B-2 preferred stock.
Other Operating Income and (Loss)
There was an increase in other expense which represents equity in
loss from an investment for the period from June 9, 2022 (date of
acquisition) to June 30, 2022 was $22,000 (see Note 4. – Equity
Investment of the Notes to Consolidated Financial Statements
included in Part II, Item 8 in this Annual Report on Form
10-K).
Other Income (Expense)
Below is a summary of our other income (expense) (rounded to
nearest thousand):
|
|
Year ended
|
|
|
Change
|
|
|
|
June 30,
|
|
|
2022 vs. 2021
|
|
|
|
2022
|
|
|
2021
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
$
|
172,000
|
|
|
$
|
—
|
|
|
|
172,000
|
|
|
|
—
|
%
|
Change in fair value of preferred stock
|
|
$
|
(177,000
|
)
|
|
$
|
—
|
|
|
|
(177,000
|
)
|
|
|
—
|
%
|
Interest expense - debt
|
|
|
(68,000
|
)
|
|
|
(155,000
|
)
|
|
|
87,000
|
|
|
|
(56
|
)%
|
Interest expense - preferred stock liability
|
|
|
(47,000
|
)
|
|
|
(4,702,000
|
)
|
|
|
4,655,000
|
|
|
|
(99
|
)%
|
Other Income (Expense), net
|
|
$
|
(120,000
|
)
|
|
$
|
(4,857,000
|
)
|
|
|
4,737,000
|
|
|
|
(98
|
)%
|
Fiscal 2022 compared to Fiscal 2021
There was an increase in other income which represents the
forgiveness of the PPP Loan.
There was an increase in change in fair value of preferred stock
related to Series B-2 5% convertible preferred stock.
There was a decrease in interest expenses paid on the note payable
- related party, because the Company repaid $1,033,000 of the note
payable to Mr. Ehrlich, the Company’s Chairman and CEO during the
year ended June 30, 2022.
There was a decrease in interest expense – preferred stock
liability during the year ended June 30, 2022 compared with the
year ended June 30, 2021 related to the 5% accrued dividend
associated with the Series B-2 preferred stock. The interest
expense - preferred stock liability of 2022 consists of accrued
dividend of $47,000. The interest expense - preferred stock
liability of 2021 consists of beneficial conversion feature and
warrant discounts of $4,663,000 and issuance costs paid of $24,000
and accrued dividend of $15,000.
Net Losses
We incurred net losses of $7.0 million and $13.9 million for the
years ended June 30, 2022 and 2021, respectively, because of the
above-mentioned factors.
Liquidity, Going Concern and Capital Resources
Projected
Future Working Capital Requirements - Next 12
Months
As of June 30, 2022, we had approximately $3.8 million in cash
compared to $10.2 million of cash as of June 30, 2021, and as of
the date of this filing, we have approximately $3.2 million in
cash. Contingent upon sufficient funding, we currently anticipate
that future budget expenditures will be approximately $4.2 million
for the next 12 months, including approximately $2.2 million for
development activities, supportive research, and drug
manufacturing.
This assessment is based on current estimates and assumptions
regarding our clinical development programs and business needs.
Actual working capital requirements could differ materially from
this above working capital projection.
Our ability to successfully raise sufficient funds through the sale
of equity securities, when needed, is subject to many risks and
uncertainties and even if we are successful, future equity
issuances would result in dilution to our existing stockholders.
Our risk factors are described under the heading “Risk Factors” in
Part I, Item 1A and elsewhere in this Annual Report on Form
10-K.
In the event that we are unable to raise additional funds from
others, we may be required to delay, reduce or severely curtail our
operations or otherwise impede our on-going business efforts, which
could have a material adverse effect on our future business,
operating results, financial condition and long-term prospects. The
Company expects to seek to obtain additional funding through
business development activities (for example licensing and
partnerships) and future equity issuances. There can be no
assurance as to the availability or terms upon which such financing
and capital might be available to us.
Going Concern
Our financial statements were prepared assuming we will continue as
a going concern which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. We
have negative working capital of $0.9 million and have incurred
losses since inception of $122.2 million. We expect to incur
further losses in the development of our business and have been
dependent on raising capital to fund operations from inception.
These conditions raise substantial doubt about our ability to
continue as a going concern. Management’s plans include continuing
to finance operations through the private or public placement of
debt and/or equity securities and the reduction of expenditures.
However, no assurance can be given at this time as to whether we
will be able to achieve these objectives. The financial statements
do not include any adjustment relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be
unable to continue as a going concern.
Shelf Registration Statement - Current
Status
The Company does not satisfy the conditions for use of Form S-3 for
primary offerings of securities, and as a result, the Company
generally may only utilize Form S-1 to register the sale of its
securities. Form S-1 offers less flexibility on the timing and
types of offerings compared to Form S-3.
Cash Flows
The following table provides information regarding our cash
position, cash flows and capital expenditures for the years ended
June 30, 2022 and 2021 (rounded to nearest thousand):
|
|
Year ended
|
|
|
Change
|
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2022
|
|
|
2021
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
%
|
|
Net cash used in operating activities
|
|
$ |
(6,280,000 |
) |
|
$ |
(9,495,000 |
) |
|
|
(34 |
)% |
Net cash used in investing activities
|
|
|
(4,080,000 |
) |
|
|
(72,000 |
) |
|
|
5,567 |
% |
Net cash provided by financing activities
|
|
|
3,973,000 |
|
|
|
13,743,000 |
|
|
|
(71 |
)% |
Net increase (decrease) in cash
|
|
$ |
(6,387,000 |
) |
|
$ |
4,176,000 |
|
|
|
(253 |
)% |
The decrease in net cash used in operating activities of $3.2
million versus the prior-year was mainly due to the decrease in our
loss from operations to $7.0 million, largely attributable to a
decrease in interest expense – preferred stock of $4.6 million, an
increase in stock based compensation of $400,000 and a change in
accrued officers’ salaries and payroll taxes of $(352,000) in the
current year compared to $(1,223,000) in the prior-year.
Investing activities
The increase in net cash used in investing activities of $4.0
million versus the prior-year was due primarly to the investment in
BeaMedical of $4.0 million.
Financing activities
The decrease in net cash provided by financing activities of $9.8
million versus the prior-year was due to decreases in proceeds from
issuances of Series B Preferred stock and sales of common
stock.
In 2022, we raised approximately $5.0 million in net cash proceeds,
from exercise of warrants to purchase preferred stock, offset by
repayment of note payable to officer of $1.0 million.
In 2021, we raised approximately $14.6 million in net cash
proceeds, from exercise of warrants to purchase preferred stock and
the issuance of common stock, offset by purchase of treasury stock
of $0.7 million and repayment of note payable to officer of $0.2
million.
Requirement for Additional Working Capital
The Company, contingent on future sales of its securities,
currently expects to incur total operating expenses of
approximately $4.2 million for the next 12 months, including
approximately $2.2 million for development activities, supportive
research, and drug manufacturing. The Company has limited
experience with pharmaceutical product development. As such, this
budget estimate may change in the future. In addition, the actual
work to be performed is not known at this time, other than a broad
outline, as is normal with any scientific work. As further work is
performed, additional work may become necessary or a change in
plans or workload may occur. Such changes may have an adverse
impact on our estimated budget and on our projected timeline of
drug development.
In the event that we are unable to or raise additional funds from
others, we may be required to delay, reduce or severely curtail our
operations or otherwise impede our on-going business efforts, which
could have a material adverse effect on our future business,
operating results, financial condition and long-term prospects. The
Company expects to seek to obtain additional funding through
business development activities (for example licensing and
partnerships) and future equity issuances. There can be no
assurance as to the availability or terms upon which such financing
and capital might be available to us.
Commitments and Contingencies
Please see Note 10. Commitments and Contingencies of the Notes to
Consolidated Financial Statements included in Part II, Item 8 in
this Annual Report on Form 10-K, for a discussion of contractual
commitments and contingent liability - disputed invoices.
Equity Transactions
During the year ended June 30, 2022, the Company issued 5,072
shares of its Series B-2 5% convertible preferred stock, for
aggregate gross proceeds of approximately $5.0 million, upon
exercise of 3,036 Series 1 warrants and 2,036 Series 2 warrants
issued by the Company. With regard to the exercise of these 5,072
warrants, the Company recorded gross proceeds of approximately $5.0
million to the preferred stock liability. During the years ended
June 30, 2022, the convertible preferred stockholder converted a
total of 4,452 shares of Series B-2 preferred stock into a total of
approximately 69,901,865 shares of common stock. There were 620
shares of Series B-2 5% convertible preferred stock outstanding as
of June 30, 2022.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, as
defined in Item 304(a)(4)(ii) of Regulation S-K under the
Securities Exchange Act of 1934, as amended.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting
pronouncements to have a significant impact on our results of
operation, financial position or cash flow.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
INNOVATION PHARMACEUTICALS INC.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To
the Board of Directors and Stockholders
Innovation Pharmaceutical, Inc.
Wakefield, MA
Opinion on the
Financial Statements
We have audited the accompanying consolidated balance sheets of
Innovation Pharmaceuticals, Inc. (the Company) as of June 30, 2022
and 2021, and the related consolidated statements of operations,
changes in stockholders’ equity, and cash flows for the years then
ended, and the related notes (collectively referred to as the
consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2022
and 2021, and the results of its operations and its cash flows for
the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Going Concern
Considerations
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company has negative working capital, has
suffered losses and negative cash flow from operations, which raise
substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are
described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Basis for
Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit
Matter
The critical audit matter communicated below is a matter arising
from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to
the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it
relates.
Going Concern – Disclosure
The consolidated financial statements of the Company are prepared
on a going concern basis, which assumes that the Company will
continue in operation for the foreseeable future and, accordingly,
will be able to realize its assets and discharge its liabilities in
the normal course of operations. As noted in “Going Concern
Considerations” above, the Company has a negative working capital,
negative cash flow from operations and has a history of recurring
net losses. The Company has contractual obligations, such as
commitments for repayments of accounts payable, accrued
liabilities, leases and a convertible note payable - related party
(collectively “obligations”). Currently, management’s forecasts and
related assumptions illustrate their judgements as to the Company’s
ability to meet its obligations through management of expenditures,
implementation of planned business operations, obtaining additional
debt financing, and issuance of capital stock for additional
funding to meet its operating needs. Should there be constraints on
the ability to implement its planned business operations or access
financing through stock issuances, the Company will continue to
manage cash outflows and meet the obligations through debt
financing.
We identified management’s assessment of the Company’s ability to
continue as a going concern as a critical audit matter. Management
made judgments regarding the Company’s ability to effectively
implement its plans to provide the necessary cash flows to fund the
Company’s obligations as they become due. Specifically, the
judgments with the highest degree of impact and subjectivity in
determining the Company’s ability to effectively implement it
include its ability to manage expenditures, its ability to access
funding from the capital market, its ability to obtain debt
financing, and the successful implementation of its planned
business operations. Auditing the judgments made by management
required a high degree of auditor judgment and an increased extent
of audit effort.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included
the following, among others: (i) evaluating the probability that
the Company will be able to access funding from the capital market;
(ii) evaluating the probability that the Company will be able to
manage expenditures (iii) evaluating the probability that the
Company will be able to obtain debt financing, and (iv) evaluating
the implementation of its planned business operations.
Stock-Based Compensation
As described in Note 14 to the consolidated financial
statements, the Company recorded stock-based compensation related
to the issuance of common stock and stock options issued to
employees and third-party service providers. Management establishes
their estimates for the value of the stock-based compensation
related to common stock issued for services using historical stock
price information. Management uses a valuation model
requiring various inputs to establish their estimates for the value
of stock options.
The principal considerations for our determination that performing
procedures relating to stock-based compensation is a critical audit
matter are due to the material impact it has on the consolidated
financial statements.
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included,
among others, evaluating the reasonableness of the historical stock
price information used by management for the valuation of the
common stock along with evaluating the reasonableness of the
input’s management used in the valuation model related to the stock
options and warrants to determine the stock-based compensation
expense.
/s/ Pinnacle Accountancy Group of Utah
|
|
|
|
|
|
We
have served as the Company’s auditor since 2018.
Pinnacle Accountancy Group of Utah
(a
dba of Heaton & Company, PLLC)
Farmington, Utah
September 28, 2022
|
|
|
INNOVATION PHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2022 AND 2021
(Rounded to nearest thousand except for share
data)
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
ASSETS
|
|
Current Assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
3,807,000 |
|
|
$ |
10,194,000 |
|
Prepaid expenses and other current assets
|
|
|
145,000 |
|
|
|
495,000 |
|
Total Current Assets
|
|
|
3,952,000 |
|
|
|
10,689,000 |
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
3,978,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Patent costs - net
|
|
|
2,312,000 |
|
|
|
2,754,000 |
|
Deferred offering costs
|
|
|
59,000 |
|
|
|
778,000 |
|
Security deposit
|
|
|
78,000 |
|
|
|
78,000 |
|
Total Other Assets
|
|
|
2,449,000 |
|
|
|
3,610,000 |
|
Total Assets
|
|
$ |
10,379,000 |
|
|
$ |
14,299,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable - (including related party payables of approx.
$1,511,000 and $1,511,000, respectively)
|
|
$ |
2,567,000 |
|
|
$ |
2,563,000 |
|
Accrued expenses - (including related party accruals of approx.
$12,000 and $8,000, respectively)
|
|
|
92,000 |
|
|
|
348,000 |
|
Accrued salaries and payroll taxes - (including related party
accrued salaries of approx. $1,563,000 and $1,915,000,
respectively)
|
|
|
1,640,000 |
|
|
|
1,992,000 |
|
Operating lease - current liability
|
|
|
197,000 |
|
|
|
165,000 |
|
Convertible note payable - related party
|
|
|
250,000 |
|
|
|
1,283,000 |
|
Accrued dividend - Series B 5% convertible preferred stock
|
|
|
62,000 |
|
|
|
15,000 |
|
Loan payable
|
|
|
— |
|
|
|
172,000 |
|
Total Current Liabilities
|
|
|
4,808,000 |
|
|
|
6,538,000 |
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Series B 5% convertible preferred stock liability at $1,080 stated
value; 620 shares and 0 shares issued and outstanding at June 30,
2022 and 2021, respectively
|
|
|
786,000 |
|
|
|
— |
|
Operating lease - long term liability
|
|
|
55,000 |
|
|
|
252,000 |
|
Total Liabilities
|
|
|
5,649,000 |
|
|
|
6,790,000 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 designated shares, no
shares issued and outstanding
|
|
|
— |
|
|
|
— |
|
Common Stock - Class A, $.0001 par value, 600,000,000 shares
authorized, 496,741,729 shares and 426,673,198 shares issued as of
June 30, 2022 and 2021, respectively, 488,225,673 shares and
418,157,142 shares outstanding as of June 30, 2022 and 2021,
respectively.
|
|
|
49,000 |
|
|
|
42,000 |
|
Common Stock - Class B, (10 votes per share); $.0001 par value,
100,000,000 shares authorized, 18,000,000 shares issued as of June
30, 2022 and 2021, respectively, and 15,641,463 shares outstanding
as of June 30, 2022 and 2021, respectively
|
|
|
2,000 |
|
|
|
2,000 |
|
Additional paid-in capital
|
|
|
129,090,000 |
|
|
|
124,835,000 |
|
Accumulated deficit
|
|
|
(122,157,000 |
) |
|
|
(115,116,000 |
) |
Treasury Stock, at cost (10,874,593 shares as of June 30, 2022 and
2021, respectively)
|
|
|
(2,254,000 |
) |
|
|
(2,254,000 |
) |
Total Stockholders’ Equity
|
|
|
4,730,000 |
|
|
|
7,509,000 |
|
Total Liabilities and Stockholders’ Equity
|
|
$ |
10,379,000 |
|
|
$ |
14,299,000 |
|
The accompanying notes are an integral part of these consolidated
financial statements
INNOVATION PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
(Rounded to nearest thousand except for shares and per
share data)
|
|
For the Years Ended
|
|
|
|
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
18,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
4,814,000 |
|
|
|
7,016,000 |
|
General and administrative expenses
|
|
|
1,223,000 |
|
|
|
963,000 |
|
Officers’ payroll and payroll tax expenses
|
|
|
428,000 |
|
|
|
499,000 |
|
Professional fees
|
|
|
452,000 |
|
|
|
537,000 |
|
Total operating expenses
|
|
|
6,917,000 |
|
|
|
9,015,000 |
|
|
|
|
|
|
|
|
|
|
Other Operating Income and (Loss)
|
|
|
|
|
|
|
|
|
Equity in loss from equity investment
|
|
|
(22,000 |
) |
|
|
— |
|
Total Other Operating Income and (Loss)
|
|
|
(22,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,921,000 |
) |
|
|
(9,015,000 |
) |
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Other income
|
|
|
172,000 |
|
|
|
— |
|
Change in fair value of preferred stock
|
|
|
(177,000 |
) |
|
|
— |
|
Interest expense - debt
|
|
|
(68,000 |
) |
|
|
(155,000 |
) |
Interest expense - preferred stock
|
|
|
(47,000 |
) |
|
|
(4,702,000 |
) |
Total other expenses
|
|
|
(120,000 |
) |
|
|
(4,857,000 |
) |
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(7,041,000 |
) |
|
|
(13,872,000 |
) |
Provision for income taxes
|
|
|
— |
|
|
|
— |
|
Net loss
|
|
$ |
(7,041,000 |
) |
|
$ |
(13,872,000 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
Basic and Diluted Weighted Average Common Shares
Outstanding
|
|
|
503,867,136 |
|
|
|
386,163,208 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
INNOVATION PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
(Rounded to nearest thousand, except for shares
data):
|
|
Common Stock A
|
|
|
Common Stock B
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Par Value
|
|
|
Par Value
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
$ |
0.0001
|
|
|
Shares
|
|
|
$ |
0.0001
|
|
|
Capital
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
|
|
329,170,544 |
|
|
|
33,000 |
|
|
|
1,818,180 |
|
|
|
- |
|
|
|
102,819,000 |
|
|
|
(101,244,000 |
) |
|
|
659,448 |
|
|
|
(146,000 |
) |
|
|
1,462,000 |
|
Shares sold to Aspire Capital under 2020 Agreement at $0.20 - $0.22
range
|
|
|
22,500,000 |
|
|
|
2,000 |
|
|
|
- |
|
|
|
1,000 |
|
|
|
4,600,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,603,000 |
|
Shares issued as commitment fee of $1,438,000 on 7/31/2020 at
$0.23, net of amortization of offering costs of $120,000
|
|
|
6,250,000 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,437,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,438,000 |
|
Offering cost
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(659,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(659,000 |
) |
Shares issued to employee for services at $0.132 to $0.398
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,000 |
|
Stock options issued to employee for services at $0.132 to
$0.398
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44,000 |
|
Stock options issued to consultant for services at $0.14 to
$0.43
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
123,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
123,000 |
|
Issuance of 2,200,000 shares of Common Stock Class B to Officer
& 412,238 shares were withheld for tax purposes as Treasury
shares
|
|
|
- |
|
|
|
- |
|
|
|
2,200,000 |
|
|
|
- |
|
|
|
242,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
242,000 |
|
Issuance of shares for tax purposes as Treasury Shares
|
|
|
- |
|
|
|
- |
|
|
|
(412,238 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
412,238 |
|
|
|
(90,000 |
) |
|
|
(90,000 |
) |
Issuance of 58,394 shares to employee & 21,606 shares were
withheld for tax purposes as Treasury shares
|
|
|
58,394 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of shares for tax purposes as Treasury Shares
|
|
|
(21,606 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21,606 |
|
|
|
(3,000 |
) |
|
|
(3,000 |
) |
Cancellation of debt for the purchase of 909,090 shares of Common
Stock Class B & 181,096 shares were withheld for tax purposes
as Treasury shares
|
|
|
- |
|
|
|
- |
|
|
|
909,090 |
|
|
|
- |
|
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
Issuance of shares for tax purposes as Treasury Shares
|
|
|
- |
|
|
|
- |
|
|
|
(181,096 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
181,096 |
|
|
|
(37,000 |
) |
|
|
(37,000 |
) |
To record Series B Discount - Warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,410,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,410,000 |
|
To record issuance costs Series 1 & 2 Warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,000 |
) |
To record beneficial conversion feature associated with the
issuance of the 5,089 shares of Series B-2 preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,253,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,253,000 |
|
Conversion of 10,207 preferred stocks into 68,034,812 common
stocks
|
|
|
68,034,812 |
|
|
|
7,000 |
|
|
|
- |
|
|
|
- |
|
|
|
10,022,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,029,000 |
|
Cancellation of 6,980,583 Class A shares to satisfy the purchase of
13,072,730 shares of Common Stock Class B
|
|
|
(6,980,583 |
) |
|
|
(1,000 |
) |
|
|
13,072,730 |
|
|
|
1,000 |
|
|
|
1,438,000 |
|
|
|
- |
|
|
|
6,980,583 |
|
|
|
(1,438,000 |
) |
|
|
- |
|
Shares were withheld for tax purposes as Treasury Shares
|
|
|
(854,419 |
) |
|
|
- |
|
|
|
(1,765,203 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,619,622 |
|
|
|
(540,000 |
) |
|
|
(540,000 |
) |
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,872,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(13,872,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
|
|
418,157,142 |
|
|
$ |
42,000 |
|
|
|
15,641,463 |
|
|
$ |
2,000 |
|
|
$ |
124,835,000 |
|
|
$ |
(115,116,000 |
) |
|
|
10,874,593 |
|
|
$ |
(2,254,000 |
) |
|
$ |
7,509,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering cost
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(718,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(718,000 |
) |
Conversion of 4,452 preferred stock into 69,901,865 common
stocks
|
|
|
69,901,865 |
|
|
|
7,000 |
|
|
|
- |
|
|
|
- |
|
|
|
4,367,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,374,000 |
|
Shares issued for exercise of options
|
|
|
166,666 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23,000 |
|
Shares issued to employee for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
Stock options issued to consultant for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
Stock options issued to director for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
423,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
423,000 |
|
Stock options issued to employee for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
92,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
92,000 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,041,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7,041,000 |
) |
Balance at June 30, 2022
|
|
|
488,225,673 |
|
|
|
49,000 |
|
|
|
15,641,463 |
|
|
|
2,000 |
|
|
|
129,090,000 |
|
|
|
(122,157,000 |
) |
|
|
10,874,593 |
|
|
|
(2,254,000 |
) |
|
|
4,730,000 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
INNOVATION PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
(Rounded to nearest thousand)
|
|
2022
|
|
|
2021
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$ |
(7,041,000 |
) |
|
$ |
(13,872,000 |
) |
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Patent write off
|
|
|
141,000 |
|
|
|
— |
|
Stock based compensation
|
|
|
583,000 |
|
|
|
183,000 |
|
Amortization of patent costs
|
|
|
382,000 |
|
|
|
378,000 |
|
Gain on forgiveness of loans payable
|
|
|
(172,000 |
) |
|
|
— |
|
Interest expense-preferred stock
|
|
|
— |
|
|
|
4,663,000 |
|
Change in fair value of preferred stock
|
|
|
177,000 |
|
|
|
— |
|
Equity in loss from equity investment
|
|
|
22,000 |
|
|
|
— |
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
350,000 |
|
|
|
(403,000 |
) |
Accounts payable
|
|
|
4,000 |
|
|
|
520,000 |
|
Accrued expenses
|
|
|
(256,000 |
) |
|
|
289,000 |
|
Accrued officers’ salaries and payroll taxes
|
|
|
(352,000 |
) |
|
|
(1,223,000 |
) |
Operating lease liability
|
|
|
(165,000 |
) |
|
|
(138,000 |
) |
Accrued dividend
|
|
|
47,000 |
|
|
|
15,000 |
|
Loan payable
|
|
|
— |
|
|
|
93,000 |
|
Net cash used in operating activities
|
|
|
(6,280,000 |
) |
|
|
(9,495,000 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Equity Investment contribution
|
|
|
(4,000,000 |
) |
|
|
— |
|
Patent costs
|
|
|
(80,000 |
) |
|
|
(72,000 |
) |
Net cash used in investing activities
|
|
|
(4,080,000 |
) |
|
|
(72,000 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Sale of common stock, net of offering costs
|
|
|
— |
|
|
|
4,603,000 |
|
Proceeds from issuance of Series B Preferred stocks, net of
financing costs
|
|
|
— |
|
|
|
4,990,000 |
|
Proceeds from exercise of preferred stock warrants
|
|
|
4,983,000 |
|
|
|
5,017,000 |
|
Proceeds from exercise of options
|
|
|
23,000 |
|
|
|
— |
|
Purchase of treasury stock
|
|
|
— |
|
|
|
(670,000 |
) |
Repayment of note payable to officer
|
|
|
(1,033,000 |
) |
|
|
(197,000 |
) |
Net cash provided by financing activities
|
|
|
3,973,000 |
|
|
|
13,743,000 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(6,387,000 |
) |
|
|
4,176,000 |
|
CASH, BEGINNING OF YEAR
|
|
|
10,194,000 |
|
|
|
6,018,000 |
|
CASH, END OF YEAR
|
|
$ |
3,807,000 |
|
|
$ |
10,194,000 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
59,000 |
|
|
$ |
59,000 |
|
Cash paid for income taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW
|
|
|
|
|
|
|
|
|
INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Shares issued as deferred offering costs
|
|
$ |
— |
|
|
$ |
1,438,000 |
|
Cancellation of 6,980,583 Class A shares for the purchase of
13,072,730 shares of Common Stock Class B
|
|
$ |
— |
|
|
$ |
1,438,000 |
|
Conversion of Series B Convertible Preferred stock to Common
stock
|
|
$ |
4,374,000 |
|
|
$ |
10,029,000 |
|
Cancellation of shareholder debt for the purchase of 909,090 shares
of Common Stock Class B shares
|
|
$ |
— |
|
|
$ |
342,000 |
|
Dividend paid on Series B-2 Preferred Shares
|
|
$ |
— |
|
|
$ |
13,000 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
INNOVATION PHARMACEUTICALS INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
1. Basis of Presentation and Nature of
Operations
Innovation Pharmaceuticals Inc. was incorporated on August 1, 2005
in the State of Nevada. Effective June 5, 2017, the Company amended
its Articles of Incorporation and changed its name from Cellceutix
Corporation to Innovation Pharmaceuticals Inc. On February 15,
2019, the Company formed IPIX Pharma Limited (“IPIX Pharma”), a
wholly-owned subsidiary incorporated under the Companies Act 2014
of Ireland. IPIX Pharma is a Private Company Limited by Shares. The
subsidiary is intended to serve as a key hub for strategic
collaboration with European companies and medical communities in
addition to providing cost-saving efficiencies and flexibility with
respect to developing Brilacidin under European Medicines Agency
standards.
The Company is a clinical stage biopharmaceutical company. The
Company’s common stock is quoted on OTCQB, symbol “IPIX.”
Basis of Consolidation
These consolidated financial statements include the accounts of
Innovation Pharmaceuticals Inc., a Nevada corporation, and our
wholly-owned subsidiary, IPIX Pharma, an Ireland limited company.
All significant intercompany transactions and balances have been
eliminated in consolidation. There was no translation gain and loss
for the year ended June 30, 2022 and 2021.
Nature of Operations - Overview
We are in the business of developing innovative small molecule
therapies to treat diseases with significant medical need,
particularly in the areas of inflammatory diseases, cancer,
dermatology and anti-infectives. Our strategy is to use our
business and scientific expertise to maximize the value of our
pipeline which presently includes Brilacidin by advancing
indications along the regulatory pathway as well as seeking
additional health care-related investment opportunities with the
aim of diversifying the Company’s assets. Ongoing activities
include Brilacidin drug manufacturing, scientific report writing,
and supportive research activities. The Company also acquired an
interest in BT BeaMedical Technologies Ltd. (formerly known as
Squalus Medical Ltd.), a private company developing a novel image
guided surgical laser platform. Management is focused on other
avenues of business development, including, but not limited to,
joint ventures, mergers and acquisitions, strategic investments,
and licensing agreements, for the purpose of diversifying corporate
assets. While no assurances are expressed or implied that any
agreement will be consummated in the future, the Company is
committed toward executing on opportunities at hand.
We currently own all development and marketing rights to our
products, other than the license rights granted to Alfasigma S.p.A.
in July 2019 for the development, manufacturing and
commercialization of locally-administered Brilacidin for ulcerative
proctitis/ulcerative proctosigmoiditis (“UP/UPS”). In order to
successfully develop and market our products, we may have to
partner with additional companies. Prospective partners may require
that we grant them significant development and/or commercialization
rights in return for agreeing to share the risk of development
and/or commercialization.
2. Liquidity, Going Concern and Management’s
Plan
Our financial statements were prepared assuming we will continue as
a going concern which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. For
the fiscal year ended June 30, 2022, the Company had a net loss of
$7.0 million and negative cash flow from operations of $6.3
million. As of June 30, 2022, the Company has negative working
capital of $0.9 million. As of June 30, 2022, the Company’s cash
amounted to $3.8 million and current liabilities amounted to $4.8
million. The Company has expended substantial funds on its clinical
trials and expects to continue our spending on research and
development expenditures. We expect to incur further losses in the
development of our business and have been dependent on funding
operations from inception. These conditions raise substantial doubt
about our ability to continue as a going concern. Management’s
plans include continuing to finance operations through the private
or public placement of debt and/or equity securities and the
reduction of expenditures. However, no assurance can be given at
this time as to whether we will be able to achieve these
objectives. The financial statements do not include any adjustment
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might
be necessary should we be unable to continue as a going
concern.
These factors raise a substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result
from the possible inability of the Company to continue as a going
concern.
3. Significant Accounting Policies and Recent Accounting
Pronouncements
Use of
Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Significant items subject to
such estimates and assumptions include contract research accruals,
recoverability of long-lived assets, valuation of equity grants and
income tax valuation. The Company bases its estimates on historical
experience and various other assumptions that management believes
to be reasonable under the circumstances. Changes in estimates are
recorded in the period in which they become known. Actual results
could differ from those estimates.
Cash
Cash consist of bank deposits. There were no cash equivalents at
June 30, 2022 and 2021.
Intangible
Assets - Patents
Costs incurred to file patent applications and acquired intangibles
are capitalized when the Company believes that there is a high
likelihood that the patent will be issued and there will be future
economic benefit associated with the patent. These costs will be
amortized on a straight-line basis over a 12 - 17 years life from
the date of patent filing. All costs associated with abandoned
patent applications are expensed. In addition, the Company will
review the carrying value of patents for indicators of impairment
on a periodic basis and if it determines that the carrying value is
impaired, it values the patent at fair value. As of June 30, 2022
and 2021, carrying value of patent was approximately $2,312,000 and
$2,754,000, respectively. Amortization expense for the fiscal years
ended June 30, 2022 and 2021, was approximately $382,000 and
$378,000, respectively.
As of June 30, 2022, the Company expensed the costs associated with
obtaining patents that have not yet resulted in products or gained
market acceptance and the Company has or will let these patents go
abandoned. During the years ended June 30, 2022 and 2021, the
patent expenses were insignificant.
In accordance with the provisions of the applicable authoritative
guidance, the Company’s long-lived assets and amortizable
intangible assets are tested for impairment whenever events or
changes in circumstances indicate that their carrying value may not
be recoverable. The Company assesses the recoverability of such
assets by determining whether their carrying value can be recovered
through undiscounted future operating cash flows, including its
estimates of revenue driven by assumed market segment share and
estimated costs. If impairment is indicated, the Company measures
the amount of such impairment by comparing the fair value to the
carrying value. During the years ended June 30, 2022 and 2021, the
Company has recorded patent write offs of approximately $141,000
and $0, respectively and included in general and administrative
expenses.
Certain Risks
and Uncertainties
Product Development
We devote significant resources to research and development
programs in an effort to discover and develop potential future
product candidates. The product candidates in our pipeline are at
various stages of preclinical and clinical development. The path to
regulatory approval includes three phases of clinical trials in
which we collect data to support an application to regulatory
authorities to allow us to market a product for treatment of a
specified disease. There are many difficulties and uncertainties
inherent in research and development of new products, resulting in
a high rate of failure. To bring a drug from the discovery phase to
regulatory approval, and ultimately to market, takes many years and
significant cost. Failure can occur at any point in the process,
including after the product is approved, based on post-market
factors. New product candidates that appear promising in
development may fail to reach the market or may have only limited
commercial success because of efficacy or safety concerns,
inability to obtain necessary regulatory approvals, limited scope
of approved uses, reimbursement challenges, difficulty or excessive
costs of manufacture, alternative therapies or infringement of the
patents or intellectual property rights of others. Uncertainties in
the FDA approval process and the approval processes in other
countries can result in delays in product launches and lost market
opportunities. Consequently, it is very difficult to predict which
products will ultimately be submitted for approval, which have the
highest likelihood of obtaining approval and which will be
commercially viable and generate profits. Successful results in
preclinical or clinical studies may not be an accurate predictor of
the ultimate safety or effectiveness of a drug or product
candidate.
Expenditures for research, development, and engineering of products
are expensed as incurred. For the years ended June 30, 2022 and
2021, the Company incurred approximately $4.8 million and $7.0
million of research and development costs, respectively.
Concentrations
of Credit Risk
The Company maintains its cash in bank deposit and checking
accounts that at times exceed federally insured limits of $250,000.
Approximately $3.5 million is subject to credit risk at June 30,
2022. However, these cash balances are maintained at creditworthy
financial institutions. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant
credit risk.
Commitments and
Contingencies
The Company follows Subtopic 450-20 of the Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) to
report accounting for contingencies. Certain conditions may exist
as of the date the financial statements are issued, which may
result in a loss to the Company, but which will only be resolved
when one or more future events occur or fail to occur. The Company
assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment.
If the assessment of a contingency indicates that it is probable
that a material loss has been incurred and the amount of the
liability can be estimated, then the estimated liability would be
accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency
is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability,
and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed
unless they involve guarantees, in which case the guarantees would
be disclosed. The Company’s legal costs associated with contingent
liabilities are recorded to expense as incurred.
Accrued
Outsourcing Costs
Substantial portions of our preclinical studies and clinical trials
are performed by third-party laboratories, medical centers,
contract research organizations and other vendors, or collectively
“CROs.” These CROs generally bill monthly or quarterly for services
performed, or bill based upon milestone achievement. For
preclinical studies, we accrue expenses based upon estimated
percentage of work completed and the contract milestones remaining.
For clinical studies, expenses are accrued based upon the number of
patients enrolled and the duration of the study. We monitor patient
enrollment, the progress of clinical studies and related activities
to the extent possible through internal reviews of data reported to
us by the CROs, correspondence with the CROs and clinical site
visits. Our estimates depend on the timeliness and accuracy of the
data provided by the CROs regarding the status of each program and
total program spending. We periodically evaluate the estimates to
determine if adjustments are necessary or appropriate based on
information we receive.
Income
Taxes
Deferred income tax assets and liabilities arise from temporary
differences associated with differences between the financial
statements and tax basis of assets and liabilities, as measured by
the enacted tax rates, which are expected to be in effect when
these differences reverse. Deferred tax assets and liabilities are
classified as current or non-current, depending upon the
classification of the asset or liabilities to which they relate.
Deferred tax assets and liabilities not related to an asset or
liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
The Company has generated net losses since inception and
accordingly has not recorded a provision for income taxes. The
deferred tax assets were primarily comprised of federal and state
tax net operating loss, or NOL, carryforwards. Due to uncertainties
surrounding the Company’s ability to generate future taxable income
to realize these tax assets, a full valuation allowance has been
established to offset the deferred tax assets. Additionally, the
future utilization of the NOL carryforwards to offset future
taxable income may be subject to an annual limitation as a result
of ownership changes that could occur in the future. If necessary,
the deferred tax assets will be reduced by any carryforwards that
expire prior to utilization as a result of such limitations, with a
corresponding reduction of the valuation allowance.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty
in Income Taxes” (ASC 740-10). The Company has not recognized a
liability as a result of the implementation of ASC 740-10. A
reconciliation of the beginning and ending amount of unrecognized
tax benefits has not been provided since there is no unrecognized
benefit since the date of adoption. The Company has not recognized
interest expense or penalties as a result of the implementation of
ASC 740-10. If there were an unrecognized tax benefit, the Company
would recognize interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating
expenses.
Basic and
Diluted Loss per Share
Basic and diluted loss per share are computed based on the
weighted-average common shares and common share equivalents
outstanding during the period. Except with respect to certain
voting, conversion and transfer rights and as otherwise expressly
provided in the Company’s Articles of Incorporation or required by
applicable law, shares of the Company’s Class A common stock and
Class B common stock have the same rights and privileges and rank
equally, share ratably and are identical in all respects as to all
matters. Accordingly, basic and diluted net income (loss) per share
are the same for both classes. Common share equivalents consist of
stock options, restricted stock, warrants, convertible related
party notes payable, and convertible preferred stock. Common share
equivalents were excluded from the computation of diluted earnings
per share for the years ended June 30, 2022 and 2021, because their
effect was anti-dilutive.
Weighted average shares of common stock outstanding used in the
calculation of basic and diluted earnings per share were as
follows:
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
Net loss per share, basic and diluted
|
|
$ |
(0.01 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
488,225,673 |
|
|
|
376,659,381 |
|
Class B common stock
|
|
|
15,641,463 |
|
|
|
9,503,827 |
|
Total weighted average shares outstanding
|
|
|
503,867,136 |
|
|
|
386,163,208 |
|
|
|
|
|
|
|
|
|
|
Antidilutive securities not included:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
8,268,269 |
|
|
|
6,779,935 |
|
Stock options arising from convertible note payable and accrued
interest
|
|
|
508,448 |
|
|
|
2,567,476 |
|
Restricted stock grants
|
|
|
58,392 |
|
|
|
116,786 |
|
Convertible preferred stock
|
|
|
36,000,000 |
|
|
|
- |
|
Total
|
|
|
44,835,109 |
|
|
|
9,464,197 |
|
Treasury
Stock
The Company accounts for treasury stock using the cost method.
There were 8,516,056 shares of Class A common stock and 2,358,537
shares of Class B common stock held in treasury, purchased at a
total cumulative cost of approximately $2.3 million as of June 30,
2022 and 2021 (see Note 15. Equity Transactions).
Treasury stock, representing shares of the Company’s common stock
that have been acquired for payroll tax withholding on vested stock
grants and to satisfy the exercise price on vested stock options,
is recorded at its acquisition cost and these shares are not
considered outstanding.
Revenue
Recognition
The Company follows the guidance of accounting standard ASC 606
(Topic 606), Revenue from Contracts with Customers, and all the
related amendments.
The Company has acquired and further developed license rights to
Functional Intellectual Property (“functional IP”) that it licenses
to customers for defined license periods. A functional IP license
is a license to intellectual property that has significant
standalone functionality that does not include supporting or
maintaining the intellectual property during the license period.
The Company’s patented drug formulas have significant standalone
functionality in their abilities to treat a disease or condition.
Further, there is no expectation that the Company will undertake
any activities to change the functionality of the drug formulas
during the license periods (see Note 8. Exclusive License Agreement
and Patent Assignment Agreement).
Revenue is recognized when a customer obtains control of promised
goods or services, in an amount that reflects the consideration
which the entity expects to receive in exchange for those goods or
services.
Pursuant to ASC 606, a customer is a party that has contracted with
an entity to obtain goods or services that are an output of the
entity’s ordinary activities in exchange for consideration.
To determine revenue recognition for arrangements that an entity
determines are within the scope of ASC 606, the Company performs
the following five steps:
|
(i)
|
identify the contract(s) with a customer;
|
|
(ii)
|
identify the performance obligations in the contract, including
whether they are distinct in the context of the contract;
|
|
(iii)
|
determine the transaction price, including the constraint on
variable consideration;
|
|
(iv)
|
allocate the transaction price to the performance obligations in
the contract; and
|
|
(v)
|
recognize revenue when (or as) the Company satisfies each
performance obligation.
|
The Company only applies the five-step model to contracts when it
is probable that the entity will collect the consideration it is
entitled to in exchange for the goods or services it transfers to
the customer. At contract inception, once the contract is
determined to be within the scope of ASC 606, the Company assesses
the goods or services promised within each contract and determines
those that are performance obligations, and assesses whether each
promised good or service is distinct. If a promised good or service
is not distinct, it is combined with other performance obligations.
The Company then recognizes as revenue the amount of the
transaction price that is allocated to the respective performance
obligation when (or as) the performance obligation is
satisfied.
The terms of the Company’s licensing agreement include the
following:
|
(i)
|
up-front fees;
|
|
(ii)
|
milestone payments related to the achievement of development,
regulatory, or commercial goals; and
|
|
(iii)
|
royalties on net sales of licensed products.
|
License of Intellectual Property: If the license to the Company’s
intellectual property is determined to be distinct from the other
performance obligations identified in the arrangement, the Company
recognizes revenues from non-refundable, up-front fees allocated to
the license when the license is transferred to the customer and the
customer is able to use and benefit from the license. If not
distinct, the license is combined with other performance
obligations in the contract. For licenses that are combined with
other performance obligations, the Company assesses the nature of
the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a
point in time and, if over time, the appropriate method of
measuring progress for purposes of recognizing revenue. The Company
evaluates the measure of progress each reporting period and, if
necessary, adjusts the measure of performance and related revenue
recognition.
Milestone Payments: At the inception of each arrangement that
includes developmental and regulatory milestone payments, the
Company evaluates whether the achievement of each milestone
specifically relates to the Company’s efforts to satisfy a
performance obligation or transfer a distinct good or service
within a performance obligation. If the achievement of a milestone
is considered a direct result of the Company’s efforts to satisfy a
performance obligation or transfer a distinct good or service and
the receipt of the payment is based upon the achievement of the
milestone, the associated milestone value is allocated to that
distinct good or service. If the milestone payment is not
specifically related to the Company’s effort to satisfy a
performance obligation or transfer a distinct good or service, the
amount is allocated to all performance obligations using the
relative standalone selling price method. The Company also
evaluates the milestone to determine whether they are considered
probable of being reached and estimates the amount to be included
in the transaction price using the most likely amount method. If it
is probable that a significant revenue reversal would not occur,
the associated milestone value is included in the transaction price
to be allocated, otherwise, such amounts are constrained and
excluded from the transaction price. At the end of each subsequent
reporting period, the Company re-evaluates the probability of
achievement of such development milestones and any related
constraint, and if necessary, adjusts its estimate of the
transaction price. Any such adjustments to the transaction price
are allocated to the performance obligations on the same basis as
at contract inception. Amounts allocated to a satisfied performance
obligation shall be recognized as revenue, or as a reduction of
revenue, in the period in which the transaction price changes.
Royalties: For arrangements that include sales-based royalties,
including milestone payments based on the level of sales, and the
license is deemed to be the predominant item to which the royalties
relate, the Company will recognize revenue at the later of (i) when
the related sales occur, or (ii) when the performance obligation to
which some or all of the royalty has been allocated has been
satisfied (or partially satisfied) in accordance with the royalty
recognition constraint.
Accounting for
Stock Based Compensation
The stock-based compensation expense incurred by the Company for
employees, non-employees and directors in connection with its
equity incentive plan is based on ASC 718, and the fair market
value of the equity awards is measured at the grant date. Under ASC
718 employee is defined as “An individual over whom the grantor of
a share-based compensation award exercises or has the right to
exercise sufficient control to establish an employer-employee
relationship based on common law as illustrated in case law and
currently under U.S. tax regulations.”
Awards with service-based vesting conditions only: Expense is
recognized on a straight-line basis over the requisite service
period of the award.
Awards with performance-based vesting conditions: Expense is not
recognized until it is determined that it is probable the
performance-based conditions will be met. When achievement of a
performance-based condition is probable, a catch-up of expense will
be recorded as if the award had been vesting on a straight-line
basis from the award date. The award will continue to be expensed
on a straight-line basis over the requisite service period basis
until a higher performance-based condition is met, if
applicable.
Awards with market-based vesting conditions: Expense recognized on
a straight-line basis over the requisite service period, which is
the lesser of the derived service period or the explicit service
period if one is present. However, if the market condition is
satisfied prior to the end of the requisite service period, the
Company will accelerate all remaining expense to be recognized.
Awards with both performance-based and market-based vesting
conditions: If an award vesting or exercisability is conditional
upon the achievement of either a market condition or performance or
service conditions, the requisite service period is generally the
shortest of the explicit, implicit, and derived service period.
We have elected to use the Black-Scholes-Merton pricing model to
determine the fair value of stock options on the dates of grant.
Restricted stock units are measured based on the fair market values
of the underlying stock on the dates of grant. The grant date is
also the valuation date for the non-employee awards. We recognize
stock-based compensation using the straight-line method.
Investments
For those investments in common stock or in-substance common stock
in which the Company has the ability to exercise significant
influence over the operating and financial policies of the
investee, the investment is accounted for under the equity method.
For those investments in which the Company does not have such
significant influence, the Company applies the accounting guidance
for certain investments in debt and equity securities.
Recent
Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40), which
simplifies the complexity associated with applying U.S. GAAP for
certain financial instruments with characteristics of liabilities
and equity. This ASU (1) simplifies the accounting for convertible
debt instruments and convertible preferred stock by removing the
existing guidance in ASC 470-20, Debt: Debt with Conversion and
Other Options, that requires entities to account for beneficial
conversion features and cash conversion features in equity,
separately from the host convertible debt or preferred stock; (2)
revises the scope exception from derivative accounting in ASC
815-40 for freestanding financial instruments and embedded features
that are both indexed to the issuer’s own stock and classified in
stockholders’ equity, by removing certain criteria required for
equity classification; and (3) revises the guidance in ASC 260,
Earnings Per Share, to require entities to calculate diluted
earnings per share for convertible instruments by using the
if-converted method. ASU 2020-06 is effective for fiscal years
beginning after December 15, 2021, including interim periods within
those fiscal years. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. Adoption is either
through a modified retrospective method or a full retrospective
method of transition. The adoption of this standard will not
materially impact the Company’s consolidated financial statements
in 2022.
The FASB issued ASU No. 2016-13, Financial Instruments - Credit
Losses (Topic 326). This standard requires a financial asset to be
presented at the net amount expected to be collected. The financial
assets of the Company in scope of ASU 2016-13 will primarily be
accounts receivable. The Company will estimate an allowance for
expected credit losses on accounts receivable that result from the
inability of customers to make required payments. In estimating the
allowance for expected credit losses, consideration will be given
to the current aging of receivables, historical experience, and a
review for potential bad debts. The Company will adopt this
guidance in the first quarter of fiscal 2023 and does not expect
the adoption to have an impact on its results of operations,
financial position, and disclosures.
4. Equity Investment
BT BeaMedical Technologies Ltd. (formerly known as Squalus Medical
Ltd.)
On June 9, 2022, the Company entered into a Series A Preferred
Share Purchase Agreement (the “Purchase Agreement”) with BT
BeaMedical Technologies Ltd. (formerly known as Squalus Medical
Ltd.), a company established under the laws of the State of Israel
(“BTL”), pursuant to which the Company purchased 55,556 shares of
BTL’s Series A Redeemable Preferred Shares (the “Series A Shares”)
and a warrant to purchase 27,778 Series A Shares for aggregate
consideration of $4,000,000, or approximately $72.00 per Series A
Share. Following the closing under the Purchase Agreement, the
Company owns approximately 35.7% of BTL’s issued and outstanding
equity securities and approximately 41.6% of BTL’s equity
securities on a fully diluted basis. The Company also entered into
customary investor rights and indemnification agreements with BTL.
The Company therefore recorded an equity investment on our June 30,
2022 consolidated balance sheet.
The Company’s equity in losses in excess of its investment are
accounted for under the equity method consisted of the following as
of June 30, 2022 (rounded to nearest thousand):
Investment Name
|
|
Ownership
Interest
|
|
|
Carrying
Amount
|
|
BT BeaMedical Technologies Limited (“BTL”)
|
|
|
35.7 |
% |
|
|
|
Total contributions
|
|
|
|
|
|
$ |
4,000,000 |
|
Less: Share of the loss in investment in BTL
|
|
|
|
|
|
|
(22,000 |
) |
Equity losses in excess of investment
|
|
|
|
|
|
$ |
3,978,000 |
|
The Company invested approximately $4,000,000 in BTL as of June 30,
2022. The cash balance in BTL at June 30, 2022 was approximately
$3.8 million. During the year ended June 30, 2022, BTL incurred a
loss of approximately $63,000, and accordingly, the Company
recorded its share of the loss in investment in BTL, in accordance
with the provisions in the purchase agreement, of approximately
$22,000 in the accompanying consolidated statement of
operations.
We were committed to fund BTL for our share of its liabilities at
June 30, 2022. The Company will continue providing additional
equity contributions in 2023 and for the foreseeable future.
Summarized balance sheet information for the Company’s equity
method investee BTL as of June 30, 2022 is presented in the
following table (rounded to nearest thousand):
Current assets
|
|
|
|
Cash
|
|
$
|
3,850,000
|
|
Other current assets
|
|
|
1,000
|
|
Total assets
|
|
$
|
3,851,000
|
|
Current liabilities
|
|
$
|
(195.000
|
)
|
Total liabilities
|
|
$
|
(195,000
|
)
|
Summarized income statement information for the Company’s equity
method investee BTL is presented in the following table for the
period from June 9, 2022 (date of acquisition) to June 30, 2022
(rounded to nearest thousand):
Net sales and revenue
|
|
$ |
- |
|
Research and development costs
|
|
|
7,000 |
|
Administrative expenses
|
|
|
55,000 |
|
Total operating expense
|
|
$ |
62,000 |
|
Loss from operations
|
|
$ |
62,000 |
|
Other expense
|
|
|
1,000 |
|
Net loss
|
|
$ |
63,000 |
|
5. Patents, net
Patents, net consisted of the following (rounded to nearest
thousand):
|
|
Useful life
(years)
|
|
|
June 30,
2022
|
|
|
June 30,
2021
|
|
Purchased Patent Rights- Brilacidin and related compounds
|
|
|
14
|
|
|
$ |
4,082,000 |
|
|
$ |
4,082,000 |
|
Purchased Patent Rights-Anti-microbial- surfactants and related
compounds
|
|
|
12
|
|
|
|
144,000 |
|
|
|
144,000 |
|
Patents – Brilacidin, and other compounds
|
|
|
17
|
|
|
|
1,146,000 |
|
|
|
1,280,000 |
|
Total patents cost
|
|
|
|
|
|
|
5,372,000 |
|
|
|
5,506,000 |
|
Less: Accumulated amortization
|
|
|
|
|
|
|
(3,060,000 |
) |
|
|
(2,752,000 |
) |
Patents, net
|
|
|
|
|
|
$ |
2,312,000 |
|
|
$ |
2,754,000 |
|
The patents are amortized on a straight-line basis over the useful
lives of the assets, determined to be 12-17 years from the date of
acquisition.
Amortization expense for the years ended June 30, 2022 and 2021 was
approximately $382,000 and $378,000, respectively. During the
fiscal years ended June 30, 2022 and 2021, the Company has written
off the patent costs relating to Kevetrin of approximately $141,000
and $0, respectively and included these in general and
administrative expenses.
At June 30, 2022, the future amortization period for all patents
was approximately 12 years to 17 years. Future estimated
amortization expenses are approximately $371,000 for each year from
2023 to 2025, $361,000 for the year ending June 30, 2026 and a
total of $838,000 for the year ending June 30, 2027 and
thereafter.
6. Accrued Expenses - Related Parties and
Other
Accrued expenses consisted of the following (rounded to nearest
thousand):
|
|
June 30,
2022
|
|
|
June 30,
2021
|
|
|
|
|
|
|
|
|
Accrued research and development consulting fees
|
|
$ |
80,000 |
|
|
$ |
340,000 |
|
Accrued rent - related parties (Note 11. Related Party
Transactions)
|
|
|
8,000 |
|
|
|
8,000 |
|
Accrued interest - related parties (Note 12. Convertible Note
Payable - Related Party)
|
|
|
4,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
92,000 |
|
|
$ |
348,000 |
|
7. Accrued Salaries and Payroll Taxes - Related Parties and
Other
Accrued salaries and payroll taxes consisted of the following
(rounded to nearest thousand):
|
|
June 30,
2022
|
|
|
June 30,
2021
|
|
|
|
|
|
|
|
|
Accrued salaries - related parties
|
|
$ |
1,492,000 |
|
|
$ |
1,785,000 |
|
Accrued payroll taxes - related parties
|
|
|
71,000 |
|
|
|
130,000 |
|
Withholding tax - payroll
|
|
|
77,000 |
|
|
|
77,000 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,640,000 |
|
|
$ |
1,992,000 |
|
8. Exclusive License Agreement and Patent Assignment
Agreement
On July 18, 2019, the Company entered into an Exclusive License
Agreement (the “License Agreement”) with Alfasigma S.p.A., a global
pharmaceutical company (“Alfasigma”), granting Alfasigma the
worldwide right to develop, manufacture and commercialize
locally-administered Brilacidin for the treatment of UP/UPS.
Under the terms of the License Agreement, Alfasigma made an initial
upfront non-refundable payment of $0.4 million to the Company in
July, 2019 and will make additional payments of up to $24.0 million
to the Company based upon the achievement of certain milestones,
including a $1.0 million payment due following commencement of the
first Phase 3 clinical trial of Brilacidin for UP/UPS and an
additional $1.0 million payment upon the filing of a marketing
approval application with the U.S. Food and Drug Administration or
the European Medicines Agency. At this time, Alfasigma has
completed a Phase 1 clinical trial with Brilacidin. In addition to
the milestones, Alfasigma will pay a royalty to the Company equal
to six percent of net sales of Brilacidin for UP/UPS, subject to
adjustment as provided in the License Agreement. The Company
received an initial upfront non-refundable payment of $0.4 million
and reported as revenue in July, 2019 and the Company did not
receive any further payment during the years ended June 30, 2022
and 2021.
On April 13, 2022, the Company entered a Patent Assignment
Agreement with Fox Chase Chemical Diversity Center, Inc. (“FCCDC”),
pursuant to which the Company assigned the title, rights and
interest in and to the applications of certain patents in
accordance with an earlier collaborative research agreement related
to antifungal drug discovery work to which the Company had
rights.
On May 3, 2022, the Company received payment of $18,000 from FCCDC
based on FCCDC’s third-party license of broad-spectrum anti-fungals
and a separate agreement between the Company and FCCDC. Some of the
preliminary data used in the FCCDC research program had been
obtained as part of an earlier collaboration with the Company
supported by funding from the National Institutes of Health.
Additional payments from FCCDC to the Company may also be made in
the future.
9. Operating Leases
Operating lease right-of-use (“ROU”) assets and liabilities are
recognized at commencement date based on the present value of lease
payments over the lease term. ROU assets represent our right to use
an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the
lease. Generally, the implicit rate of interest in arrangements is
not readily determinable and the Company utilizes its incremental
borrowing rate in determining the present value of lease payments.
The Company’s incremental borrowing rate is a hypothetical rate
based on its understanding of what its credit rating would be. The
operating lease ROU asset includes any lease payments made and
excludes lease incentives. Our variable lease payments primarily
consist of maintenance and other operating expenses from our real
estate leases. Variable lease payments are excluded from the ROU
assets and lease liabilities and are recognized in the period in
which the obligation for those payments is incurred. Our lease
terms may include options to extend or terminate the lease when it
is reasonably certain that we will exercise that option. Lease
expense for minimum lease payments is recognized on a straight-line
basis over the lease term.
We have lease agreements with lease and non-lease components. We
have elected to account for these lease and non-lease components as
a single lease component. We are also electing not to apply the
recognition requirements to short-term leases of twelve months or
less and instead will recognize lease payments as expense on a
straight-line basis over the lease term.
The Company determined that the operating lease right-of-use asset
was fully impaired on December 31, 2019. As such, the Company
recognized an impairment loss of approximately $643,000, after
recording amortization of the right-of-use asset for July, August,
and September 2019 totaling approximately $27,000, resulting in a
carrying value of $0 since December 31, 2019. The Company vacated
the leased office space in December 2019, and in January 2020 the
Company initiated a lawsuit against the lessor relating to an
automatic extension of the lease for the office space and related
matters (See Note 10. Commitments and Contingencies).
The components of lease expense and supplemental cash flow
information related to leases for the period are as follows:
|
|
Year
Ended
June 30,
2022
|
|
Lease Cost
|
|
|
|
Operating lease cost (included in general and administrative in the
Company’s consolidated statements of operations)
|
|
$ |
59,000 |
|
Variable lease cost
|
|
|
12,000 |
|
|
|
$ |
71,000 |
|
Other Information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities for the year ended June 30, 2022
|
|
$ |
164,000 |
|
Weighted average remaining lease term - operating leases (in
years)
|
|
|
1.25 |
|
Average discount rate - operating leases
|
|
|
18 |
% |
The supplemental balance sheet information related to leases for
the period is as follows:
|
|
At
June 30,
2022
|
|
Operating leases
|
|
|
|
Short-term operating lease liabilities
|
|
$ |
197,000 |
|
Long-term operating lease liabilities
|
|
|
55,000 |
|
|
|
|
|
|
Total operating lease liabilities
|
|
$ |
252,000 |
|
The following table provides maturities of the Company’s lease
liabilities at June 30, 2022 as follows:
|
|
Operating
Leases
|
|
Fiscal Year Ending June 30,
|
|
|
|
2023
|
|
$ |
223,000 |
|
2024 (remaining 3 months)
|
|
|
57,000 |
|
Total lease payments
|
|
|
280,000 |
|
Less: Imputed interest/present value discount
|
|
|
(28,000 |
) |
Present value of lease liabilities
|
|
$ |
252,000 |
|
Operating lease cost for the years ended June 30, 2022 was
approximately $59,000. Operating lease cost for the years ended
June 30, 2021 was approximately $86,000.
10. Commitments and Contingencies
Litigation
On January 22, 2020, the Company filed a complaint against Cummings
Properties, LLC in the Superior Court of the Commonwealth of
Massachusetts (C.A. No. 20-77CV00101), seeking, among other things,
declaratory relief that the lease terminated in September 2018,
because the Company’s prior principal executive offices did not
automatically extend for an additional five years from September
2018, return of the Company’s security deposit, and damages. The
total lease amount is approximately $0.6 million. The Company is
currently unable to determine the probability of the outcome or
reasonably estimate the loss or gain, if any.
Contractual
Commitments
The Company has total non-cancellable contractual minimum
commitments of approximately $1.0 million to contract research
organizations as of June 30, 2022. Expenses are recognized when
services are performed by the contract research organizations.
Contingent
Liability - Disputed Invoices
As disclosed in Note 7. Accrued Salaries and Payroll Taxes, the
Company accrued payroll to Dr. Krishna Menon, ex-President of
Research of approximately $1,443,000 for his past services with the
Company, and this amount was included in accrued salaries and
payroll taxes. As described in Note 11. Related Party Transactions,
the Company has a payable to Kard Scientific, Inc. (“KARD”) of
approximately $1,486,000 for its research and development expenses
and this amount was included in accounts payable. KARD is a company
owned by Dr. Menon. Dr. Menon’s employment was terminated with the
Company on September 18, 2018, and Dr. Menon resigned from the
Company’s Board of Directors on December 11, 2018. Dr. Menon, on
behalf of himself and KARD, demanded payment of these amounts in
October 2019; however, the Company disputes the underlying basis
for these amounts and notified Dr. Menon in November 2019 of the
Company’s intent not to pay them.
All of the above disputed invoices were reflected as current
liabilities as of June 30, 2022.
11. Related Party Transactions
Pre-clinical Studies
The Company previously engaged KARD to conduct specified
pre-clinical studies. The Company did not have an exclusive
arrangement with KARD. All work performed by KARD needed prior
approval by the executive officers of the Company, and the Company
retained all intellectual property resulting from the services by
KARD. The Company no longer uses KARD. At June 30, 2022 and 2021,
the accrued research and development expenses payable to KARD was
approximately $1,486,000 and this amount was included in accounts
payable. Dr. Menon, the Company’s ex-principal shareholder and
Director, on behalf of himself and KARD, demanded payment of these
amounts in October 2019; however, the Company disputes the
underlying basis for these amounts and notified Dr. Menon in
November 2019 of the Company’s intent not to pay them.
At June 30, 2022 and 2021, rent payables to KARD of approximately
$8,000, were included in accrued expenses.
12. Convertible Note Payable - Related Party
The Ehrlich Promissory Note C is an unsecured demand note with Mr.
Ehrlich, the Company’s Chairman and CEO, that originated in 2010,
bears 9% simple interest per annum and is convertible into the
Company’s Class A common stock at $0.50 per share.
On December 29, 2010, the Company issued 18,000,000 Equity
Incentive Options to purchase Class B common stock to Mr. Ehrlich,
which are exercisable at $0.11 per share. On May 8, 2012, the
Company did not have the ability to repay the Ehrlich Promissory
Note C loan of approximately $2,022,000 and agreed to change the
interest rate from 9% simple interest to 10% simple interest, and
the Company issued 2,000,000 Equity Incentive Options exercisable
at $0.51 per share equal to 110% of the closing bid price of $0.46
per share on May 7, 2012. All these options were valid for ten
years from the date of issuance and expired in May, 2022.
On January 29, 2019, the Company issued 909,090 shares of Class B
common stock at the option exercise price of $0.11 per share to Mr.
Ehrlich for his partial exercise of his option, paid by the
cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the
exercise price (as permitted pursuant to the terms of the option
agreement).
On March 30, 2020, the Company issued 909,090 shares of Class B
common stock at the option exercise price of $0.11 per share to Mr.
Ehrlich for his partial exercise of his option, paid by the
cancellation of debt to Mr. Ehrlich of $100,000 to satisfy the
exercise price (as permitted pursuant to the terms of the option
agreement).
On September 8, 2020, the Company issued 1,787,762 shares of Class
B common shares (net of 412,238 shares of Class B common shares
withheld to satisfy taxes) at the option exercise price of $0.11
per share to Mr. Ehrlich for his partial exercise of his option,
paid by the cancellation of debt to Mr. Ehrlich of $242,000 to
satisfy the exercise price (as permitted pursuant to the terms of
the option agreement).
During the year ended June 30, 2022, the Company repaid the
principal of $1,033,000 to Mr. Ehrlich, the Company’s Chairman and
CEO. As of June 30, 2022 and June 30, 2021, the principal balance
of this convertible note payable to Mr. Ehrlich, the Company’s
Chairman and CEO was approximately $250,000 and $1,283,000,
respectively.
As of June 30, 2022 and 2021, the balance of accrued interest
payable was $4,000 and $0, respectively (see Note 6. Accrued
Expenses - Related Parties and Other).
As of June 30, 2022 and 2021, the total outstanding balances of
principal and interest were approximately $254,000 and $1,283,000,
respectively.
13. Loan payable
On May 10, 2020 and April 19, 2021, the Company received loan
proceeds in the amount of approximately $93,000 and $79,000,
respectively, under the Paycheck Protection Program (“PPP”) and it
was recorded under loan payable. The PPP, established as part of
the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), provides for loans to qualifying businesses for amounts up
to 2.5 times of the average monthly payroll expenses of the
qualifying business. The loans and accrued interest are forgivable
after eight weeks as long as the borrower uses the loan proceeds
for eligible purposes, including payroll, benefits, rent and
utilities, and maintains its payroll levels. The amount of loan
forgiveness will be reduced if the borrower terminates employees or
reduces salaries during the eight-week period.
During the year ended June 30, 2022, the Company obtained the
approval of the forgiveness of the above mentioned two loans, and
the Company recorded the total loan forgiveness of $172,000 under
other income.
14. Equity Incentive Plans, Stock-Based Compensation,
Exercise of Options and Warrants Outstanding
Stock-based Compensation - Stock
Options
2016 Equity Incentive Plan (the “2016
Plan”)
On June 30, 2016, the Board of Directors adopted the Company’s 2016
Plan. The 2016 Plan became effective upon adoption by the Board of
Directors on June 30, 2016.
On February 23, 2020, the Board of Directors approved an amendment
to Section 4.1 of the 2016 Plan to increase the annual limit on the
number of awards under such Plan to outside directors from 250,000
to 1,500,000. On October 10, 2021, the Board of Directors approved
amendments to the 2016 Plan to increase the number of shares of
common stock available for issuance thereunder to 225,000,000
shares and to increase the annual limit on the number of awards
under such Plan to outside directors from 1,500,000 to 5,000,000,
among other changes.
Up to 225,000,000 shares of the Company’s Class A common stock may
be issued under the 2016 Plan (subject to adjustment as described
in the 2016 Plan).
Stock Options
The fair value of options granted for the years ended June 30, 2022
and 2021 was estimated on the date of grant using the
Black-Scholes-Merton Model that uses assumptions noted in the
following table.
|
|
Years Ended June 30,
|
|
|
|
2022
|
|
|
2021
|
|
Expected term (in years)
|
|
5-10
|
|
|
3-10
|
|
Expected stock price volatility
|
|
80.84 to 112.37%
|
|
|
89.88 to 109.33%
|
|
Risk-free interest rate
|
|
0.69% to 1.61%
|
|
|
0.31 to 0.68%
|
|
Expected dividend yield
|
|
|
0 |
|
|
|
0 |
|
The components of stock-based compensation expense included in the
Company’s Statements of Operations for the years ended June 30,
2022 and 2021 are as follows (rounded to nearest thousand):
|
|
Years ended
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$ |
160,000 |
|
|
$ |
183,000 |
|
General and administrative expenses
|
|
|
423,000 |
|
|
|
- |
|
Total stock-based compensation expense
|
|
$ |
583,000 |
|
|
$ |
183,000 |
|
During the year ended June 30, 2022 and
2021
Directors and
Employee
On October 10, 2021, the Compensation Committee approved the
issuance of 1 million stock options to purchase shares of the
Company’s common stock each to 2 independent directors of the
Company, and 1 million stock options to purchase shares of
Company’s common stock to Mr. Ehrlich, the CEO, which are
exercisable for 10 years at $0.24 per share of common stock. These
3 million stock options with 1 year vesting period were valued at
approximately $585,000. During the years ended June 30, 2022, the
Company recorded approximately $423,000 of stock-based compensation
costs and charged to additional paid-in capital as of June 30,
2022. The assumptions used in the Black Scholes option-pricing
model are disclosed above.
On October 10, 2021, the Company also issued to Ms. Jane Harness,
the Senior Vice President, Clinical Sciences and Portfolio
Management of the Company, 500,000 options to purchase common
stock, which are exercisable for 10 years at $0.24 per share of
common stock. These stock options with 1 year vesting period were
valued at approximately $98,000. During the years ended June 30,
2022, the Company recorded approximately $71,000 of related
stock-based compensation. The assumptions used in the Black Scholes
option-pricing model are disclosed above.
On September 11, 2020, the Company issued to Ms. Harness 58,394
shares of the Company’s common stock. The Company also issued
172,987 options to purchase common stock. These stock options with
3 years vesting period were valued at approximately $33,000 and
these 58,394 shares of the Company’s common stock were valued at
approximately $13,000, based on the closing bid price as quoted on
the OTC on September 11, 2020 at $0.22 per share. During the year
ended June 30, 2022, the Company recorded approximately $15,000 of
stock-based compensation expense in connection with the foregoing
equity awards, including approximately $11,000 of stock option
expense and $4,000 of stock awards. During the year ended June 30,
2021, the Company recorded approximately $12,000 of stock-based
compensation expense in connection with the foregoing equity
awards, including approximately $9,000 of stock option expense and
$3,000 of stock awards.
On February 23, 2020, the Company issued (i) options for the
purchase of 500,000 shares of common stock at an exercise price of
$0.10 per share, which is 110% of the previous per share closing
price of $0.09 on February 21, 2020, and (ii) 500,000 shares of
Class A common stock to each member of the Company’s Board of
Directors, consisting of Leo Ehrlich, Barry Schechter and Zorik
Spektor.
On September 1, 2019, the Company issued to Ms. Harness 58,394
shares of the Company’s common stock. The Company also issued
172,987 options to purchase common stock. These stock options with
a 3 year vesting period were valued at approximately $20,000, based
on the closing bid price as quoted on the OTC on August 30, 2019 at
$0.132 per share. During the year ended June 30, 2022, the Company
recorded approximately $9,000 of stock-based compensation expense
in connection with the foregoing equity awards, including
approximately $6,000 of stock option expense and $3,000 of stock
awards. During the year ended June 30, 2021, the Company recorded
approximately $9,000 of stock-based compensation expense in
connection with the foregoing equity awards, including
approximately $7,000 of stock option expense and $2,000 of stock
awards.
On September 1, 2018, the Company issued to Ms. Harness 58,394
shares of the Company’s common stock. The Company also issued
172,987 options to purchase common stock. These stock options are
valued at approximately $63,000, based on the closing bid price as
quoted on the OTCQB on August 31, 2018 at $0.40 per share. During
the year ended June 30, 2022, the Company recorded approximately
$5,000 of stock-based compensation expense in connection with the
foregoing equity awards, including approximately $4,000 of stock
option expense and $1,000 of stock awards. During the year ended
June 30, 2021, the Company recorded approximately $29,000 of
stock-based compensation expense in connection with the foregoing
equity awards, including approximately $21,000 of stock option
expense and $8,000 of stock awards.
Consultants
On January 1, 2022, the Company agreed to issue stock options to
purchase 75,000 shares of the Company’s common stock to one
consultant for his one-year contract. These options were issued
with an exercise price of $0.044 per share and vest 33 1/3% on
January 1, 2022, 33 1/3% on July 1, 2022 and 33 1/3% on January 1,
2023. The value of these options was approximately $3,000. During
the year ended June 30, 2022, the Company recorded approximately
$2,000 of related stock-based compensation. The assumptions used in
the Black Scholes option-pricing model are disclosed above.
On July 30, 2021, the Company agreed to issue stock options to
purchase 100,000 shares of the Company’s common stock to one
consultant for his one-year contract. These options were issued
with an exercise price of $0.27 per share and vest 33 1/3% on July
30, 2021, 33 1/3% on January 30, 2022, and 33 1/3% on July 30,
2022. The value of these options was approximately $19,000. During
the year ended June 30, 2022, the Company recorded approximately
$18,000 of related stock-based compensation. The assumptions used
in the Black Scholes option-pricing model are disclosed above.
On July 1, 2021, the Company agreed to issue stock options to
purchase 225,000 shares of the Company’s common stock to one
consultant for his one-year contract. These options were issued
with an exercise price of $0.21 per share and vest 33 1/3% on July
1, 2021, 33 1/3% on January 1, 2022, and 33 1/3% on July 1, 2022.
The value of these options was approximately $33,000. During the
year ended June 30, 2022, the Company recorded approximately
$32,000 of related stock-based compensation. The assumptions used
in the Black Scholes option-pricing model are disclosed above.
On February 10, 2021, the Company agreed to issue stock options to
purchase 75,000 shares of the Company’s common stock to one
consultant for his one-year contract. These options were issued
with an exercise price of $0.38 per share and vest 33 1/3% on
February 10, 2021, 33 1/3% on July 1, 2021, and 33 1/3% on January
1, 2022. The value of these options was approximately $20,000.
During the years ended June 30, 2022 and 2021, the Company recorded
approximately $7,000 and $13,000 of related stock-based
compensation, respectively. The assumptions used in the Black
Scholes option-pricing model are disclosed above.
On July 23, 2020, the Company agreed to issue stock options to
purchase 100,000 shares of the Company’s common stock to one
consultant for his one-year contract. These options were issued
with an exercise price of $0.32 per share and vest 33 1/3% on July
23, 2020, 33 1/3% on January 23, 2021, and 33 1/3% on July 23,
2021. The value of these options was approximately $28,000. During
the years ended June 30, 2022 and 2021, the Company recorded
approximately $1,000 and $27,000 of related stock-based
compensation, respectively. The assumptions used in the Black
Scholes option-pricing model are disclosed above.
On May 18, 2020, the Company agreed to issue stock options to
purchase 500,000 shares of the Company’s common stock each to two
consultants for their one-year contracts. These options were issued
with an exercise price of $0.14 per share and vest 33 1/3% on July
1, 2020, 33 1/3% on January 1, 2021, and 33 1/3% on July 1, 2021.
The value of these options was approximately $78,000. During the
years ended June 30, 2022 and 2021, the Company recorded
approximately $0 and $53,000 of related stock-based compensation,
respectively.
Exercise of options
During the years ended June 30, 2022, the Company received
approximately $23,000 of net proceeds from the exercise of 166,666
stock options at $0.14 per share. The details of exercises of
options to purchase Class B common stock dur