Attached files
As filed
with the Securities and Exchange Commission on April 15, 2010
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
____________________________
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
____________________________
IASO
Pharma Inc.
(Exact
Name of Registrant as Specified in Its Charter)
|
Delaware
|
2834
|
20-5686081 | ||
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
12707
High Bluff Drive
Suite
200
San
Diego, California 92130
(858)
350-4312
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s
Principal Executive Offices)
____________________________
Matthew
A. Wikler
President
and Chief Executive Officer
IASO
Pharma Inc.
12707
High Bluff Drive
Suite
200
San
Diego, California 92130
(858)
350-4312
(Name,
Address Including Zip Code, and Telephone Number, Including Area Code, of Agent
for Service)
____________________________
Copies
to:
|
Yehuda
Markovits, Esq.
|
Marc
J. Ross, Esq.
Benjamin
S. Reichel, Esq.
|
|
|
Olshan
Grundman Frome Rosenzweig & Wolosky LLP
|
Sichenzia
Ross Friedman Ference LLP
|
|
|
Park
Avenue Tower
|
61
Broadway
|
|
|
65
East 55th
Street
|
32nd
Floor
|
|
|
New
York, New York 10022
|
New
York, New York 10006
|
|
|
Telephone:
(212) 451-2300
|
Telephone:
(212) 930-9700
|
|
|
Facsimile:
(212) 451-2222
|
Facsimile:
(212) 930-9725
|
____________________________
Approximate
Date of Commencement of Proposed Sale to the Public: As soon as practicable after the
effective date of this registration statement
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
|
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
|
(Do
not check if a smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of Securities to be Registered
|
Amount
to be Registered
|
Proposed
Maximum Offering Price Per Unit (2)
|
Proposed
Maximum Aggregate Offering Price (2)
|
Amount
of Registration Fee
|
|
Units,
each consisting of two shares of common stock, $0.001 par value per share,
and a warrant (1)
|
Units
|
$
|
$
|
$
|
|
Common
stock included in the Units (1)
|
shares
|
—
|
—
|
—
(3)
|
|
Warrants
included in the Units (1)
|
warrants
|
—
|
—
|
—
(3)
|
|
Shares
of common stock underlying the warrants included in the Units (1)
|
shares
|
$
|
$
|
$
|
|
Representative’s
Unit purchase warrant
|
1
warrant
|
$100
|
$100
|
$.01
|
|
Units
underlying Representative’s Unit purchase warrant (“Representative’s
Units”) (4)
|
Units
|
$
|
$
|
$
|
|
Common
stock included in the Representative’s Units
|
shares
|
—
|
—
|
—
(3)
|
|
Warrants
included in the Representative’s Units
|
warrants
|
—
|
—
|
—
(3)
|
|
Shares
of common stock underlying the warrants included in the Representative’s
Units
|
shares
|
$
|
$
|
$
|
|
Total
|
$20,000,000
|
$1,426
|
____________________
|
(1)
|
Includes
Units, consisting of
shares of common
stock, warrants and
shares of common stock underlying the
warrants, which may be issued upon exercise of a 45-day option granted to
the underwriters to cover over-allotments, if
any.
|
|
(2)
|
Estimated
solely for purposes of calculating the registration fee pursuant to Rule
457(o) under the Securities Act of 1933, as
amended.
|
|
(3)
|
No
fee pursuant to Rule 457(g).
|
|
(4)
|
Represents
8% of the Units to be sold in this offering, including
Units that may be sold upon exercise
of the underwriters’ over-allotment
option.
|
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
|
PRELIMINARY
PROSPECTUS
|
SUBJECT
TO COMPLETION, DATED APRIL 15,
2010
|
Units
IASO
PHARMA INC.
This
offering is the initial public offering of our securities. We are offering
units, each unit consisting of two shares
of our common stock and a warrant to purchase one share of common
stock.
Each
warrant entitles the holder to purchase one share of our common stock at a price
equal to 110% of the offering price of the common stock underlying the units,
subject to adjustment as described herein. Each warrant will become
exercisable upon the earlier to occur of the expiration of the underwriters’
over-allotment option or its exercise in full, and will expire
on , 2015, or earlier upon
redemption.
We expect
the initial public offering price to be between
$ and
$ per unit. Currently, no public
market exists for our units, common stock or warrants. We intend to
apply for listing our units, as well as our common stock and warrants underlying
the units, on NYSE Amex under the symbols ,
and ,
respectively. The units will begin trading on or promptly after the
date of this prospectus. The units will automatically separate and
each of the common stock and warrants will trade separately on the 60th day
after the date of this prospectus, unless Maxim Group LLC, the representative of
the underwriters, determines that an earlier date is acceptable based on its
assessment of the relative strengths of the securities markets and small
capitalization companies in general, and the trading pattern of, and demand for,
our securities in particular.
Investing
in our securities involves a high degree of risk. See “Risk Factors”
beginning on page 8 of this prospectus for a discussion of information that
should be considered in connection with an investment in our
securities.
|
Per
Unit
|
Total
|
|
|
Public
offering price
|
$
|
$
|
|
Underwriting
discount and commissions (1)
|
$
|
$
|
|
Proceeds
to us, before expenses
|
$
|
$
|
_____________
|
(1)
|
Does
not include a corporate finance fee in the amount of 1.0% of the gross
proceeds of the offering, excluding any over-allotment
proceeds. See “Underwriting” for a description of the
compensation payable to the
underwriters.
|
We
granted the underwriters the right to purchase up to
additional units from us at the public
offering price, less the underwriting discount, within 45 days from the date of
this prospectus to cover over-allotments, if any. Following the closing of this
offering, we will grant the underwriters an additional warrant to purchase such
number of units equal to 8.0% of the units sold in this offering at a price
equal to 110% of the offering price of the units sold in this
offering.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
We are
offering the units for sale on a firm-commitment basis. The
underwriters expect to deliver our securities to investors in this offering on
or about , 2010.
Maxim
Group LLC
The date of this prospectus is
, 2010
IASO
PHARMA INC.
| Page | |
|
1
|
|
|
8
|
|
|
24
|
|
|
25
|
|
|
26
|
|
|
26
|
|
|
28
|
|
|
30
|
|
|
31
|
|
|
42
|
|
|
60
|
|
|
63
|
|
|
70
|
|
|
73
|
|
|
75
|
|
|
83
|
|
|
85
|
|
|
89
|
|
|
89
|
|
|
90
|
|
|
F-1
|
You
should rely only on the information contained in this prospectus. We have not,
and the underwriters have not, authorized anyone to provide you with different
information. We are not, and the underwriters are not, making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date
other than the date on the front of this prospectus.
Through
and including , 2010 (the 25th day after the
date of this prospectus), all dealers effecting transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This obligation is in addition to a dealer’s obligation to
deliver a prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
For Investors Outside the United
States: Neither we nor any of the underwriters have done
anything that would permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. You are required to inform yourselves about and to
observe any restrictions relating to this offering and the distribution of this
prospectus.
We
obtained statistical data, market data and other industry data and forecasts
used throughout this prospectus from market research, publicly available
information and industry publications. While we believe that the statistical
data, industry data and forecasts and market research are reliable, we have not
independently verified the data, and we do not make any representation as to the
accuracy of the information.
|
This
summary highlights material information contained elsewhere in this
prospectus and does not contain all of the information that you should
consider in making an investment decision. We urge you to read this entire
prospectus carefully, including the “Risk Factors” section and condensed
consolidated financial statements and related notes appearing elsewhere in
this prospectus, before making an investment decision. Unless the context
provides otherwise, all references in this prospectus to “IASO,” “we,”
“us,” “our,” or similar terms, refer to IASO Pharma Inc.
IASO
Pharma Inc.
Overview
We
are a biopharmaceutical company that seeks to in-license, develop and
commercialize therapeutic products for the treatment and prevention of
infectious diseases. We have obtained exclusive rights to
candidates for the treatment of bacterial and fungal
infections. To date, we have licensed all of the products in
our pipeline.
Several
of our product candidates seek to address large market opportunities in
the antibiotic and antifungal markets, including our most advanced product
candidate, PB-101 (zabofloxacin). PB-101 is a fluoroquinolone
antibiotic which we initially plan to develop for the treatment of
community-acquired pneumonia, or CAP, a common infection associated with
significant morbidity and mortality. In the antifungal market,
we are currently focused on developing PB-200a, a drug candidate, and
PB-201, a technology that may result in one or more additional drug
candidates. We anticipate that PB-200a will be an antifungal
drug for the treatment of two of the most common fungus strains (Candidia and Aspergillus). PB-201
is a formulation technology that we will seek to utilize to reformulate
the antifungal drug itraconazole, which is one of the standard therapies
for the treatment of onychomycosis (nail fungus).
We
completed a Phase 1 QT trial for PB-101 in December 2009, and initiated a
Phase 2 clinical trial in the United States for the CAP indication in
March 2010. For PB-200a, we expect to complete optimization of
the drug formulation by the end of the second quarter of 2011 and once the
optimal pharmaceutical properties are achieved, we expect to file an
Investigational New Drug Application (IND) with the U.S. Food and Drug
Administration (FDA) for a Phase 1 study. For PB-201, we will
seek to optimize the reformulation of itraconazole using this technology
and conduct animal studies to examine the absorption characteristics of
the reformulated itraconazole.
Our
Product Candidates
The
following are our lead product candidates:
|
|||
| · | PB-101 (zabofloxacin): A fluoroquinolone antibiotic that in preclinical studies exhibited enhanced in vitro microbiological activity against Streptococcus pneumoniae (including strains resistant to other antibiotics) and those pathogens responsible for most community-acquired respiratory tract infections. We first plan to develop PB-101 for the treatment of community-acquired respiratory tract infections, including CAP. We completed a Phase 1 QT trial for PB-101 in December 2009 and initiated a Phase 2 clinical trial in the United States for the CAP indication in March 2010. Preclinical research suggests that PB-101 also may be effective in treating other community-acquired infections, such as skin and skin structure infections, and we plan to explore developing PB-101 for these conditions. We licensed PB-101 from Dong Wha Pharmaceutical Ind. Co., a Seoul, Korea-based, pharmaceutical company, referred to herein as Dong Wha. Under our license agreement with Dong Wha, we hold development and commercialization rights for PB-101 in all countries of the world other than Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. | ||
| · |
PB-200a: One
of several potential products in our PB-200 antifungal platform that is
thought to work by inhibiting the biosynthesis of glucan synthase, an
enzyme integral to the cell wall of fungi. Preclinical studies
indicate that PB-200a demonstrates in vitro activity
against two of the most common fungus strains (Candidia and Aspergillus). We
plan to develop candidate formulations of PB-200a with potential for both
oral and intravenous dosing. We anticipate completing
optimization of this candidate by the end of the second quarter of
2011. Once the optimal pharmaceutical properties are achieved,
we expect to file an IND for a Phase 1 study. We licensed
PB-200a from UCB Celltech, a United Kingdom corporation and a registered
branch of UCB Pharma S.A., referred to herein as UCB. Under our
license agreement with UCB, we hold worldwide development and
commercialization rights for a platform for aniline derivative compounds
including PB-200a for all fields of use.
|
||
| · | PB-201: A formulation technology that we will seek to utilize to reformulate the anti-fungal drug itraconazole, which is available generically. Itraconazole is one of the standard therapies for the treatment of onychomycosis (nail fungus). Unpredictable absorption of current formulations of itraconazole makes it difficult to reliably achieve therapeutically effective and non-toxic dosage of this drug. We are working to reformulate itraconazole to make it more water soluble, which we believe will result in more predictable absorption and thereby allow physicians to administer therapeutically effective doses while decreasing the likelihood of toxicity. To accomplish this, we are employing PB-201, a technology which relies on beta-cyclodextrin (a complex sugar molecule) and phospholipid components. We licensed the PB-201 formulation technology from Santee Biosciences, Inc., a Delaware corporation, referred to herein as Santee. Under our sublicense agreement with Santee, we hold development and commercialization rights in North America and Europe for the use of the PB-201 technology in azole-based antifungal drug formulations. | ||
|
In
addition to the above product candidates, we licensed from UCB a platform
of eight other antifungal drug targets in several classes (including
glucan synthesis inhibitors). We do not currently plan to
independently develop these other products and we may seek to out-license
or co-develop some or all of these products.
Business
Strategy
We
will seek to license other therapeutic product candidates for the
treatment and prevention of infectious diseases while simultaneously
developing our existing product pipeline. Our strategy reduces risk by
licensing product candidates or technologies that already have been tested
for safety and biological activity in animals and/or humans by third party
drug discovery research companies and academic institutions, providing an
initial indication of the drug’s safety and biological activity before
committing capital to the drug’s development. We do not conduct any drug
discovery activities.
Our
current strategy is to develop PB-101 for the treatment of
community-acquired respiratory tract infections, including CAP. We also
plan to develop candidate formulations of PB-200a with potential for both
oral and intravenous dosing. For PB-201, we will seek to
optimize the reformulation of itraconazole using this technology and
conduct animal studies to examine the absorption characteristics of the
reformulated itraconazole. The proceeds from this offering would allow us
to make significant progress on these value creating
projects.
Risks
Associated With Our Business
In
executing our business strategy, we face significant risks and
uncertainties, as more fully described in the section entitled “Risk
Factors.” These risks include, among others, the incurrence of substantial
and increasing net losses for the foreseeable future because we have no
products approved for commercial sale and we have not generated any
product revenue to date, and a potential need to obtain substantial
additional funding for product development. We incurred a net loss of
approximately $200,000 for the period from inception (October 5, 2006) to
December 31, 2006, and net losses of approximately $5.6 million, $5.2
million and $4.2 million for the years ended December 31, 2007, 2008 and
2009, respectively, for a total net loss of approximately $15.2 million
for the period from inception (October 5, 2006) to December 31,
2009.
In
addition, to receive regulatory approval for the commercial sale of
PB-101, PB-200a, any drug candidate we may formulate using the PB-201
technology or any other product candidates, we must conduct extensive
preclinical testing and adequate and well-controlled clinical trials to
demonstrate safety and efficacy in humans. If the clinical
trial of PB-101 discussed herein or the formula optimization, preclinical
testing and clinical trials of PB-200a, any drug candidate we may
formulate using the PB-201 technology or other product candidates do not
produce results necessary to support regulatory approval, we will be
unable to commercialize these products.
|
|||
|
Company
Information
We
were organized as a Delaware corporation on October 5, 2006 under the name
“Pacific Beach Biosciences, Inc.” and we changed our corporate name to
“IASO Pharma Inc.” on April 12, 2010. Our principal executive
offices are located at 12707 High Bluff Drive, Suite 200, San Diego,
California 92130. Our telephone number is (858)
350-4312.
|
|
The
Offering
|
|||
|
Securities
offered by
us...........................................................
|
units, each unit consisting of two shares of common stock and a warrant to
purchase one share of common stock (a “Unit”).
|
||
|
Common
stock to be outstanding after this offering.........
|
shares.
|
||
|
Warrants
to be outstanding after this offering....................
|
8%
Noteholder Warrants, PCP Warrants, Placement Agent Warrants, Consultant
Warrants, warrants issued as a part of the Units, and Underwriters’
Warrant.
See
“Description of Capital Stock” on page 75 for more
information.
|
||
|
Terms
of warrants issued as a part of the
Units....................
|
·
Exercise
price — $ , which is equal to 110% of
the offering price of the common stock underlying the
units.
|
||
|
· Exercisability
— each warrant is exercisable for one share of common stock, subject to
adjustment as described herein.
|
|||
|
·
Exercise
period — each warrant will become exercisable upon the earlier to occur of
the expiration of the underwriters’ over-allotment option or its exercise
in full, and will expire on , 2015, or
earlier upon redemption.
|
|||
|
Redemption
of warrants issued as a part of the Units...........
|
We
may call the warrants issued as a part of the Units for redemption as
follows: (i) at a price of $0.01 for each warrant at any time while the
warrants are exercisable, so long as a registration statement relating to
the common stock issuable upon exercise of the warrants is effective and
current; (ii) upon not less than 30 days prior written notice of
redemption to each warrant holder; and (iii) if, and only if, the reported
last sale price of the common stock equals or exceeds
$ per share for any 20 trading days
within a 30 consecutive trading day period ending on the third business
day prior to the notice of redemption to warrant holders.
|
||
|
If
the foregoing conditions are satisfied and we call the warrants for
redemption, each warrant holder will then be entitled to exercise his or
her warrant prior to the date scheduled for redemption. However, there can
be no assurance that the price of the common stock will exceed the call
price or the warrant exercise price after the redemption call is
made.
|
|||
|
Over-allotment
option................................................................
|
We
granted the underwriters the right to purchase up
to additional Units from us at the
public offering price, less the underwriting discount, within 45 days from
the date of this prospectus to cover over-allotments, if
any.
|
||
|
Use
of
proceeds.......................................................................
|
We
estimate that our net proceeds from this offering, without exercise of the
over-allotment option, will be approximately
$ million. We intend to use these
proceeds as follows: (i) approximately
$ for
PB-101 development; (ii) approximately
$ for
PB-200a development; (iii) approximately
$ for
development of a drug candidate using the PB-201 technology; and (iv) the
balance to fund working capital and other general corporate purposes. See
“Use of Proceeds” on page 25 for more information.
|
||
|
Market
for our common
stock................................................
|
We
intend to apply for listing the Units, as well as our common stock and
warrants underlying the Units, on NYSE Amex under the symbols
,
and , respectively.
|
||
|
Separation
of common stock and warrants issued
as a part of the
Units...........................................................
|
The
Units will begin trading on or promptly after the date of this prospectus.
The Units will automatically separate and each of the common stock and
warrants will trade separately on the 60th day after the date of this
prospectus, unless Maxim Group LLC, the representative of the
underwriters, determines that an earlier date is acceptable based on its
assessment of the relative strengths of the securities markets and small
capitalization companies in general, and the trading pattern of, and
demand for, our securities in particular. If Maxim permits separate
trading of the common stock and warrants prior to the 60th day after the
date of this prospectus, we will issue a press release and file a Current
Report on Form 8-K with the Securities and Exchange Commission announcing
when such separate trading will begin.
|
||
|
Risk
Factors..............................................................................
|
Investing
in our securities involves a high degree of risk. As an investor, you
should be able to bear a complete loss of your investment. You should
carefully consider the information set forth in the “Risk Factors” section
beginning on page 8.
|
|
The
number of shares of common stock that will be outstanding after this
offering set forth above is
based on shares of common
stock outstanding as of after giving effect to a 1
for reverse stock
split of our common stock, and excludes the following:
|
|||
| · |
72,000
shares of common stock issuable upon exercise of outstanding options at a
weighted average exercise price of $0.95 per share;
|
||
| · | 15,448,271 shares of common stock reserved for issuance under our 2007 Stock Incentive Plan; | ||
| · | 300,000 shares of common stock issuable upon exercise of the Consultant Warrant; | ||
| · | 434,000 shares of common stock issuable upon exercise of the Placement Agent Warrants; | ||
| · | shares of common stock issuable upon exercise of the PCP Warrants; | ||
| · | shares of common stock issuable upon exercise of the 8% Noteholder Warrants; and | ||
| · | shares of common stock underlying the warrants included in the Units. | ||
| Unless specifically stated otherwise, all information in this prospectus assumes the following: | |||
| · | the automatic conversion of all of our outstanding convertible notes into an aggregate of Units and shares of common stock upon the completion of this offering; | ||
| · |
the
filing of our amended and restated certificate of incorporation and the
adoption of our amended and restated by-laws effective upon the completion
of this offering;
|
||
| · |
no
exercise of warrants or options outstanding on the date of this
prospectus, except as specifically set forth herein; and
|
||
| · | a 1 for reverse stock split of our common stock to be effected prior to the completion of this offering. | ||
|
|
|
SUMMARY
FINANCIAL DATA
The
following statement of operations data for 2009 and 2008, along with the
period from October 5, 2006 (Inception) to December 31, 2009, and the
historical balance sheet data as of December 31, 2009, have been derived
from our audited financial statements, which are included elsewhere in
this prospectus. The following selected financial data should be read
together with our financial statements and related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this prospectus. The summary financial data in this
section is not intended to replace our financial statements and the
accompanying notes. Our historical results are not necessarily indicative
of our future results.
Statement
of Operations Data
|
||||||||||||||
|
Year
Ended December 31, 2009
|
Year
Ended December 31, 2008
|
Period
from October 5, 2006 (Inception) to December 31,
2009
|
||||||||||||
|
Operating
revenue:
|
||||||||||||||
|
Sublicense
|
$ | 6,286 | $ | - | $ | 6,286 | ||||||||
|
Operating
expenses:
|
||||||||||||||
|
Research
and development
|
2,470,157 | 2,715,377 | 9,336,545 | |||||||||||
|
General
and administrative
|
630,794 | 1,367,866 | 3,529,725 | |||||||||||
|
Total
operating expenses
|
3,100,951 | 4,083,243 | 12,866,270 | |||||||||||
|
Loss
from operations
|
(3,094,665 | ) | (4,083,243 | ) | (12,859,984 | ) | ||||||||
|
Interest
income
|
- | 21,850 | 27,859 | |||||||||||
|
Interest
expense, including amortization of debt discount and deferred financing
costs
|
(1,089,846 | ) | (1,115,730 | ) | (2,380,263 | ) | ||||||||
|
Net
loss
|
$ | (4,184,511 | ) | $ | (5,177,123 | ) | $ | (15,212,388 | ) | |||||
|
Basic
and diluted net loss per common share
|
$ | (0.93 | ) | $ | (1.16 | ) | ||||||||
|
Weighted
average common shares outstanding –
basic
and diluted
|
4,479,729 | 4,479,729 | ||||||||||||
| Balance Sheet Data | ||||||||||||||
|
December
31, 2009
|
||||||||||||||
|
Actual
|
Pro
Forma
|
Pro
Forma As Adjusted
|
||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
|
Cash
|
$ | 10,728 | $ | $ | ||||||||||
|
Total
Assets
|
$ | 90,179 | ||||||||||||
|
Total
Liabilities
|
$ | 13,300,944 | ||||||||||||
|
Deficit
Accumulated During the Development Stage
|
$ | (15,212,388 | ) | |||||||||||
|
Total
Stockholders’ Equity (Deficiency)
|
$ | (13,210,765 | ) | |||||||||||
|
The
December 31, 2009 unaudited pro forma balance sheet data reflects (i) the
automatic conversion of all of our outstanding convertible notes into an
aggregate of Units
and shares of common stock upon the
completion of this offering, and (ii) our issuance of $4,343,000 aggregate
principal amount of 8% Notes in February and March 2010. The December 31,
2009 unaudited pro forma as adjusted balance sheet data further reflects
our sale of Units in this offering at
an assumed initial public offering price of
$ per Unit (the mid-point of the price
range set forth on the cover page of this prospectus), after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by us.
|
||||||||||||||
Investing
in our securities involves a high degree of risk. You should
carefully consider the following risk factors, as well as the other information
in this prospectus (including our financial statements and the related notes
appearing at the end of this prospectus), before deciding whether to invest in
our securities. The occurrence of any of the following risks could
harm our business, financial condition, results of operations or growth
prospects. In that case, the trading price of our securities could
decline, and you may lose all or part of your investment.
Risks
Related to Our Financial Position and Need for Additional Capital
We
have a limited operating history and a history of escalating operating losses,
and expect to incur significant additional operating losses.
We were
established in October 2006 and have only a limited operating
history. Therefore, there is limited historical financial information
upon which to base an evaluation of our performance. Our prospects
must be considered in light of the uncertainties, risks, expenses, and
difficulties frequently encountered by companies in their early stages of
operations. We incurred net losses of approximately $5.6 million,
$5.2 million and $4.2 million for the years ended December 31, 2007, 2008 and
2009, respectively. As of December 31, 2009, we had an accumulated deficit of
approximately $15.2 million. We expect to incur substantial additional operating
expenses over the next several years as our research, development, pre-clinical
testing, and clinical trial activities increase. The amount of future
losses and when, if ever, we will achieve profitability are
uncertain. We have no products that have generated any commercial
revenue, do not expect to generate revenues from the commercial sale of products
in the near future, and might never generate revenues from the sale of
products. Our ability to generate revenue and achieve profitability
will depend on, among other things, the following: successful completion of the
preclinical and clinical development of our product candidates; obtaining
necessary regulatory approvals from the FDA; establishing manufacturing, sales,
and marketing arrangements, either alone or with third parties; and raising
sufficient funds to finance our activities. We might not succeed at
any of these undertakings. If we are unsuccessful at some or all of
these undertakings, our business, prospects, and results of operations may be
materially adversely affected.
Our
independent registered public accounting firm has expressed substantial doubt as
to our ability to continue as a going concern.
In its
report accompanying our audited financial statements, our independent registered
public accounting firm expressed substantial doubt as to our ability to continue
as a going concern. A “going concern” opinion could impair our ability to
finance our operations through the sale of debt or equity securities. Our
ability to continue as a going concern will depend, in large part, on our
ability to generate positive cash flow from operations and obtain additional
financing if necessary, neither of which is certain. If we are unable to achieve
these goals, our business would be jeopardized and we may not be able to
continue operations.
We
are not currently profitable and may never become profitable.
We have a
history of losses and expect to incur substantial losses and negative operating
cash flow for the foreseeable future, and we may never achieve or maintain
profitability. Even if we succeed in developing and commercializing one or more
product candidates, we expect to incur substantial losses for the foreseeable
future and may never become profitable. We also expect to continue to incur
significant operating and capital expenditures and anticipate that our expenses
will increase substantially in the foreseeable future as we continue to
undertake development of our product candidates, undertake clinical trials of
our product candidates, seek regulatory approvals for product candidates,
implement additional internal systems and infrastructure, and hire additional
personnel.
We also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. As a result, we will need to
generate significant revenues in order to achieve and maintain profitability. We
may not be able to generate these revenues or achieve profitability in the
future. Our failure to achieve or maintain profitability would negatively impact
the value of our securities.
We
may need to finance our future cash needs through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. Any additional funds that we obtain may not be on terms favorable
to us or our stockholders and may require us to relinquish valuable
rights.
To date,
we have no approved product on the market and have generated no product
revenues. Unless and until we receive approval from the FDA and other regulatory
authorities for our product candidates, we cannot sell our products and will not
have product revenues. Therefore, for the foreseeable future, we will have to
fund all of our operations and capital expenditures from the net proceeds of
this offering, cash on hand, licensing fees and grants.
We
believe that the net proceeds from this offering and existing cash will be
sufficient to enable us to fund our projected operating requirements for at
least two years. However, we may need to raise additional funds more quickly if
one or more of our assumptions prove to be incorrect or if we choose to expand
our product development efforts more rapidly than we presently anticipate, and
we may decide to raise additional funds even before we need them if the
conditions for raising capital are favorable.
We may
seek to sell additional equity or debt securities, obtain a bank credit
facility, or enter into a corporate collaboration or licensing arrangement. The
sale of additional equity or debt securities, if convertible, could result in
dilution to our stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants that would
restrict our operations. Raising additional funds through collaboration or
licensing arrangements with third parties may require us to relinquish valuable
rights to our technologies, future revenue streams, research programs or product
candidates, or to grant licenses on terms that may not be favorable to us or our
stockholders.
Our
independent registered public accounting firm has identified material weaknesses
in our financial reporting process.
Our
independent registered public accounting firm has identified material weaknesses
in our financial reporting process with respect to lack of segregation of duties
and lack of independent review over financial reporting. Our independent
registered public accounting firm also identified numerous errors in the
accounting for non-routine, complex transactions during their audits of our
financial statements. Our failure to successfully implement our plans to
remediate these material weaknesses could cause us to fail to meet our reporting
obligations, to produce timely and reliable financial information, and to
effectively prevent fraud. Additionally, such failure could cause investors to
lose confidence in our reported financial information, which could have a
negative impact on our financial condition and stock price.
Risks
Related to the Development and Commercialization of Our Product
Candidates
Our
product candidates are in the early stages of development.
We are a
biopharmaceutical company focused on the development of product candidates, all
of which are at an early stage of development. We have two drug
candidates, and one technology which we anticipate will result in one or more
additional drug candidates for which we anticipate filing INDs during the coming
18 to 24 months. Our drug development methods are unproven and may
not lead to commercially viable drugs for any of several reasons. For
example, we may fail to identify appropriate targets or compounds, our drug
candidates may fail to be safe and effective in clinical or additional
preclinical trials, or we may have inadequate financial or other resources to
pursue discovery and development efforts for new drug candidates. Our
product candidates will require significant additional development, clinical
trials, regulatory clearances and additional investment by us or our
collaborators before they can be commercialized.
Successful
development of our products is uncertain.
Our
development of current and future product candidates is subject to the risks of
failure and delay inherent in the development of new pharmaceutical products and
products based on new technologies, including but not limited to the
following:
|
·
|
delays
in product development, clinical testing, or
manufacturing;
|
|
·
|
unplanned
expenditures in product development, clinical testing, or
manufacturing;
|
|
·
|
failure
to receive regulatory approvals;
|
|
·
|
emergence
of superior or equivalent products;
|
|
·
|
inability
to manufacture our product candidates on a commercial scale on our own, or
in collaboration with third parties;
and
|
|
·
|
failure
to achieve market acceptance.
|
Because
of these risks, our development efforts may not result in any commercially
viable products. If a significant portion of these development
efforts are not successfully completed, required regulatory approvals are not
obtained, or any approved products are not commercialized successfully, our
business, financial condition, and results of operations may be materially
harmed.
Preclinical
and clinical trials required for our product candidates are expensive and
time-consuming, and their outcome is uncertain.
In order
to obtain approval from the FDA to market a new drug product, we must
demonstrate safety and effectiveness in humans. To meet these
requirements, we must conduct extensive preclinical testing and “adequate and
well-controlled” clinical trials. Conducting clinical trials is a lengthy, time
consuming, and expensive process. The length of time may vary
substantially according to the type, complexity, novelty, and intended use of
the product candidate, and often can be several years or more per
trial. Delays associated with products for which we are directly
conducting preclinical or clinical trials may cause us to incur additional
operating expenses. The commencement and rate of completion of
clinical trials may be delayed by many factors, including, for
example:
|
·
|
inability
to manufacture sufficient quantities of qualified materials under the
FDA’s current Good Manufacturing Practices, referred to herein as cGMP,
for use in clinical trials;
|
|
·
|
failure
to recruit a sufficient number of patients or slower than expected rates
of recruitment;
|
|
·
|
modification
of clinical trial protocols;
|
|
·
|
changes
in regulatory requirements for clinical
trials;
|
|
·
|
lack
of effectiveness during clinical
trials;
|
|
·
|
emergence
of unforeseen safety issues in preclinical or clinical
trials;
|
|
·
|
delays,
suspension, or termination of clinical trials by the institutional review
board responsible for overseeing the study at a particular study site;
and
|
|
·
|
government
or institutional review board or other regulatory delays or “clinical
holds” requiring suspension or termination of the
trials.
|
The
results from preclinical testing and early clinical trials are not necessarily
predictive of results to be obtained in later clinical
trials. Accordingly, even if we obtain positive results from
preclinical or early clinical trials, we may not achieve the same success in
later clinical trials.
Clinical
trials may not demonstrate statistically significant safety and effectiveness
required to obtain the requisite regulatory approvals for product
candidates. The failure of clinical trials to demonstrate safety and
effectiveness for the desired indications could harm the development of our
product candidates. This failure could cause us to abandon a product
candidate and could delay development of other product
candidates. Any delay in, or termination of, our clinical trials
would delay the filing of our New Drug Applications (NDA) with the FDA and,
ultimately, our ability to commercialize our product candidates and generate
product revenues. Any change in, or termination of, our clinical
trials could materially harm our business, financial condition, and results of
operation.
We
do not have, and may never obtain, the regulatory approvals we need to market
our product candidates.
To date,
we have not applied for or received the regulatory approvals required for the
commercial sale of any of our products in the United States or in any foreign
jurisdiction. None of our product candidates has been determined to be safe and
effective, and we have not submitted an NDA to the FDA or an equivalent
application to any foreign regulatory authority for any of our product
candidates.
It is
possible that none of our product candidates will be approved for marketing.
Failure to obtain regulatory approvals, or delays in obtaining regulatory
approvals, may adversely affect the successful commercialization of any drugs or
biologics that we or our partners develop, impose additional costs on us or our
collaborators, diminish any competitive advantages that we or our partners may
attain, and/or adversely affect our receipt of revenues or
royalties.
Even
if approved, our products will be subject to extensive post-approval
regulation.
Once a
product is approved, numerous post-approval requirements apply. Depending on the
circumstances, failure to meet these post-approval requirements can result in
criminal prosecution, fines, injunctions, recall or seizure of products, total
or partial suspension of production, denial or withdrawal of marketing
approvals, or refusal to allow us to enter into supply contracts, including
government contracts. In addition, even if we comply with FDA and other
requirements, new information regarding the safety or effectiveness of a product
could lead the FDA to modify or withdraw product approval.
The
successful commercialization of our products will depend on obtaining coverage
and reimbursement for use of these products from third-party
payors.
Sales of
pharmaceutical products largely depend on the reimbursement of patients’ medical
expenses by government health care programs and private health insurers. Without
the financial support of the government or third-party payors, the market for
our products will be limited. These third-party payors are increasingly
challenging the price and examining the cost effectiveness of medical products
and services. Recent proposals to change the health care system in the United
States have included measures that would limit or eliminate payments for medical
products and services or subject the pricing of medical treatment products to
government control. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. Third-party payors may not
reimburse sales of our products or enable our collaborators to sell them at
profitable prices.
Physicians
and patients may not accept and use our products.
Even if
the FDA approves one or more of our product candidates, physicians and patients
may not accept and use it. Acceptance and use of our products will
depend upon a number of factors including the following:
|
·
|
perceptions
by members of the health care community, including physicians, about the
safety and effectiveness of our
products;
|
|
·
|
cost-effectiveness
of our products relative to competing
products;
|
|
·
|
availability
of reimbursement for our products from government or other healthcare
payors; and
|
|
·
|
effective
marketing and distribution efforts by us and our licensees and
distributors, if any.
|
If our
current product candidates are approved, we expect sales to generate
substantially all of our product revenues for the foreseeable future, and as
such, the failure of these products to find market acceptance would harm our
business and could require us to seek additional financing.
Risks
Related to Our Business and Industry
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will
suffer.
Each of
the markets for our product candidates is characterized by intense competition
and rapid technological advances. If our product candidates receive
FDA approval, they will compete with a number of existing and future drugs and
therapies developed, manufactured and marketed by others. Existing or
future competing products may provide greater therapeutic convenience or
clinical or other benefits for a specific indication than our products, or may
offer comparable performance at a lower cost. If our products fail to
capture and maintain market share, we may not achieve sufficient product
revenues and our business will suffer.
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have compounds already
approved or in development in the therapeutic categories that we are targeting
with our current and future product candidates. In addition, many of
these competitors, either alone or together with their collaborative partners,
operate larger research and development programs or have substantially greater
financial resources than we do, as well as significantly greater experience
in:
|
·
|
developing
drugs;
|
|
·
|
undertaking
pre-clinical testing and human clinical
trials;
|
|
·
|
obtaining
FDA and other regulatory approvals of
drugs;
|
|
·
|
formulating
and manufacturing drugs; and
|
|
·
|
launching,
marketing and selling drugs.
|
Developments
by competitors may render our products or technologies obsolete or
non-competitive.
The
pharmaceutical and biotechnology industries are intensely
competitive. We compete directly and indirectly with other
pharmaceutical companies, biotechnology companies and academic and research
organizations, most of which have greater resources than we have. We
compete with companies that have products on the market or in development for
the same indications as our product candidates. We may also complete
with organizations that are developing similar technology
platforms. PB-101 and PB-200a are in the early stages of development,
so we cannot assess their competitive advantages or disadvantages in areas such
as efficacy, safety, cost and administration compared to existing products or
product candidates being developed by our competitors. PB-201 is a technology we
will seek to utilize to reformulate itraconazole, a well-known treatment for
fungal infections; however, we will not know if our strategy to gain approval of
any drug candidate we may formulate using the PB-201 technology through the
505(b)(2) process (an expedited approval process for reformulations) will be
accepted until we have reviewed this with the FDA.
We
face the risk of product liability claims and the amount of insurance coverage
we hold now or in the future may not be adequate to cover all liabilities we
might incur.
Our
business exposes us to the risk of product liability claims that are inherent in
the development of drugs. If the use of one or more of our or our
collaborators’ drugs harms people, we may be subject to costly and damaging
product liability claims brought against us by clinical trial participants,
consumers, health care providers, pharmaceutical companies or others selling our
products. Our inability to obtain sufficient product liability
insurance at an acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of products we develop,
alone or with collaborators.
While we
currently carry clinical trial insurance, we cannot predict all of the possible
harms or side effects that may result and, therefore, the amount of insurance
coverage we hold now or in the future may not be adequate to cover all
liabilities we might incur. We intend to expand our insurance
coverage to include the sale of commercial products if we obtain marketing
approval for our product candidates in development, but we may be unable to
obtain commercially reasonable product liability insurance for any products
approved for marketing. If we are unable to obtain insurance at an
acceptable cost or otherwise protect against potential product liability claims,
we may be exposed to significant liabilities, which may materially and adversely
affect our business and financial position. If we are sued for any
injury allegedly caused by our or our collaborators’ products and do not have
sufficient insurance coverage, our liability could exceed our total assets and
our ability to pay the liability. A successful product liability
claim or series of claims brought against us would decrease our cash and could
cause the value of our capital stock to decrease.
We
may be exposed to liability claims associated with the use of hazardous
materials and chemicals.
Our
research, development and manufacturing activities and/or those of our third
party contractors may involve the controlled use of hazardous materials and
chemicals. Although we believe that our safety procedures for using,
storing, handling and disposing of these materials comply with federal, state
and local laws and regulations, we cannot completely eliminate the risk of
accidental injury or contamination from these materials. In the event
of such an accident, we could be held liable for any resulting damages and any
liability could materially adversely affect our business, financial condition
and results of operations. In addition, the federal, state and local
laws and regulations governing the use, manufacture, storage, handling and
disposal of hazardous or radioactive materials and waste products may require us
to incur substantial compliance costs that could materially adversely affect our
business, financial condition and results of operations.
If
we lose key management or scientific personnel, cannot recruit qualified
employees, directors, officers, or other personnel or experience increases in
our compensation costs, our business may materially suffer.
We are
highly dependent on the principal members of our management and scientific
staff, specifically Matthew A. Wikler, our President and Chief Executive
Officer, James Rock, our Director of New Product Development, and Mark W. Lotz,
our Vice President of Regulatory Affairs. While we have employment
agreements with such persons, employment agreements cannot insure our retention
of the employees covered by such agreements. In addition, we may have
only limited ability to prevent former employees from competing with
us. Furthermore, our future success will also depend in part on the
continued service of our key scientific and management personnel and our ability
to identify, hire, and retain additional personnel, including an experienced
Chief Financial Officer. We experience intense competition for
qualified personnel and may be unable to attract and retain the personnel
necessary for the development of our business. Moreover, our work
force is located in the San Diego, California area where competition for
personnel with the requisite scientific and technical skills is extremely high
and is likely to remain high. Because of this competition, our
compensation costs may increase significantly.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
Over
time, we will need to hire additional qualified personnel with expertise in
preclinical testing, clinical research and testing, government regulation,
formulation and manufacturing, and sales and marketing. We compete
for qualified individuals with numerous biopharmaceutical companies,
universities and other research institutions. Competition for such
individuals is intense, and we cannot be certain that our search for such
personnel will be successful. Attracting and retaining such qualified
personnel will be critical to our success.
We
will need to hire accounting personnel to perform the expanded fiscal and
financial management responsibilities associated with running a public
company.
We
currently use third party personnel to meet our internal accounting
needs. In order to meet the heightened accounting and budgeting needs
associated with operating a public company, it will be necessary to hire
full-time accounting personnel, including a Chief Financial
Officer. The hiring of a Chief Financial Officer is crucial to ensure
the coordination and appropriate supervision of all financial and fiscal
management aspects of our operations. The ability to retain a
qualified Chief Financial Officer, and other appropriate accounting personnel as
needed, will be essential to our success.
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial
resources. To manage this growth, we must expand our facilities,
augment our operational, financial and management systems and hire and train
additional qualified personnel. If we are unable to manage our growth
effectively, our business may be materially harmed.
Risks
Related to Our Intellectual Property
If
we materially breach or default under any of our license agreements, the
licensor party to such agreement will have the right to terminate the license
agreement, which termination may materially harm our business.
Our
commercial success will depend in part on the maintenance of our license
agreements. Each of our license agreements provides the licensor with a right to
terminate the license agreement for our material breach or default under the
agreement. We have in-licensed technology that is important to our business, and
we may enter into additional licenses in the future. For example, we
hold a license from Dong Wha for intellectual property relating to
PB-101. Our license from Dong Wha requires that we satisfy certain
development milestones and imposes other obligations on us with regard to the
development and commercialization of PB-101. Other licenses to which
we are a party contain, and we expect that any future in-licenses will contain,
similar provisions. If we fail to comply with these obligations to
Dong Wha or to any other licensor, the licensor may have the right to terminate
the license, in which event we would lose our rights to commercialize product
candidates or technologies that were covered by the license, which loss may
materially harm our business. Also, the milestone and other payments
associated with these licenses could make it difficult for us to find corporate
partners and less profitable for us to develop product candidates utilizing
these existing product candidates and technologies.
If
we and our licensors do not obtain protection for our respective intellectual
property rights, our competitors may be able to take advantage of our research
and development efforts to develop competing drugs.
Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties. To date, we hold certain exclusive patent rights,
including rights under U.S. patents and U.S. patent applications as well as
rights under foreign patents and patent applications. The patents
most material to our business are as follows:
|
·
|
U.S.
Registration Nos. 6,313,299 and 6,552,196 and European Registration No.
0994878 (each expiring June 2018) for a family of patents relating to
PB-101; and
|
|
·
|
U.S.
Registration Nos. 7,678,785 (expiring July 2027) and 7,105,554 (expiring
August 2021) and European Registration No. 1313471 (expiring August 2021)
for a family of patents relating to our PB-200 antifungal platform,
including PB-200a
|
We
anticipate filing additional patent applications both in the U.S. and in other
countries, as appropriate. However, the patent process is subject to
numerous risks and uncertainties, and there can be no assurance that we will be
successful in protecting our products by obtaining and defending
patents. These risks and uncertainties include but are not limited to
the following:
|
·
|
Patents
that may be issued or licensed may be challenged, invalidated, or
circumvented, or otherwise may not provide any competitive
advantage.
|
|
·
|
Our
competitors, many of which have substantially greater resources than us
and many of which have made significant investments in competing
technologies, may seek, or may already have obtained, patents that will
limit, interfere with, or eliminate our ability to make, use, and sell our
potential products either in the United States or in international
markets.
|
|
·
|
There
may be significant pressure on the United States government and other
international governmental bodies to limit the scope of patent protection
both inside and outside the United States for treatments that prove
successful as a matter of public policy regarding worldwide health
concerns.
|
|
·
|
Countries
other than the United States may have less restrictive patent laws than
those upheld by United States courts, allowing foreign competitors the
ability to exploit these laws to create, develop, and market competing
products.
|
In
addition, the United States Patent and Trademark Office, referred to herein as
the PTO, and patent offices in other jurisdictions have often required that
patent applications concerning pharmaceutical and/or biotechnology-related
inventions be limited or narrowed substantially to cover only the specific
innovations exemplified in the patent application, thereby limiting the scope of
protection against competitive challenges. Thus, even if we or our
licensors are able to obtain patents, the patents may be substantially narrower
than anticipated.
In
addition to patents, we also rely on trade secrets and proprietary
know-how. Although we take measures to protect this information by
entering into confidentiality and inventions agreements with our employees,
scientific advisors, consultants, and collaborators, we cannot provide any
assurances that these agreements will not be breached, that we will be able to
protect ourselves from the harmful effects of disclosure if they are breached,
or that our trade secrets will not otherwise become known or be independently
discovered by competitors. If any of these events occurs, or we
otherwise lose protection for our trade secrets or proprietary know-how, the
value of this information may be greatly reduced.
Patent
protection and other intellectual property protection are important to the
success of our business and prospects, and there is a substantial risk that such
protections will prove inadequate.
Intellectual
property disputes could require us to spend time and money to address such
disputes and could limit our intellectual property rights.
The
biotechnology and pharmaceutical industries have been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies have employed intellectual property litigation to gain a competitive
advantage. We may become subject to infringement claims or litigation arising
out of patents and pending applications of our competitors, or additional
proceedings initiated by third parties or the PTO to reexamine the patentability
of our licensed or owned patents. The defense and prosecution of intellectual
property suits, PTO proceedings, and related legal and administrative
proceedings are costly and time-consuming to pursue, and their outcome is
uncertain. Litigation may be necessary to enforce our issued patents, to protect
our trade secrets and know-how, or to determine the enforceability, scope, and
validity of the proprietary rights of others. An adverse determination in
litigation or PTO proceedings to which we may become a party could subject us to
significant liabilities, require us to obtain licenses from third parties,
restrict or prevent us from selling our products in certain markets, or
invalidate or render unenforceable our licensed or owned patents. Although
patent and intellectual property disputes might be settled through licensing or
similar arrangements, the costs associated with such arrangements may be
substantial and could include our paying large fixed payments and ongoing
royalties. Furthermore, the necessary licenses may not be available on
satisfactory terms or at all.
If
we infringe the rights of third parties we could be prevented from selling
products and forced to pay damages, and defend against litigation.
If our
products, methods, processes and other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and we may have to do
one or more of the following:
|
·
|
obtain
licenses, which may not be available on commercially reasonable terms, if
at all;
|
|
·
|
abandon
an infringing product candidate;
|
|
·
|
redesign
our products or processes to avoid
infringement;
|
|
·
|
stop
using the subject matter claimed in the patents held by
others;
|
|
·
|
pay
damages; or
|
|
·
|
defend
litigation or administrative proceedings, which may be costly whether we
win or lose, and which could result in a substantial diversion of our
financial and management resources.
|
Any of
these events could substantially harm our earnings, financial condition and
operations.
Risks
Related to Our Dependence on Third Parties
If
we are not able to develop collaborative marketing relationships with licensees
or partners, or create an effective sales, marketing, and distribution
capability, we may be unable to market our products successfully.
Our
business strategy relies on out-licensing product candidates to, or
collaborating with, larger firms with experience in marketing and selling
pharmaceutical products. There can be no assurance that we will be
able to successfully establish marketing, sales, or distribution relationships,
that such relationships, if established, will be successful; or that we will be
successful in gaining market acceptance for our products. To the
extent that we enter into any marketing, sales, or distribution arrangements
with third parties, our product revenues will be lower than if we marketed and
sold our products directly, and any revenues we receive will depend upon the
efforts of such third-parties. Our current licensing agreements may interfere
with potential marketing, sales and distribution relationships. If we
are unable to establish such third-party sales and marketing relationships, or
choose not to do so, we will have to establish our own in-house
capabilities. We, as a company, have no experience in marketing or
selling pharmaceutical products and currently have no sales, marketing, or
distribution infrastructure. To market any of our products directly,
we would need to develop a marketing, sales, and distribution force that both
has technical expertise and the ability to support a distribution
capability. The establishment of a marketing, sales, and distribution
capability would significantly increase our costs, possibly requiring
substantial additional capital. In addition, there is intense
competition for proficient sales and marketing personnel, and we may not be able
to attract individuals who have the qualifications necessary to market, sell,
and distribute our products. There can be no assurance that we will
be able to establish internal marketing, sales, or distribution
capabilities. If we are unable to, or choose not to establish these
capabilities, or if the capabilities we establish are not sufficient to meet our
needs, we will be required to establish collaborative marketing, sales, or
distribution relationships with third parties.
If
we or our collaborators are unable to manufacture our products in sufficient
quantities or are unable to obtain regulatory approvals for a manufacturing
facility, we may be unable to meet demand for our products and we may lose
potential revenues.
Completion
of our clinical trials and commercialization of our product candidates require
access to, or development of, facilities to manufacture a sufficient supply of
our product candidates. We currently contract with outside sources to
manufacture our development compounds. If, for any reason, we become
unable to rely on our current sources for the manufacture of our product
candidates, either for clinical trials or, at some future date, for commercial
quantities, then we would need to identify and contract with additional or
replacement third-party manufacturers to manufacture compounds for preclinical,
clinical, and commercial purposes. We may not be successful in
identifying such additional or replacement third-party manufacturers, or in
negotiating acceptable terms with any that we do identify. Such
third-party manufacturers must receive FDA approval before they can produce
clinical material or commercial product, and any that are identified may not
receive such approval. We may be in competition with other companies
for access to these manufacturers’ facilities and may be subject to
manufacturing delays if the manufacturers give other clients higher priority
than they give to us. If we are unable to secure and maintain
third-party manufacturing capacity, the development and sales of our products
and our financial performance may be materially affected.
Before we
can begin to commercially manufacture our product candidates, we must obtain
regulatory approval of the manufacturing facility and
process. Manufacturing of drugs for clinical and commercial purposes
must comply with the FDA’s current Good Manufacturing Practices (cGMPs), and
applicable non-U.S. regulatory requirements. The cGMPs govern quality
control and documentation policies and procedures. Complying with
cGMPs and non-U.S. regulatory requirements will require that we expend time,
money, and effort in production, recordkeeping, and quality control to assure
that the product meets applicable specifications and other
requirements. We, or our contracted manufacturing facility, must also
pass a pre-approval inspection prior to FDA approval.
16
Failure
to pass a pre-approval inspection may significantly delay FDA approval of our
products. If we fail to comply with these requirements, we would be
subject to possible regulatory action and may be limited in the jurisdictions in
which we are permitted to sell our products. As a result, our
business, financial condition, and results of operations may be materially
adversely affected.
Corporate
and academic collaborators may take actions to delay, prevent, or undermine the
success of our products.
Our
operating and financial strategy for the development, clinical testing,
manufacture, and commercialization of product candidates is heavily dependent on
our entering into collaborations with corporations, academic institutions,
licensors, licensees, and other parties. Our current strategy assumes
that we will successfully establish these collaborations, or similar
relationships. However, there can be no assurance that we will be
successful establishing such collaborations. Some of our existing
collaborations are, and future collaborations may be, terminable at the sole
discretion of the collaborator. Replacement collaborators might not
be available on attractive terms, or at all. The activities of any
collaborator will not be within our control and may not be within our power to
influence. There can be no assurance that any collaborator will
perform its obligations to our satisfaction or at all, that we will derive any
revenue or profits from such collaborations, or that any collaborator will not
compete with us. If any collaboration is not pursued, we may require
substantially greater capital to undertake development and marketing of our
proposed products and may not be able to develop and market such products
effectively, if at all. In addition, a lack of development and marketing
collaborations may lead to significant delays in introducing proposed products
into certain markets and/or reduced sales of proposed products in such
markets.
Data
provided by collaborators and others upon which we rely that has not been
independently verified could turn out to be false, misleading, or
incomplete.
We rely
on third-party vendors, scientists, and collaborators to provide us with
significant data and other information related to our projects, clinical trials,
and business. If such third parties provide inaccurate, misleading,
or incomplete data, our business, prospects, and results of operations could be
materially adversely affected.
We
rely exclusively on third parties to formulate and manufacture our product
candidates.
We have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and
expertise to formulate or manufacture our own product candidates, which are
currently being manufactured entirely by commercial third parties. If
any product candidate we may develop or acquire in the future receives FDA
approval, we will rely on one or more third-party contractors to manufacture our
products. Our anticipated future reliance on a limited number of
third-party manufacturers exposes us to the following risks:
|
·
|
We
may be unable to identify manufacturers on acceptable terms or at all
because the number of potential manufacturers is limited and the FDA must
approve any replacement contractor. This approval would
generally require new testing and compliance inspections. In
addition, a new manufacturer would have to be educated in, or develop
substantially equivalent processes for, production of our products after
receipt of FDA approval.
|
|
·
|
Our
third-party manufacturers might be unable to formulate and manufacture our
drugs in the volume and of the quality required to meet our clinical needs
and commercial needs.
|
|
·
|
Our
future contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store and distribute our
products.
|
|
·
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA and corresponding state agencies to ensure strict compliance with
good manufacturing practice and other government regulations and
corresponding foreign standards. We do not have control over
third-party manufacturers’ compliance with these regulations and
standards.
|
|
·
|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the
innovation.
|
Each of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA or the commercialization of our product candidates
or result in higher costs or deprive us of potential product
revenues.
Risks
Relating to this Offering and Ownership of Our Securities
We
are controlled by our executive officers, directors and principal stockholders,
and after this offering, our executive officers, directors and principal
stockholders will have significant influence regarding all matters submitted to
our stockholders for approval.
As of
April 14, 2010, our directors, executive officers and 5% or greater stockholders
and their affiliates owned approximately 76% of our issued and outstanding
shares of common stock. When this offering is completed, our
directors, executive officers and 5% or greater stockholders and their
affiliates will, in the aggregate, beneficially own shares representing
% of our common stock, assuming such
persons do not purchase any Units in this offering. As a result, if
these stockholders were to choose to act together, they would be able to
exercise significant influence with respect to all matters submitted to our
stockholders for approval, as well as our management and affairs. For
example, these persons, if they choose to act together, will exercise
significant influence with respect to the election of directors and approval of
any merger, consolidation, sale of all or substantially all of our assets or
other business combination or reorganization. This concentration of
voting power could delay or prevent an acquisition of us on terms that other
stockholders may desire. The interests of this group of stockholders
may not always coincide with your interests or the interests of other
stockholders, and they may act in a manner that advances their best interests
and not necessarily those of other stockholders, and might affect the prevailing
market price for our securities.
There
are certain interlocking relationships among us and certain affiliates of
Paramount BioCapital, Inc., which may present potential conflicts of
interest.
Lindsay
A. Rosenwald, M.D. is the Chairman, Chief Executive Officer and sole stockholder
of Paramount BioCapital, Inc. As of April 14, 2010, Dr. Rosenwald
beneficially owned approximately 37.1% of our issued and outstanding shares of
common stock. In addition, as of April 14, 2010, certain trusts
established for the benefit of Dr. Rosenwald’s minor children beneficially owned
approximately an additional 22.3% of our issued and outstanding shares of common
stock. Certain other employees of Paramount BioCapital, Inc. or its
affiliates are also current stockholders and/or directors of
ours. Paramount BioSciences, LLC, of which Dr. Rosenwald is the sole
member, certain trusts established for the benefit of Dr. Rosenwald’s children,
and Capretti Grandi, LLC, an investment partnership of which Dr. Rosenwald is
the managing member, also have loaned us amounts from time to time pursuant to
the Paramount Notes. As of December 31, 2009, $3,155,457, including
accrued and unpaid interest, remained outstanding under such
notes. In addition, in January and June of 2009, we issued the PCP
Notes to Paramount Credit Partners, LLC, an affiliate of Paramount BioCapital,
Inc., under which an aggregate of $2,163,360, including accrued and unpaid
interest, was outstanding as of December 31, 2009. Paramount
BioCapital, Inc. is a FINRA-registered broker-dealer, which has acted as
placement agent for certain of our past private placements of debt securities,
and for which it received customary commissions. Paramount BioSciences, LLC is a
global pharmaceutical development and healthcare investment firm that conceives,
nurtures, and supports new biotechnology and life-sciences
companies. Moreover, affiliates of Paramount Biosciences, LLC own a
majority interest in Santee, one of our licensors. Dr. Rosenwald is co-portfolio
manager of a series of asset management vehicles focused on investments in
healthcare and pharmaceutical companies, some of which may be potential
competitors of ours. For more information regarding these relationships and
other relationships between us and related parties, see “Certain Relationships
and Related Transactions.”
Generally,
Delaware corporate law, under which we are governed, requires that any
transaction between us and any of our affiliates be on terms that, when taken as
a whole, are substantially as favorable to us as those then reasonably
obtainable from a person who is not an affiliate in an arms-length
transaction. We believe that the terms of the agreements we entered
into with our affiliates satisfy the requirement of Delaware law, but in the
event that one or more parties challenges the fairness of such terms, we may
have to expend substantial resources in resolving the challenge and we can make
no guarantees as to the result. Furthermore, none of our affiliates,
Paramount BioSciences, LLC, its affiliates or Dr. Rosenwald, is obligated
pursuant to any agreement or
18
understanding
with us to make any additional products or technologies available to us, nor can
there be any assurance, and we do not expect and purchasers of the Units should
not expect, that any biomedical or pharmaceutical product or technology
identified by such affiliates, Paramount BioSciences, LLC, its affiliates or Dr.
Rosenwald in the future will be made available to us. In addition,
certain of our current officers and directors or certain officers or directors
hereafter appointed or elected may from time to time serve as officers or
directors of other biopharmaceutical or biotechnology
companies. There can be no assurance that such other companies will
not have interests in conflict with our own.
Provisions
in our corporate charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult
and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions
in our amended and restated certificate of incorporation and amended and
restated by-laws that will become effective upon the completion of this offering
may discourage, delay or prevent a merger, acquisition or other change in
control of us that stockholders may consider favorable, including transactions
in which you might otherwise receive a premium for your shares. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of our common stock, thereby depressing the market price
of our common stock. In addition, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of
our Board of Directors. Because our Board of Directors is responsible
for appointing the members of our management team, these provisions could in
turn affect any attempt by our stockholders to replace current members of our
management team. These provisions include the following:
|
·
|
prohibiting
our stockholders from fixing the number of our directors;
and
|
|
·
|
establishing
advance notice requirements for stockholder proposals that can be acted on
at stockholder meetings and nominations to our Board of
Directors.
|
Moreover,
because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the General Corporation Law of the State of Delaware, referred to
herein as the DGCL, which prohibits a person who owns in excess of 15% of our
outstanding voting stock from merging or combining with us for a period of three
years after the date of the transaction in which the person acquired in excess
of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner. We have not opted out of the
restrictions under Section 203.
If
you purchase securities in this offering, you will suffer immediate dilution of
your investment.
Assuming
our sale of Units at an assumed public
offering price of $ per Unit (which is the
mid-point of the estimated initial offering price range set forth on the cover
of this prospectus) and after deducting the underwriting discount and
commissions and estimated offering expenses, our pro forma net tangible book
value as of December 31, 2009 would be approximately
$ million, or
$ per share of common stock
outstanding. This represents an immediate dilution of
$ per share of common stock to the new
investors purchasing Units in this offering. Purchasers of Units in
this offering will have contributed
approximately % of the aggregate price paid
by all owners of our common stock but will own only
approximately % of our common stock
outstanding after this offering. See the “Dilution” section of this
prospectus.
To the
extent outstanding options or warrants are exercised, you will incur further
dilution.
An
active trading market for our common stock and other securities may not
develop.
This is
our initial public offering of equity securities and prior to this offering,
there has been no public market for our common stock or other
securities.
The
initial public offering price for the Units sold in this offering will be
determined through negotiations with the underwriters. We intend to apply for
listing our Units, as well as our common stock and warrants issued as a part of
the Units, on NYSE Amex. The Units will begin trading on or promptly after the
date of this prospectus. The Units will automatically separate and each of the
common stock and warrants will trade separately on the 60th day after the date
of this prospectus, unless Maxim Group LLC, the representative of the
underwriters, determines that an earlier date is acceptable based on its
assessment of the relative strengths of the securities markets and small
capitalization companies in general, and the trading pattern of, and demand for,
our securities in particular.
An active
trading market for our common stock and other securities may never develop or be
sustained. If an active market for our common stock and other
securities does not develop, it may be difficult for you to sell the securities
you purchase in this offering without depressing the market price for such
securities.
If
the prices of our securities are volatile, purchasers of our securities could
incur substantial losses.
The
prices of our securities are likely to be volatile. The stock market
in general and the market for biotechnology companies in particular have
experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. As a result of this volatility,
investors may not be able to sell their securities at or above the price paid in
this initial public offering. The market prices of our securities may
be influenced by many factors, including but not limited to the
following:
|
·
|
results
of clinical trials of our product candidates or those of our
competitors;
|
|
·
|
our
entry into or the loss of a significant
collaboration;
|
|
·
|
regulatory
or legal developments in the United States and other countries, including
changes in the healthcare payment
systems;
|
|
·
|
variations
in our financial results or those of companies that are perceived to be
similar to us;
|
|
·
|
market
conditions in the pharmaceutical and biotechnology sectors and issuance of
new or changed securities analysts’ reports or
recommendations;
|
|
·
|
general
economic, industry and market
conditions;
|
|
·
|
developments
or disputes concerning patents or other proprietary
rights;
|
|
·
|
future
sales or anticipated sales of our securities by us or our stockholders;
and
|
|
·
|
any
other factors described in this “Risk Factors”
section.
|
For these
reasons and others, you should consider an investment in our securities to be
risky and invest only if you can withstand a significant loss and wide
fluctuations in the value of your investment.
We
have broad discretion in the use of the net proceeds from this offering and may
not use them effectively.
Our
management will have broad discretion in the application of the net proceeds
from this offering and could spend the proceeds in ways that do not improve our
results of operations or enhance the value of our securities. The
failure by our management to apply these funds effectively could result in
financial losses that could have a material adverse effect on our business,
cause the price of our securities to decline and delay the development of our
product candidates. Pending the application of these funds, we may
invest the net proceeds from this offering in a manner that does not produce
income or that loses value.
We intend
to use the proceeds from this offering as follows: (i) approximately
$ for
PB-101 development; (ii) approximately
$ for
PB-200a development; (iii) approximately
$ for
development of a drug candidate using the PB-201 technology; and (iv) the
balance to fund working capital and other general corporate
purposes. Because of the number and variability of factors that will
determine our use of the proceeds from this offering, their ultimate use may
vary substantially from their currently intended use. For a further
description of our intended use of the proceeds of this offering, see the “Use
of Proceeds” section of this prospectus.
A
significant number of shares of our common stock will become eligible for sale
upon the completion of this offering, and a significant number of additional
shares of our common stock may become eligible for sale at a later date, and
their sale could depress the market price of our common stock.
Each Unit
issued in this offering will consist of two shares of common stock and a warrant
to purchase one share of common stock. We will also issue a warrant
to purchase Units to the
underwriters that, if executed, would result in the issuance of an additional
shares of common stock and warrants to
purchase an additional shares of common
stock. Additionally, following the completion of this offering, we
will have outstanding 8% Noteholder Warrants that, if exercised, would result in
the issuance of shares of common
stock (assuming an offering price of $ per
Unit) at an exercise price equal to 110% of the portion of the price of the
Units sold in this offering that is allocated to the common stock. We will also
have other outstanding warrants that, if exercised, would result in the issuance
of an
additional shares
of common stock at a weighted average exercise price of
$ per share
and shares of common stock at a
weighted average exercise price of
$ per share.
As of
December 31, 2009, we had outstanding $5,140,730 aggregate principal amount and
accrued interest of 10% Notes and $3,155,457 aggregate principal amount and
accrued interest outstanding under the Paramount Notes, all of which will
automatically convert into Units upon the completion of this offering. In
addition, in February and March 2010, we issued $4,343,000 aggregate principal
of 8% Notes, all of which will automatically convert into shares of common stock
upon the completion of this offering. Assuming an offering price of
$ per Unit, the 10% Notes and
the Paramount Notes will automatically convert
into Units and the 8% Notes will
automatically convert into shares of common
stock.
We have
issued options to purchase 116,000 shares of our common stock to our officers,
directors and employees under our 2007 Stock Incentive Plan. As of
December 31, 2009, options to purchase 72,000 shares of common stock remained
outstanding under the 2007 Stock Incentive Plan, all of which are currently
exercisable or will be exercisable within 60 days of the date of this
prospectus.
The sale
or even the possibility of sale of the shares of common stock described above
could substantially reduce the market price for our common stock or our ability
to obtain future financing.
Future
sales and issuances of our equity securities or rights to purchase our equity
securities, including pursuant to equity incentive plans, would result in
additional dilution of the percentage ownership of our stockholders and could
cause our stock price to fall.
To the
extent we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. We may sell common
stock, convertible securities or other equity securities in one or more
transactions at prices and in a manner we determine from time to
time. If we sell common stock, convertible securities or other equity
securities in more than one transaction, investors may be further diluted by
subsequent sales. Such sales may also result in material dilution to
our existing stockholders, and new investors could gain rights superior to
existing stockholders.
Pursuant
to our 2007 Stock Incentive Plan, our Board of Directors is authorized to award
up to a total of 20,000,000 shares of common stock or options to purchase shares
of common stock to our officers, directors and employees. We have
issued options to purchase 116,000 shares of our common stock to our officers,
directors and employees under our 2007 Stock Incentive Plan. As of
December 31, 2009, options to purchase 72,000 shares of common stock remained
outstanding under the 2007 Stock Incentive Plan. Stockholders will experience
dilution in the event that additional shares of common stock are issued under
the 2007 Stock Incentive Plan, or options previously issued or to be issued
under the 2007 Stock Incentive Plan are exercised.
Following
the completion of this offering, holders of
Units and holders of shares of common stock
will be entitled to certain “demand” and “piggyback” registration
rights. Additionally, a warrant to
purchase Units that we will issue to Maxim
Group LLC, as partial compensation for its services as an underwriter will
provide for unlimited “piggyback” registration rights at our expense with
respect to the underlying shares of common stock during the five-year period
commencing six months after the effective date. See “Description of
Capital Stock” on page 75 for more information on these registration
rights.
If these
holders exercise their registration rights with respect to all of their
securities, then there would be up to an
additional shares of common stock (on a
fully converted and as diluted basis) eligible for trading in the public
market. The presence of this additional number of shares of common
stock eligible for trading in the public market may substantially reduce the
market price of our common stock. In addition, the existence of these
holders’ piggyback registration rights may make it more difficult for us to
effect future public offerings and may reduce the amount of capital that we are
able to raise for our own account in these offerings.
We
will incur significant increased costs as a result of operating as a public
company, and our management will be required to devote substantial time to new
compliance initiatives.
As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. The Sarbanes-Oxley Act of
2002, as well as rules subsequently implemented by the Securities and Exchange
Commission, referred to herein as the SEC, and NYSE Amex, have imposed various
new requirements on public companies, including requiring establishment and
maintenance of effective disclosure and financial controls and changes in
corporate governance practices. Our management and other personnel
will need to devote a substantial amount of time to these new compliance
initiatives. Moreover, these rules and regulations will increase our
legal and financial compliance costs and will make some activities more time
consuming and costly. We expect these rules and regulations to make
it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to incur substantial costs to
maintain the same or similar coverage.
The
Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain
effective internal control over financial reporting and disclosure controls and
procedures. In particular, we will be required to perform system and
process evaluation and testing of our internal control over financial reporting
to allow management and our independent registered public accounting firm to
report, commencing in our annual report on Form 10-K for the year ending
December 31, 2011, on the effectiveness of our internal control over financial
reporting. To date, our independent registered public accounting firm
has identified a number of deficiencies in our internal controls over financial
reporting that it deemed to be material weaknesses. Our compliance
with Section 404 will require that we incur substantial costs and expend
significant management efforts. We currently do not have an internal
accounting group, and we will need to hire additional accounting and financial
staff. Moreover, if we are not able to comply with the requirements
of Section 404 in a timely manner or if we are not able to remediate the
material weaknesses identified by our independent registered public accounting
firm, the market price of our stock could decline and we could be subject to
sanctions or investigations by NYSE Amex, the SEC or other regulatory
authorities, which would require additional financial and management
resources.
There
is no guarantee that our securities will be listed on NYSE Amex.
We intend
to apply to have our Units, common stock and warrants listed on NYSE
Amex. After the completion of this offering, we believe that we will
satisfy the listing requirements and expect that our Units, common stock and
warrants will be listed on NYSE Amex. Such listing, however, is not
guaranteed. If the application is not approved, we will seek to have
our Units, common stock and warrants quoted on the OTC Bulletin
Board. Even if such listing is approved, there can be no assurance
any broker will be interested in trading our securities. Therefore,
it may be difficult to sell any securities you purchase in this offering if you
desire or need to sell them. Our lead underwriter, Maxim, is not
obligated to make a market in our securities, and even after making a market,
can discontinue market making at any time without notice. Neither we
nor the underwriters can provide any assurance that an active and liquid trading
market in our securities will develop or, if developed, that the market will
continue.
If
securities or industry analysts do not publish research or reports or publish
unfavorable research about our business, the price of our common stock and other
securities and their trading volume could decline.
The
trading market for our common stock and other securities will depend in part on
the research and reports that securities or industry analysts publish about us
or our business. We do not currently have and may never obtain
research coverage by securities and industry analysts. If no
securities or industry analysts commence coverage of us the trading price for
our common stock and other securities would be negatively affected. In the event
we obtain securities or industry analyst coverage, if one or more of the
analysts who covers us downgrades our securities, the price of our securities
would likely decline. If one or more of these analysts ceases to
cover us or fails to publish regular reports on us, interest in the purchase of
our securities could decrease, which could cause the price of our common stock
and other securities and their trading volume to decline.
We
have never paid dividends and do not expect to pay dividends for the foreseeable
future.
We have
never paid dividends on our capital stock and do not anticipate paying any
dividends for the foreseeable future. Accordingly, to the extent the
securities you purchase in this offering convert into equity securities, you
should not expect to receive dividends on such equity securities.
This
prospectus contains forward-looking statements, including statements regarding
the progress and timing of clinical trials, the safety and efficacy of our
product candidates, the goals of our development activities, estimates of the
potential markets for our product candidates, estimates of the capacity of
manufacturing and other facilities to support our products, our expected future
revenues, operations and expenditures and projected cash needs. The
forward-looking statements are contained principally in the sections entitled
“Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Business.” These statements
relate to future events or our future financial performance and involve known
and unknown risks, uncertainties and other factors that could cause our actual
results, levels of activity, performance or achievement to differ materially
from those expressed or implied by these forward-looking statements. These risks
and uncertainties include, among others:
|
·
|
our
ability to obtain additional funding to develop our product
candidates;
|
|
·
|
the
need to obtain regulatory approval of our product
candidates;
|
|
·
|
the
success of our preclinical and clinical trials through all phases of
development;
|
|
·
|
any
delays in regulatory review and approval of product candidates in clinical
development;
|
|
·
|
our
ability to commercialize our
products;
|
|
·
|
market
acceptance of our product
candidates;
|
|
·
|
our
ability to establish an effective sales and marketing
infrastructure;
|
|
·
|
competition
from existing products or new products that may
emerge;
|
|
·
|
regulatory
difficulties relating to products that have already received regulatory
approval;
|
|
·
|
potential
product liability claims;
|
|
·
|
our
dependency on third-party manufacturers to supply or manufacture our
products;
|
|
·
|
our
ability to establish or maintain collaborations, licensing or other
arrangements;
|
|
·
|
our
ability and third parties’ abilities to protect intellectual property
rights;
|
|
·
|
compliance
with obligations under intellectual property licenses with third
parties;
|
|
·
|
our
ability to adequately support future growth;
and
|
|
·
|
our
ability to attract and retain key personnel to manage our business
effectively.
|
Forward-looking
statements include all statements that are not historical facts. In some cases,
you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “projects,” “predicts,” “potential,” or the negative of those
terms, and similar expressions and comparable terminology intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties. Given these uncertainties, you should not place undue reliance on
these forward-looking statements. These forward-looking statements represent our
estimates and assumptions only as of the date of this prospectus and, except as
required by law, we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this prospectus. The forward-looking
statements contained in this prospectus are excluded from the safe harbor
protection provided by the Private Securities Litigation Reform Act of 1995 and
Section 27A of the Securities Act of 1933, as amended, referred to herein as the
Securities Act.
We
estimate that the net proceeds from the sale of the Units we are offering will
be approximately $ million, or
$ million if the underwriters exercise their
over-allotment option in full, assuming an initial public offering price of
$ per Unit, which is the midpoint of the
range listed on the cover page of this prospectus, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.
The
principal purposes for this offering are (i) to fund our development activities,
including clinical trials for PB-101(zabofloxacin), and pre-clinical development
of PB-101 for intravenous formulation of zabofloxacin, as well as our
optimization work and pre-clinical development of PB-200a and our optimization
work on the development of a drug candidate using the PB-201 technology, (ii) to
create a public market for our common stock, (iii) to increase our ability to
access the capital markets in the future, (iv) to increase our working capital
for general corporate purposes and (v) to provide liquidity for our existing
stockholders.
We
anticipate using the net proceeds from this offering as follows:
|
·
|
Approximately
$ for
PB-101 development to include the
following:
|
|
o
|
complete
our Phase 2 clinical trial for the community-acquired pneumonia (CAP)
indication; and
|
|
o
|
complete
all pre-clinical studies and a Phase 1 study required for an intravenous
formulation of PB-101.
|
|
·
|
Approximately
$ for
PB-200a development to include the
following:
|
|
o
|
complete
chemical optimization; and
|
|
o
|
complete
pre-clinical studies required to submit an
IND.
|
|
·
|
Approximately
$ for
development of a drug candidate using the PB-201 technology to include the
following:
|
|
o
|
optimization
of the reformulation of
itraconazole.
|
|
·
|
The
balance to fund working capital and other general corporate purposes,
which may include the acquisition or licensing of complementary
technologies, products or
businesses.
|
The
expected use of net proceeds of this offering represents our intentions based on
our current plans and business conditions. The amount and timing of our actual
expenditures will depend on numerous factors, including the progress of our
clinical trials and any unforeseen cash needs. As a result, we will retain broad
discretion in the allocation and use of the remaining net proceeds of this
offering. We have no current plans, agreements or commitments for any material
acquisitions or licenses of any technologies, products or
businesses.
We expect
that the net proceeds from this offering, along with our existing cash
resources, will be sufficient to enable us to reach the milestones noted above.
We will need to raise additional funds following the completion of this offering
in order to continue development of our current product candidates (i.e., Phase
3 clinical trials for PB-101, Phase 1 studies for PB-200a and any drug candidate
we may formulate using the PB-201 technology), or to develop any new product
candidates.
A $1.00
increase (decrease) in the assumed initial public offering price of
$ per Unit (the mid-point of the price range
set forth on the cover page of this prospectus) would increase (decrease) the
net proceeds to us from this offering by approximately
$ million, assuming the number of Units
offered by us, as set forth on the cover page of this prospectus, remains the
same and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
Pending
application of the net proceeds, as described above, we intend to invest any
remaining proceeds in a variety of short-term, investment-grade,
interest-bearing securities.
We have
never declared dividends on our equity securities, and currently do not plan to
declare dividends on shares of our common stock in the foreseeable future. We
expect to retain our future earnings, if any, for use in the operation and
expansion of our business. Subject to the foregoing, the payment of cash
dividends in the future, if any, will be at the discretion of our Board of
Directors and will depend upon such factors as earnings levels, capital
requirements, our overall financial condition and any other factors deemed
relevant by our Board of Directors.
The
following table sets forth our cash and our capitalization as of December 31,
2009:
|
·
|
on
an actual basis;
|
|
·
|
on
a pro forma basis to reflect the
following:
|
|
o
|
the
issuance of $4,343,000 in aggregate principal amount of the 8% Notes in
February and March 2010; and
|
|
o
|
the
automatic conversion of all of our outstanding convertible notes into an
aggregate of Units
and shares of common stock upon the
completion of this offering; and
|
|
·
|
on
a pro forma as adjusted basis to further reflect the
following:
|
|
o
|
our
sale of Units in this offering, at an
assumed initial public offering price of
$ per Unit (the mid-point of the price
range set forth on the cover page of this prospectus), after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by us;
|
|
o
|
the
filing of our amended and restated certificate of incorporation upon
completion of this offering; and
|
|
o
|
a 1
for reverse stock split of our common
stock to be effected prior to the completion of this
offering.
|
The pro
forma information below is illustrative only and our capitalization following
the completion of this offering will be adjusted based on the actual initial
public offering price and other terms of this offering determined at pricing.
You should read this table together with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and our audited financial
statements and the related notes appearing elsewhere in this
prospectus.
|
As
of December 31, 2009
|
|||||||||
|
Actual
|
Pro
Forma
|
Pro
Forma
As
Adjusted
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
||||||||
|
Cash
|
$ | 10,728 | $ | ||||||
|
Paramount
Notes
|
$ | 3,155,457 | |||||||
|
10%
Notes
|
5,140,730 | ||||||||
|
PCP
Notes
|
2,163,360 | ||||||||
|
8%
Notes
|
— | ||||||||
| 10,459,547 | |||||||||
|
Stockholders’
deficiency:
|
|||||||||
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; none issued
( authorized and none issued on a pro
forma and pro forma as adjusted basis)
|
— | ||||||||
|
Common
stock, $0.001 par value; 20,000,000 shares authorized; 4,479,729 issued
and outstanding ( authorized;
issued on a pro forma basis;
issued on a pro forma as adjusted
basis)
|
4,480 | ||||||||
|
Additional
paid-in capital
|
1,997,143 | ||||||||
|
Deficit
accumulated during the development stage
|
(15,212,388 | ) | |||||||
|
Total
stockholders’ deficiency
|
(13,210,765 | ) | |||||||
|
Total
capitalization
|
$ | (2,751,218 | ) | ||||||
The table
above does not include the following:
|
·
|
72,000
shares of common stock issuable upon exercise of outstanding options at a
weighted average exercise price of $0.95 per
share;
|
|
·
|
15,448,271
shares of common stock reserved for issuance under our 2007 Stock
Incentive Plan;
|
|
·
|
300,000
shares of common stock issuable upon exercise of the Consultant
Warrant;
|
|
·
|
434,000
shares of common stock issuable upon exercise of the Placement Agent
Warrants;
|
|
·
|
shares
of common stock issuable upon exercise of the PCP Warrants;
and
|
|
·
|
shares
of common stock issuable upon exercise of the 8% Noteholder
Warrants.
|
If you
invest in our securities, your investment will be diluted immediately to the
extent of the difference between the public offering price per share of common
stock, assuming no value is attributed to the warrants underlying the Units you
purchase in this offering, and the net tangible book value per share of common
stock immediately after this offering.
Our net
tangible book value as of December 31, 2009 was approximately $(13.2) million,
or $(2.95) per common share. Net tangible book value per share is determined by
dividing tangible stockholders’ equity, which is total tangible assets less
total liabilities, by the aggregate number of shares of common stock
outstanding. Tangible assets represent total assets excluding goodwill and other
intangible assets. Dilution in net tangible book value per share represents the
difference between the amount per share of common stock issued as a part of the
Units paid by purchasers of Units in this offering and the net tangible book
value per share of our common stock immediately afterwards. Assuming the sale by
us of shares of common stock issued as a part
of the Units at an assumed public offering price of
$ per Unit (the mid-point of the price range
set forth on the cover page of this prospectus) and after deducting the
underwriting discount and commissions and estimated offering expenses, our as
adjusted net tangible book value as of December 31, 2009 would be
approximately $ million, or
$ per common share. This represents an
immediate increase in net tangible book value of
$ per share to our existing stockholders and
an immediate dilution of $ per share to the
new investors purchasing Units in this offering.
The
following table illustrates this per share dilution, assuming no value is
attributed to the warrants issued as a part of the Units:
|
Assumed initial public offering price per share
|
$ | |||||||
|
Historical net tangible book value per share as of December 31,
2009
|
$ | (2.95 | ) | |||||
|
Increase
per share attributable to the conversion of convertible promissory
notes
|
$ | $ | ||||||
|
Pro
forma net tangible book value per share before this
offering
|
$ | $ | ||||||
|
Increase
per share attributable to new investors
|
$ | |||||||
|
Pro forma as adjusted net tangible book value per share after this
offering
|
$ | |||||||
|
Dilution per share to new investors
|
$ | |||||||
The
following table sets forth, on an as adjusted basis as of December 31, 2009, the
difference between the number of shares of common stock issued as a part of the
Units, the total cash consideration paid, and the average price per share paid
by our existing stockholders and by new public investors before deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, using an assumed public offering price of
$ per Unit.
|
Shares
Purchased
|
Total
Consideration
|
Average
Price per Share
|
|||||||||||||||
|
Number
|
Percent
|
Amount
|
Percent
|
||||||||||||||
|
Existing
stockholders
|
|
%
|
$ | % | $ | ||||||||||||
|
New
stockholders
|
|||||||||||||||||
|
Total
|
100.0 | % | 100.0 | % | |||||||||||||
If the
underwriters’ over-allotment option of
Units, which will include shares of common
stock issued as a part of the Units, is exercised in full, the number of shares
of common stock held by existing stockholders will be reduced
to % of the total number of shares to be
outstanding after this offering, and the number of shares held by the new
investors will be increased
to shares,
or %, of the total number of shares of common
stock outstanding after this offering.
The
foregoing information is based on shares of
common stock issued and outstanding as of December 31, 2009, and assumes the
automatic conversion of all of our outstanding convertible notes into an
aggregate of Units
and shares of common stock upon the
completion of this offering. The table above excludes (i) 72,000
shares of common stock issuable upon exercise of outstanding options at a
weighted average exercise price of $0.95 per share; (ii) 15,448,271 shares of
common stock reserved for issuance under our 2007 Stock Incentive Plan; (iii)
300,000 shares of common stock issuable upon exercise of the Consultant Warrant;
(iv) 434,000 shares of common stock issuable upon exercise of the Placement
Agent Warrants; (v) shares of common stock
issuable upon exercise of the PCP Warrants; and (vi)
shares of common stock issuable upon
exercise of the 8% Noteholder Warrants. In addition, we may choose to
raise additional capital due to market conditions or strategic considerations
even if we believe we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through the
sale of equity or convertible debt securities, the issuance of these securities
could result in further dilution to our stockholders.
The
following statement of operations data for 2009 and 2008, along with the period
from October 5, 2006 (Inception) to December 31, 2009, and the balance sheet
data as of December 31, 2009 and 2008, have been derived from our audited
financial statements, which are included elsewhere in this
prospectus. The following selected financial data should be read
together with our financial statements and related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this prospectus. The selected financial data in
this section is not intended to replace our financial statements and the
accompanying notes. Our historical results are not necessarily
indicative of our future results.
Statement
of Operations Data
|
Year
Ended December 31, 2009
|
Year
Ended December 31, 2008
|
Period
from October 5, 2006 (Inception) to December 31,
2009
|
||||||||||
|
Operating revenue:
|
||||||||||||
|
Sublicense
|
$ | 6,286 | $ | - | $ | 6,286 | ||||||
|
Operating expenses:
|
||||||||||||
|
Research
and development
|
2,470,157 | 2,715,377 | 9,336,545 | |||||||||
|
General
and administrative
|
630,794 | 1,367,866 | 3,529,725 | |||||||||
|
Total
operating expenses
|
3,100,951 | 4,083,243 | 12,866,270 | |||||||||
|
Loss from operations
|
(3,094,665 | ) | (4,083,243 | ) | (12,859,984 | ) | ||||||
|
Interest income
|
21,850 | 27,859 | ||||||||||
|
Interest
expense, including amortization of debt discount and deferred financing
costs
|
(1,089,846 | ) | (1,115,730 | ) | (2,380,263 | ) | ||||||
|
Net loss
|
$ | (4,184,511 | ) | $ | (5,177,123 | ) | $ | (15,212,388 | ) | |||
|
Basic and diluted net loss per common share
|
$ | (0.93 | ) | $ | (1.16 | ) | ||||||
|
Weighted average common shares outstanding –
basic and diluted
|
4,479,729 | 4,479,729 | ||||||||||
Balance
Sheet Data
|
December
31, 2009
|
||||||||||||
|
Actual
|
Pro
Forma
|
Pro
Forma As Adjusted
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||
|
Cash
|
$ | 10,728 | $ | $ | ||||||||
|
Total Assets
|
$ | 90,179 | ||||||||||
|
Total Liabilities
|
$ | 13,300,944 | ||||||||||
|
Deficit Accumulated During the Development Stage
|
$ | (15,212,388 | ) | |||||||||
|
Total Stockholders’ Equity (Deficiency)
|
$ | (13,210,765 | ) | |||||||||
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis together with our financial
statements and the notes to those statements included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. As a result of many factors, such as those set forth
under “Risk Factors” and elsewhere in this prospectus, our actual results may
differ materially from those anticipated in these forward-looking
statements.
Overview
We are a
biopharmaceutical company that seeks to in-license, develop and commercialize
therapeutic products for the treatment and prevention of infectious
diseases. We have obtained exclusive rights to candidates for the
treatment of bacterial and fungal infections. To date, we have
licensed all of the products in our pipeline.
Several
of our product candidates seek to address large market opportunities in the
antibiotic and antifungal markets, including our most advanced product
candidate, PB-101 (zabofloxacin). PB-101 is a fluoroquinolone
antibiotic which we initially plan to develop for the treatment of
community-acquired pneumonia, or CAP, a common infection associated with
significant morbidity and mortality. In the antifungal market, we are
currently focused on developing PB-200a, a drug candidate, and PB-201, a
technology that may result in one or more additional drug
candidates. We anticipate that PB-200a will be an antifungal drug for
the treatment of two of the most common fungus strains (Candidia and Aspergillus). PB-201
is a formulation technology that we will seek to utilize to reformulate the
antifungal drug itraconazole, which is one of the standard therapies for the
treatment of onychomycosis (nail fungus).
We
completed a Phase 1 QT trial for PB-101 in December 2009 and initiated a Phase 2
clinical trial in the United States for the CAP indication in March
2010. For PB-200a, we expect to complete optimization of the drug
formulation by the end of the second quarter of 2011 and once the optimal
pharmaceutical properties are achieved, we expect to file an Investigational New
Drug Application (IND) with the U.S. Food and Drug Administration (FDA) for a
Phase 1 study. For PB-201, we will seek to optimize the reformulation
of itraconazole using this technology and conduct animal studies to examine the
absorption characteristics of the reformulated itraconazole.
Since our
inception in October 2006, we have had no revenue from product sales, and have
funded our operations principally through debt financings. Our operations to
date have been primarily limited to organizing and staffing, licensing product
candidates, developing clinical trials for our product candidates, establishing
manufacturing for our product candidates and maintaining and improving our
patent portfolio.
We have
generated significant losses to date, and we expect to continue to generate
losses as we progress towards the commercialization of our product candidates.
As of December 31, 2009, we had an accumulated deficit of approximately $15.2
million. Because we do not generate revenue from any of our product candidates,
our losses will continue as we advance our product candidates towards regulatory
approval and eventual commercialization. As a result, our operating losses are
likely to be substantial over the next several years. We are unable to predict
the extent of any future losses or when we will become profitable, if at
all.
We
believe that the net proceeds from this offering and existing cash will be
sufficient to fund our projected operating requirements for at least two years.
Until we can generate a sufficient amount of product revenue, if ever, we expect
to finance future cash needs through public or private equity offerings, debt
financings or corporate collaboration and licensing arrangements.
Financial
Operations Overview
Revenue
Other
than the sublicense fees and payments we received in the fourth quarter of 2009
under the sublicense agreement as discussed below, we have not generated any
revenue since our inception. To date, we have funded our operations
primarily through debt financings. If our product development efforts
result in clinical success, regulatory approval and successful commercialization
of any of our products, we could generate revenue from sales or licenses of any
such products.
Research
and Development Expense
Research
and development expense consists of: (i) internal costs associated with our
development activities; (ii) payments we make to third party contract research
organizations, contract manufacturers, investigative sites, and consultants;
(iii) technology and intellectual property license costs; (iv) manufacturing
development costs; (v) personnel related expenses, including salaries, benefits,
travel, and related costs for the personnel involved in drug development; (vi)
activities relating to regulatory filings and the advancement of our product
candidates through preclinical studies and clinical trials; and (vii) facilities
and other allocated expenses, which include direct and allocated expenses for
rent, facility maintenance, as well as laboratory and other supplies. All
research and development is expensed as incurred.
Conducting
a significant amount of development is central to our business
model. Through December 31, 2009, we incurred $9,336,545 in research
and development expenses since our inception in October 2006. Product
candidates in later-stage clinical development generally have higher development
costs than those in earlier stages of development, primarily due to the
significantly increased size and duration of the clinical trials. We plan to
increase our research and development expenses for the foreseeable future in
order to continue development of our product candidates.
The
process of conducting pre-clinical studies and clinical trials necessary to
obtain FDA approval is costly and time consuming. The probability of
success for each product candidate and clinical trial may be affected by a
variety of factors, including, among others, the quality of the product
candidate’s early clinical data, investment in the program, competition,
manufacturing capabilities and commercial viability. As a result of
the uncertainties discussed above, the uncertainty associated with clinical
trial enrollments and the risks inherent in the development process, we are
unable to determine the duration and completion costs of current or future
clinical stages of our product candidates or when, or to what extent, we will
generate revenues from the commercialization and sale of any of our product
candidates. Development timelines, probability of success and
development costs vary widely. We are currently focused on completing
the Phase 2 CAP study for PB-101, completing all pre-clinical studies and the
Phase 1 study required for the intravenous formulation of PB-101, completing
chemical optimization work and pre-clinical studies required to submit an IND or
equivalent for PB-200a; and optimizing the reformulation of itraconazole using
the PB-201 technology. However, we will need to raise additional
funds following the completion of this offering in order to conduct the Phase 3
trials for PB-101, conduct a Phase 1 study for PB-200a; to conduct a Phase 1
study for any drug candidate we may formulate using the PB-201 technology, or to
develop any new product candidates.
General
and Administrative Expense
General
and administrative expense consists primarily of salaries and other related
costs, including stock-based compensation expense, for persons serving in our
executive, finance and accounting functions. Other general and
administrative expense includes facility-related costs not otherwise included in
research and development expense, promotional expenses, costs associated with
industry and trade shows, and professional fees for legal services and
accounting services. We expect that our general and administrative
expenses will increase as we add personnel and become subject to the reporting
obligations applicable to public companies. From our inception in
October 2006 through December 31, 2009, we spent $3,529,725 on general and
administrative expense.
Interest
Income and Interest Expense
Interest
income consists of interest earned on our cash and cash equivalents. Interest
expense consists of interest incurred on the 10% Notes, the PCP Notes, the PBS
Note, the Family Trusts Note, the Capretti Note and borrowings under our line of
credit with Bank of America, N.A., as well as the amortization of deferred
financing costs and debt discounts.
Results
of Operations
Comparison
of the Years Ended December 31, 2009 and December 31, 2008
Revenue from Sublicense
Agreement. We received a total of $660,000 in sublicense fees
and milestone payments under our non-exclusive patent sublicense agreement with
a third-party for the year ended December 31, 2009, which we entered into
effective as of November 4, 2009. We have recorded deferred revenue
for the cash received under the sublicense agreement in 2009 that is being
recognized as revenue over the term of the sublicense agreement at approximately
$38,000 per annum. We did not generate any revenues for the year
ended December 31, 2008.
Research and Development
Expense. Research and development expense was $2,470,157 for
the year ended December 31, 2009, a decrease of $245,220, or 9%, from $2,715,377
for the year ended December 31, 2008. The decrease was primarily due
to lower fees and payments to Dong Wha in 2009 of $400,000 compared to $800,000
in 2008, the termination of our services agreement with PBS in August 2008 under
which we accrued fees of $200,000 in 2008, lower manufacturing
expense of approximately $51,000 in 2009 compared to approximately $478,000 in
2008, which were substantially offset by higher preclinical and clinical
development costs in 2009 of approximately $1,508,000 relating primarily to our
Phase 1 QT trial for PB-101 compared to approximately $626,000 in 2008 relating
primarily to preclinical development costs for PB-101 and our other product
candidates.
General and Administrative
Expense. General and administrative expense was $630,794 for
the year ended December 31, 2009, a decrease of $737,072, or 54%, from
$1,367,866 for the year ended December 31, 2008. The decrease was
primarily attributable to the departure of Matthew Wikler, in January 2009, who
rejoined us as our President and Chief Executive Officer and director effective
as of February 28, 2010, and the expiration of the lease related to our previous
office space.
Interest Income and Interest
Expense. Interest income was zero for the year ended December
31, 2009, compared to $21,850 for the year ended December 31,
2008. We did not earn interest income during 2009 because we did not
maintain any significant cash balances in interest bearing accounts for any
meaningful period during the year.
Interest
expense was $1,089,846 for the year ended December 31, 2009, a decrease of
$25,884, or 2%, from $1,115,730 for the year ended December 31,
2008. The decrease was primarily attributable to lower charges
related to the amortization of deferred financing costs in 2009, which
substantially offset higher accrued interest relating to the increase in
interest rates on our 10% Notes from 8% to 10% in December 2008 and accrued
interest on the PCP Notes, which were issued in 2009.
Liquidity
and Capital Resources
Sources
of Liquidity
As a
result of our significant research and development expenditures and the lack of
any approved products to generate product sales revenue, we have not been
profitable and have generated operating losses since we were incorporated in
October 2006. We have funded our operations through December 31, 2009
principally with $8,683,000 in convertible notes sold in private placements and
$5,652,205 in related party notes. The following table summarizes our
funding sources as of April 14, 2010:
|
Source
|
Amount
Raised
($)
(1)
|
Principal
and
Interest
Outstanding
as of
December
31, 2009
|
Shares
of
Common
Stock or Units
Issuable
Upon
Conversion
(Upon
Completion
of
the Offering) (2)
|
|||||||||
|
10%
Notes
|
$ | 4,340,000 | $ | 5,140,730 |
Units
|
|||||||
|
8%
Notes (February and March 2010)
|
3,343,000 | (3) | — | (4) |
shares
|
|||||||
|
PCP
Notes
|
2,875,000 | 3,080,811 | — | |||||||||
|
Paramount
Notes
|
||||||||||||
|
PBS
Note
|
2,067,205 | (5) | 2,309,107 |
Units
|
||||||||
|
Family
Trusts Note
|
660,000 | 793,761 |
Units
|
|||||||||
|
Capretti
Note
|
50,000 | 52,589 |
Units
|
|||||||||
|
Totals
|
$ | 13,335,205 | $ | 11,376,998 | ||||||||
______________
|
(1)
|
Represents
gross proceeds.
|
|
(2)
|
Assumes
an initial public offering price of $
per Unit (the mid-point of the price range set forth on the cover page of
this prospectus) and assumes that the conversion occurs on
,
2010.
|
|
(3)
|
Does
not include the 8% Note in the principal amount of $1,000,000 we issued to
PBS upon the conversion of $1,000,000 of the principal amount outstanding
under the PBS Note in connection with the 8% Notes
financing.
|
|
(4)
|
The
8% Notes were not issued until February and March
2010.
|
|
(5)
|
As
described in note 3 above, pursuant to the terms of the PBS Note,
$1,000,000 of the principal amount outstanding under the PBS Note
converted into an 8% Note in February 2010 in connection with the 8% Notes
financing.
|
10%
Notes
In
December of 2007, we issued a series of convertible promissory notes in the
aggregate principal amount of $4,340,000 (the “10% Notes”). The 10%
Notes are unsecured obligations of ours with a maturity date of September 30,
2010 and accrue interest at the rate of 10% per annum. The aggregate
amount of accrued and unpaid interest under the 10% Notes as of December 31,
2009 was $800,730.
Originally,
the 10% Notes had a maturity date of December 14, 2008 and an interest rate of
8% per annum. Pursuant to the terms of the 10% Notes, in December
2008, we extended the maturity date to December 14, 2009 in exchange for an
increase in the interest rate to 10% per annum. Pursuant to an
amendment agreement dated as of December 14, 2009, we further extended the
maturity date to September 30, 2010. Also pursuant to the amendment
agreement, a cash premium equal to 42.8571% of the aggregate principal amount
plus all accrued and unpaid interest on the 10% Notes was added in the event the
10% Notes become due and payable prior to the consummation by us of a Qualified
Financing, reverse merger, sale of the company or other
transaction.
The
outstanding principal amount of the 10% Notes, and all accrued interest thereon,
will automatically convert into Units at a conversion price equal to 70% of the
lowest per unit price at which our equity securities are sold in a Qualified
Financing, upon the terms and conditions on which such securities are issued in
the Qualified Financing. For purposes of the 10% Notes, “Qualified
Financing” means the sale of our equity securities in an equity financing or
series of related equity financings in which we receive (minus the amount of
aggregate gross cash proceeds to us from our arm’s length sale of equity or debt
securities, or incurrence of new loans, after December 14, 2009) aggregate gross
proceeds of at least $10,000,000 (before brokers’ fees or other transaction
related expenses, and excluding any such proceeds resulting from any conversion
of the 10% Notes). This offering, if consummated, will be considered
a Qualified Financing. Assuming an offering price of $
per Unit, the 10% Notes will automatically
convert into Units.
8%
Notes
In
February and March 2010, we issued another series of convertible promissory
notes in the aggregate principal amount of $4,343,000 (the “8%
Notes”). The 8% Notes are unsecured obligations of ours with a
maturity date of February 9, 2012 and accrue interest at the rate of 8% per
annum.
The
outstanding principal amount of the 8% Notes, and all accrued interest thereon,
will automatically convert into shares of common stock upon the completion of a
Qualified IPO. For purposes hereof, “Qualified IPO” means the
completion of an underwritten initial public offering of units consisting of
shares of common stock and warrants to purchase common stock by us resulting in
aggregate gross cash proceeds (before commissions or other expenses) to us of at
least $10,000,000. This offering, if consummated, will be considered
a Qualified IPO. Assuming an offering price of $
per Unit, the 8% Notes will automatically
convert into shares of common stock at a
conversion price equal to 70% of the portion of the price of the Units sold in
this offering that is allocated to the common stock.
In
connection with the issuance of the 8% Notes, we issued five-year warrants to
the purchasers of the 8% Notes (the “8% Noteholder Warrants”). The 8%
Noteholder Warrants entitle the holders thereof to purchase a number of shares
of common stock equal to 70% of the principal amount of the 8% Notes divided by
the price at which shares of our common stock are sold in a Qualified IPO, at a
per share exercise price equal to the exercise price of the warrants issued
in the Qualified IPO, subject to adjustment as set forth in the
warrant. If a Qualified IPO does not occur on or before the second
anniversary of the closing of the offering of the 8% Noteholder Warrants, then
each warrant will be exercisable for that number of shares of common stock equal
to 70% of the principal amount of the note purchased by the original holder
divided by $1.00, at a per share exercise price of $1.00. In the
event of a sale of our company (whether by merger, consolidation, sale or
transfer of more than 50% of our capital stock or all or substantially all of
our assets), the 8% Noteholder Warrants will terminate 90 days after such sale
provided that the holders have the right to exercise the 8% Noteholder Warrants
during such 90-day period. Assuming an offering price of
$ per Unit, the 8% Noteholder Warrants will
entitle the holders thereof to purchase
shares of common stock at an exercise price equal to 110% of the portion of the
price of the Units sold in this offering that is allocated to the common
stock.
PCP
Notes
On each
of January 15, 2009 and June 24, 2009, we issued a senior promissory note to
Paramount Credit Partners, LLC (“PCP”), in the principal amount of $2,750,000
and $125,000, respectively (each a “PCP Note” and together, the “PCP
Notes”). PCP is an affiliate of Paramount BioCapital, Inc., of which
is Dr. Rosenwald is the Chairman, Chief Executive Officer and sole
stockholder. The PCP Notes are unsecured obligations of ours with
current maturity dates of the earlier of (i) December 31, 2013, (ii) the
completion of a Qualified Financing (as defined below), and (iii) the completion
of a Reverse Merger (as defined below). The PCP Notes accrue interest
at the rate of 10% per annum. The aggregate amount of accrued and
unpaid interest under the PCP Notes as of December 31, 2009 was
$205,811.
For
purposes of the PCP Notes, “Qualified Financing” means the closing of an equity
financing or series of related equity financings by us resulting in aggregate
gross cash proceeds (before brokers’ fees or other transaction related expenses)
of at least $10,000,000. For purposes of the PCP Notes, “Reverse
Merger” means a merger, share exchange or other transaction or series of related
transactions in which (a) we merge into or otherwise becomes a wholly owned
subsidiary of a company subject to the public company reporting requirements of
the Securities Exchange Act of 1934, as amended, referred to herein as the
Exchange Act, and (b) the aggregate consideration payable to us or our
stockholders in such transaction(s) (the “Reverse Merger Consideration”) is
greater than or equal to $10,000,000. This offering, if consummated,
will be considered a Qualified Financing.
In
connection with the issuance of the PCP Notes, we issued to PCP five-year
warrants to purchase a number of shares of common stock equal to 40% of the
aggregate principal amount of the PCP Notes ($2,875,000), divided by the lowest
price paid in a Qualified Financing (each a “PCP Warrant,” and together, the
“PCP Warrants”). The per share exercise price of each of the PCP
Warrants is equal to 110% of the lowest price paid in a Qualified
Financing.
If we
complete a Reverse Merger, other than in connection with a Qualified Financing,
the PCP Warrants will be exercisable immediately prior to the Reverse Merger for
a number of shares of common stock and exercise price determined in accordance
with, and on the same terms and conditions, as provided for in the event of a
Qualified Financing, except that the lowest price paid will be deemed equal to
the quotient obtained by dividing the Reverse Merger Consideration (less the
amount of unpaid principal and accrued interest under the applicable PCP Note)
by the number of shares of common stock outstanding immediately prior to such
Reverse Merger, on a fully diluted basis (without giving effect to the
conversion of the PCP Notes or any other senior promissory notes or any
placement warrants issued by us).
The PCP
Warrants will become exercisable commencing on the consummation of a Qualified
Financing or a Reverse Merger. However, in the event that neither a
Qualified Financing nor a Reverse Merger is consummated by the two-year
anniversary of the issuance of each PCP Note, the applicable PCP Warrant will be
automatically exercisable into an aggregate number of shares of common stock
equal to 40% of the principal amount of the corresponding PCP Note divided by
$1.00, at a per share exercise price of $1.00. The PCP Warrants are
subject to redemption by us in certain circumstances and in the event of a sale
of our company (whether by merger, consolidation, sale or transfer of our
capital stock or assets or otherwise) prior to, but not in connection with, a
Qualified Financing or Reverse Merger, the PCP Warrants will terminate without
the opportunity for exercise.
Paramount
Notes
From
December 1, 2006 through December 31, 2009, Paramount BioSciences, LLC (“PBS”),
of which Dr. Rosenwald is the sole member, had loaned us an aggregate principal
amount of $2,067,205 pursuant to a future advance promissory note dated December
1, 2006, amended on September 28, 2007, and amended and restated on September
30, 2009 (the “PBS Note”). Pursuant to the PBS Note, the principal
amount of all loans made to us under the PBS Note, up to $1,000,000, immediately
and automatically converted into an 8% Note. As such, in February
2010, we issued PBS an 8% Note in the aggregate principal amount of
$1,000,000. In connection with the issuance of such 8% Note, we also
issued to PBS the related 8% Noteholder Warrant. From December 1,
2006 through December 31, 2009, certain trusts established for the benefit of
Dr. Rosenwald’s children and his family (the “Family Trusts”) had loaned us an
aggregate principal amount of $660,000 pursuant to a future advance promissory
note dated December 1, 2006, amended on September 28, 2007, and amended and
restated on September 30, 2009 (the “Family Trusts Note”). From
December 18, 2008 through December 31, 2009, Capretti Grandi, LLC (“Capretti”),
an investment partnership of which Dr. Rosenwald is the managing member, had
loaned us an aggregate principal amount of $50,000 pursuant to a future advance
promissory note dated December 18, 2008 and amended and restated on September
30, 2009 (the “Capretti Note”, and together with the PBS Note and the Family
Trusts Note, the “Paramount Notes”). The Paramount Notes are
unsecured obligations of ours with a maturity date of September 30, 2010 and
accrue interest at the rate of 8% per annum. As of December 31, 2009,
$2,309,107, including accrued and unpaid interest, was outstanding under the PBS
Note, $793,761, including accrued and unpaid interest, was outstanding under the
Family Trusts Note, and $52,589, including accrued and unpaid interest, was
outstanding under the Capretti Note. All outstanding principal of the
Paramount Notes, and all accrued interest thereon, will automatically convert
into the securities issued in a Qualified Financing on the same terms as the 10%
Notes. This offering, if consummated, will be considered a Qualified
Financing. Assuming an offering price of
$ per Unit (the mid-point of the
price range set forth on the cover page of this prospectus), the Paramount Notes
will automatically convert
into Units.
Line
of Credit
On
December 3, 2008, we, PBS and various other private pharmaceutical companies
with common ownership by the sole member of PBS entered into a loan agreement
with Bank of America, N.A. for a line of credit of $2,000,000. PBS
pledged collateral securing our and the other borrowers’ obligations to Bank of
America, N.A. under the loan agreement. Interest on amounts borrowed
under the line of credit accrues and is payable on a monthly basis at an annual
rate equal to the London Interbank Offered Rate (LIBOR) plus 1%. On
November 10, 2009, the parties entered into Amendment No. 1 to the Loan
Agreement, which extended the initial one-year term for an additional year, such
that it currently matures on November 5, 2010, and reduced the aggregate amount
available under the line of credit to $1,000,000. Under the loan
agreement, our liability under the line of credit is several, not joint, with
respect to the payment of all obligations thereunder. As of December
31, 2009, the amount borrowed by us that was outstanding under this line of
credit was $150,000.
Net
Cash Used in Operating Activities
Net cash
used in operating activities was $3,851,415 for the year ended December 31,
2009. The net loss for the year ended December 31, 2009 was higher
than net cash used in operating activities by $333,096. The primary
reasons for the difference are adjustments for non-cash charges such as interest
accruals of $794,672 related to our senior convertible notes and related party
notes, amortization of deferred financing costs and debt discount of $235,464
and amortization of stock-based compensation of $49,247, as well as a net
increase in deferred revenue of $653,714 relating to payments we received under
a sublicense agreement, which were substantially offset by a decrease in
accounts payable and accrued expenses of $1,418,979, which was primarily
attributable to license fees and milestone payments to Dong Wha that were
accrued in 2008 but were paid in January 2009. Net cash used in
operating activities was $2,485,373 for the year ended December 31,
2008. The net loss for the year ended December 31, 2008 is higher
than net cash used in operating activities by $2,691,750. The primary
reasons for the difference are adjustments for non-cash charges such as
amortization of deferred financing costs and debt discount of $637,651, interest
accruals of $477,339 related to our senior convertible notes and related party
notes and amortization of stock-based compensation of $260,406, as well as
increases in other current assets of $214,842 and an increase in accounts
payable and accrued expenses of $1,083,078.
Net
Cash Used in Investing Activities
No cash
was used in investing activities for the years ended December 31, 2009 and
2008.
Net
Cash Provided by Financing Activities
Net cash
provided by financing activities was $3,812,500 for the year ended December 31,
2009. Net cash provided by financing activities consisted of private
placements of our PCP Notes through which we received gross proceeds of
$2,875,000, proceeds from our related party notes of $1,000,000 and proceeds
from the utilization of our line of credit of $100,000, which were offset by
cash paid for financing costs of $62,500 and repayment of amounts owed under our
related party notes of $100,000. Net cash provided by financing
activities was $171,003 for the year ended December 31, 2008. Net
cash provided by financing activities consisted of proceeds from our related
party notes of $70,000, credits for deferred financing costs of $50,951,
proceeds from the utilization of our line of credit of $50,000 and proceeds from
the receipt of stock issuances of $52.
Funding
Requirements
We expect
to incur losses from operations for the foreseeable future. We expect to incur
increasing research and development expenses, including expenses related to the
hiring of personnel and additional clinical trials. We expect that our general
and administrative expenses will also increase as we expand our finance and
administrative staff, add infrastructure, and incur additional costs related to
being a public company, including directors’ and officers’ insurance, investor
relations programs, and increased professional fees. Our future capital
requirements will depend on a number of factors, including the timing and
outcome of clinical trials and regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining, defending, and enforcing patent
claims and other intellectual property rights, the acquisition of licenses to
new products or compounds, the status of competitive products, the availability
of financing, and our success in developing markets for our product
candidates.
Our
expected future expenditures related to product development are as
follows:
|
·
|
Approximately
$ for
PB-101 development to include the
following:
|
|
o
|
complete
our Phase 2 clinical trial for the community-acquired pneumonia (CAP)
indication; and
|
|
o
|
complete
all pre-clinical studies and a Phase 1 study required for an intravenous
formulation of PB-101.
|
|
·
|
Approximately
$ for
PB-200a development to include the
following:
|
|
o
|
complete
chemical optimization; and
|
|
o
|
complete
pre-clinical studies required to submit an
IND.
|
|
·
|
Approximately
$ for
development of a drug candidate using the PB-201 technology to include the
following:
|
|
o
|
optimization
of the reformulation of
itraconazole.
|
We
believe that the net proceeds from this offering, together with our existing
cash, will be sufficient to enable us to fund our operating expenses and capital
expenditure requirements for at least two years. We believe that if
we sell Units in this offering at an
initial public offering price of $ per
share ($1.00 lower than the mid-point of the price range set forth on the cover
page of this prospectus), or if we sell a fewer number of Units in this offering
than anticipated, the resultant reduction in proceeds we receive from the
offering would cause us to require additional capital earlier. We
have based this estimate on assumptions that may prove to be wrong, and we could
use our available capital resources sooner than we currently
expect. Because of the numerous risks and uncertainties associated
with the development and commercialization of our product candidates, we are
unable to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical
trials.
We do not
anticipate that we will generate product revenue for at least the next several
years. In the absence of additional funding, we expect our continuing
operating losses to result in increases in our cash used in operating activities
over the next several quarters and years.
We may
need to finance our future cash needs through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. We do not currently have any commitments for future
external funding. We may need to raise additional funds more quickly
if one or more of our assumptions prove to be incorrect or if we choose to
expand our product development efforts more rapidly than we presently
anticipate, and we may decide to raise additional funds even before we need them
if the conditions for raising capital are favorable. We may seek to
sell additional equity or debt securities or obtain a bank credit
facility. The sale of additional equity or debt securities, if
convertible, could result in dilution to our stockholders. The
incurrence of indebtedness would result in increased fixed obligations and could
also result in covenants that would restrict our operations.
Additional
equity or debt financing, grants, or corporate collaboration and licensing
arrangements may not be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to delay, reduce the scope
of or eliminate our research and development programs, reduce our planned
commercialization efforts or obtain funds through arrangements with
collaborators or others that may require us to relinquish rights to certain
product candidates that we might otherwise seek to develop or commercialize
independently.
Financial
Uncertainties Related to Potential Future Milestone Payments
We have
acquired rights to develop and commercialize our product candidates through
licenses granted by various parties. Certain of these licensing arrangements
contain cash milestone payments and royalties.
Dong
Wha License Agreement
On June
12, 2007, we entered into an exclusive, multinational license agreement with
Dong Wha for PB-101, which we amended on April 22,
2008. Specifically, we in-licensed a quinolone compound (PB-101) for
the treatment of various bacterial infections, and the corresponding United
States and foreign patents and applications for all therapeutic
uses. Under the terms of the license agreement, we are permitted to
develop and commercialize PB-101 in all of the countries of the world other than
Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore,
Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. As
consideration in part for the aforementioned rights to PB-101, we paid to Dong
Wha an upfront license fee of $1,500,000, as well as additional license fees
totaling $1,750,000 and a milestone payment of $500,000 and are required to make
substantial payments, up to an additional $53,000,000 in total, to Dong Wha upon
the achievement of certain net sales, clinical and regulatory-based
milestones. In the event that PB-101 is commercialized, we are
obligated to pay to Dong Wha annual royalties equal to a percentage of net
sales. In the event that we sublicense PB-101 to a third party, we
are obligated to pay to Dong Wha a portion of the royalties, sublicensing fees
or other lump sum payments we receive from the sublicensee. Pursuant
to the terms of the license agreement, we were required to initiate a Phase 2
clinical trial for an oral formulation of PB-101 within nine months of execution
of the license agreement. In accordance with the license agreement,
we previously purchased certain “extension periods” from Dong Wha, which
extended the deadline before which we were required to initiate the Phase 2
clinical trial, in return for certain cash payments. We purchased extension
periods for the extension of such deadline until March 2010. We
initiated a Phase 2 clinical trial in the United States for the CAP indication
in March 2010. During 2009 and 2008, we paid a total of $400,000 and
$50,000, respectively, in purchasing these extensions. The license
agreement contains other customary clauses and terms as are common in similar
agreements in the industry. Paramount Biosciences, LLC has guaranteed
the payment in full of all amounts owed by us under the license to Dong Wha
until such time as we have certifiable net tangible assets of at least
$10,000,000.
UCB
License Agreement
On June
12, 2007, we entered into an exclusive, worldwide license agreement with UCB
Celltech, a United Kingdom corporation and a registered branch of UCB Pharma
S.A., referred to herein as UCB, for a platform of aniline derivative compounds
including PB-200a. Specifically, we in-licensed a series of compounds
for the treatment of various fungal conditions, and the corresponding United
States and foreign patents and applications for all therapeutic
uses. As consideration in part for the aforementioned rights, we paid
to UCB an upfront license fee of $100,000. In addition, we are
required to make substantial payments, up to an additional $12,000,000 in total,
to UCB upon the achievement of certain clinical and regulatory-based
milestones. In the event that PB-200a or another covered compound is
commercialized, we and our sublicensees are obligated to pay to UCB annual
royalties equal to a percentage of net sales in the single-digit
range. We are also obligated to pay to UCB an annual license
maintenance fee of $100,000, which is creditable against royalties otherwise due
to the licensor.
Santee
Sublicense Agreement
On July
10, 2007, we entered into an exclusive, multinational sublicense agreement with
Santee Biosciences, Inc., a Delaware corporation, referred to herein as Santee,
for PB-201, a formulation technology. Specifically, we in-licensed
this technology from Santee for use in the development of azole-based antifungal
drug formulations, including without limitation an itraconazole formulation, and
the corresponding United States and foreign patents and
applications. Under the terms of the sublicense agreement, we are
permitted to develop and commercialize azole-based antifungal drugs we formulate
using the PB-201 technology throughout North America and Europe. As
consideration in part for the aforementioned rights, we paid to Santee an
upfront license fee of $50,000. In addition, we are required to make
substantial payments, up to an additional $10,000,000 in total, to Santee upon
the achievement of certain clinical and regulatory-based
milestones. In the event that any drug we formulate using the PB-201
technology is commercialized, we and our sublicensees are obligated to pay to
Santee annual royalties equal to a percentage of net sales in the single-digit
range. In the event that we sublicense PB-201 to a third party, we
are obligated to pay Santee a portion of the royalties we receive from the
sublicensee.
Potential
milestone payments for licensed technologies may or may not be triggered and may
vary in size, depending on a number of variables, almost all of which are
currently uncertain. Additionally, we believe we will not begin selling any
products that would require us to make any such royalty payments until at least
the end of 2013. Whether we will be obligated to make milestone or royalty
payments in the future is subject to the success of our product development
efforts and, accordingly, is inherently uncertain.
Critical
Accounting Policies
Our
management’s discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States,
or GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. On an ongoing basis, we evaluate these estimates and judgments,
including those described below. We base our estimates on our historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. These estimates and assumptions form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ materially
from these estimates.
While our
significant accounting policies are more fully described in Note 2 to our
financial statements included at the end of this prospectus, we believe that the
following accounting policies are the most critical to aid you in fully
understanding and evaluating our reported financial results and affect the more
significant judgments and estimates that we use in the preparation of our
financial statements.
Stock-Based
Compensation
We
account for stock options according to the Financial Accounting Standards Board
Accounting Standards Codification No. 718, “Compensation — Stock Compensation”
(“ASC 718”). Under ASC 718, share-based compensation cost is measured
at grant date, based on the estimated fair value of the award, and is recognized
as expense over the employee’s requisite service period on a straight-line
basis.
We
account for stock options granted to non-employees on a fair value basis using
the Black-Scholes option pricing method in accordance with ASC
718. The initial non-cash charge to operations for non-employee
options with vesting are revalued at the end of each reporting period based upon
the change in the fair value of the options and amortized to consulting expense
over the related vesting period.
For the
purpose of valuing options and warrants granted to our employees, non-employees
and directors and officers during the year ended December 31, 2008, we used the
Black-Scholes option pricing model utilizing the assumptions noted in the
following table. No options were issued during the year ended
December 31, 2009. To determine the risk-free interest rate, we
utilized the U.S. Treasury yield curve in effect at the time of grant with a
term consistent with the expected term of our awards. We estimated
the expected life of the options granted based on anticipated exercises in the
future periods assuming the success of its business model as currently
forecasted. The expected dividend yield reflects our current and
expected future policy for dividends on its common stock. The
expected stock price volatility for our stock options was calculated by
examining historical volatilities for publicly traded industry peers as we do
not have any trading history for our common stock. We will continue
to analyze the expected stock price volatility and expected term assumptions as
more historical data for our common stock becomes available. Given
the limited service period for its current employees, directors and officers and
non-employees, as well as the senior nature of the roles of those employees and
directors and officers, we currently estimate that we will experience no
forfeitures for those options currently outstanding.
Recent
Accounting Pronouncements
None.
Off-Balance
Sheet Arrangements
Since our
inception, we have not engaged in any off-balance sheet arrangements, including
the use of structured finance, special purpose entities or variable interest
entities.
We are a
biopharmaceutical company that seeks to in-license, develop and commercialize
therapeutic products for the treatment and prevention of infectious
diseases. We have obtained exclusive rights to candidates for the
treatment of bacterial and fungal infections. To date, we have
licensed all of the products in our pipeline.
Several
of our product candidates address large market opportunities in the antibiotic
and antifungal markets, including our most advanced product candidate, PB-101
(zabofloxacin). PB-101 is a fluoroquinolone antibiotic which we
initially plan to develop for the treatment of community-acquired pneumonia, or
CAP, a common infection associated with significant morbidity and
mortality. In the antifungal market, we are currently focused on
developing PB-200a, a drug candidate, and PB-201, a technology which we
anticipate will result in one or more additional drug candidates. We
anticipate that PB-200a will be an antifungal drug for the treatment of two of
the most common fungus strains (Candidia and Aspergillus). PB-201
is a formulation technology that we will seek to utilize to reformulate the
antifungal drug itraconazole, which is one of the standard therapies for the
treatment of onychomycosis (nail fungus).
We
completed a Phase 1 QT trial for PB-101 in December 2009 and initiated a Phase 2
clinical trial in the United States for the CAP indication in March
2010. For PB-200a, we expect to complete optimization of the drug
formulation by the end of the second quarter of 2011 and once the optimal
pharmaceutical properties are achieved, we expect to file an Investigational New
Drug Application (IND) with the U.S. Food and Drug Administration (FDA) for a
Phase 1 study. For PB-201, we will seek to optimize the reformulation
of itraconazole using this technology and conduct animal studies to examine the
absorption characteristics of the reformulated itraconazole.
Products
PB-101
(zabofloxacin)
A
fluoroquinolone antibiotic that in preclinical studies exhibited enhanced in vitro microbiological
activity against Streptococcus
pneumoniae (including strains resistant to other antibiotics) and those
pathogens responsible for most community acquired respiratory tract
infections. We plan to develop PB-101 for the treatment of community
acquired respiratory tract infections, including CAP. Preclinical
in vitro
microbiological studies also suggests that PB-101 has activity against community
acquired strains of methicillin resistant Staphylococcus aureus, also
known as MRSA. Therefore, we believe PB-101 may be effective in
treating other community acquired infections, such as skin and soft tissue
infections. PB-101 is licensed from Dong Wha. Our
licensing agreement allows us to develop and commercialize PB-101 in all
countries of the world other than Australia, New Zealand, India, Japan, Korea,
China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam and Hong
Kong.
Significant
progress has been made in the development of PB-101, including the
following:
|
·
|
Two
Phase 1 studies conducted in healthy
volunteers
|
|
·
|
IND
filed with the FDA
|
|
·
|
Phase
1 QT study completed in December
2009
|
|
·
|
Phase
2 clinical trial for the CAP indication initiated in March
2010
|
PB-200a
One of
several potential products in our PB-200 antifungal platform that is thought to
work by inhibiting the biosynthesis of glucan synthase, an enzyme integral to
the cell wall of fungi. Preclinical studies indicate that PB-200a
shows in vitro activity
against the two most common fungus strains (Candidia and Aspergillus) that cause
systemic infections. In contrast to other marketed glucan synthase inhibitors,
evidence from an animal study suggests PB-200a will be orally
bioavailable. This is a result of the chemical structure and
solubility profile of this compound. We plan to develop candidate
formulations of PB-200a with potential for both oral and intravenous
dosing. We anticipate completing optimization of this candidate by
the end of the second quarter of 2011. Once the optimal pharmaceutical
properties are achieved, we will conduct the pre-clinical toxicology work
required to file an IND for a Phase 1 study. We anticipate filing the
IND by end of the second quarter of 2012. PB-200a is licensed from
UCB Celltech, a United Kingdom corporation and registered branch of UCB Pharma
S.A. Under our license agreement with UCB, we hold worldwide
development and commercialization rights for a platform for aniline derivative
compounds, including PB-200a, for all fields of use.
PB-201
A
formulation technology that we will seek to utilize to reformulate the
anti-fungal drug itraconazole, which is marketed as Sporanox® by
Ortho-McNeil-Janssen and available generically. Itraconazole is one
of the standard therapies for the treatment of onychomycosis (nail
fungus). Unpredictable absorption of current formulations makes it
difficult to reliably achieve therapeutically effective and non-toxic
dosage. We are working to reformulate itraconazole to make it more
water soluble, which we believe will result in more predictable absorption and
thereby allow physicians to administer therapeutically effective doses while
decreasing the likelihood of toxicity. To accomplish this, we are
employing PB-201, a technology which relies on beta-cyclodextrin (a complex
sugar molecule) and phospholipid components. We licensed the PB-201
formulation technology from Santee Biosciences, Inc., a Delaware corporation
(referred to herein as Santee). Under our sublicense agreement with
Santee, we hold development and commercialization rights in North America and
Europe for the use of the PB-201 technology in azole-based antifungal drug
formulations.
The
following table summarizes our primary product candidates:
|
Product
|
Intended
Indication
|
Status
of Programs
|
Commercial
Rights
|
|
PB-101
(zabofloxacin)
|
Treatment
of Community Acquired Bacterial Respiratory Infections (Pneumonia,
Bronchitis, Sinusitis)
|
Three
Phase 1 trials completed, including thorough QT study.
Phase
2 trial for CAP initiated in March 2010
|
All
countries of the world other than Australia, New Zealand, India, Japan,
Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam
and Hong Kong
|
|
PB-200a
|
Treatment
of Systemic Infections Caused by Candida and Aspergillus
|
Currently
in Chemical Optimization
|
Worldwide
|
|
PB-201
|
Treatment
of Onychomycois (Toe Nail Fungal Infections)
|
Currently
in Formulation Optimization
|
North
America
Europe
|
In
addition to the above product candidates, we licensed from UCB a platform of
eight other antifungal drug targets in several classes (including glucan
synthesis inhibitors). We do not currently plan to independently
develop these other products and we may seek to out-license or co-develop some
or all of these products.
Our
Strategy
Our
strategy is to develop a pipeline of antimicrobials (antibiotics and
antifungals) to meet unmet and under met needs in the treatment and prevention
of infectious diseases.
With
respect to PB-101 (zabobfloxacin), our strategy is to:
|
·
|
Complete
one Phase 2 clinical trial for the treatment of CAP. This trial
was initiated in March 2010 and we anticipate having data from this study
in the second quarter of 2012;
|
|
·
|
Complete
one Phase 1 study of an intravenous formulation of PB-101 by the end of
the first quarter of 2012; and
|
|
·
|
Conduct
Phase 3 trials for the treatment of CAP, Acute Bacterial Exacerbation of
Chronic Bronchitis (ABECB), and Acute Bacterial Sinusitis (ABS) and obtain
regulatory approvals for the treatment of CAP, ABECB, and ABS in the
United States and European Union. We will require additional
funds to conduct these Phase 3 trials and obtain these regulatory
approvals.
|
With
respect to PB-200a, our lead antifungal compound, our strategy is
to:
|
·
|
Complete
chemical optimization by the end of the second quarter of 2011;
and
|
|
·
|
Complete
pre-clinical toxicology studies required to final an IND by the end of the
second quarter of 2012.
|
With
respect to PB-201, our reformulation of itraconazole, our strategy is
to:
|
·
|
Optimize
the reformulation of itraconazole using this technology and conduct animal
studies to examine the absorption characteristics of the reformulated
itraconazole.
|
Background
on the Antimicrobial (e.g. antibiotics and antifungals) Market
Antimicrobials
are compounds that either kill or inhibit the growth of microorganisms, which
includes bacteria and fungi, as well as others such as
viruses. Infectious diseases are the third leading cause of death in
the United States and the second leading cause of death
globally. Infectious diseases also contribute to compromised health,
disability, and loss of productivity. In the United States, there
were an estimated 25.9 million visits to office-based physicians for infectious
and parasitic diseases in 2004. The use of antimicrobials varies
based upon numerous factors, including patient factors, such as age and other
underlying conditions, community of residence (i.e., are there resistant strains
of bacteria or fungi seen in the community), and the setting where the patient
is being cared for (e.g. outpatient, skilled nursing facility,
hospital). Antimicrobial use is frequently divided into uses in the
outpatient setting where they are generally prescribed by family physicians,
internists and pediatricians, and the inpatient setting where they are generally
prescribed by internists, pulmonologists and infectious diseases physicians, due
to the differences in the bacteria and fungi encountered in each of these
settings. In the outpatient setting, the physician rarely obtains
data that identifies the specific infecting organism; therefore, the treatment
of such infections is generally directed at selecting an antimicrobial that is
likely to be effective against those organisms most likely to be causing the
infection, and likely to be safe and well-tolerated by the
patient. In the inpatient or hospital setting, the physician
frequently has some knowledge of the causative organism and the antimicrobials
that are likely to be effective. As a result, antimicrobial
prescribing in the inpatient setting can frequently be more organism-focused,
whereas in the outpatient setting, broader antimicrobial coverage may be
utilized to maximize the likelihood of therapeutic success.
Antimicrobials
tend to be differentiated by certain critical characteristics. These
characteristics were carefully considered in selecting the compounds being
developed by IASO Pharma, which we believe will result in products that will
have clear advantages to currently available therapies.
|
·
|
Potency: The
potency of an antimicrobial is measured by determining how much of the
antimicrobial is required to inhibit the growth or kill the microorganism
of interest. This can be determined either by in vitro testing
(not in living animals) or by in vivo testing (in living animals), which
is conducted in animal testing. The less of an antimicrobial
that is required to inhibit the growth or kill the microorganism, the more
potent the antimicrobial.
|
|
·
|
Ability to Kill Versus
Inhibit Bacterial Growth: Through both in vitro and in vivo testing, one
can determine whether an antimicrobial will kill the microorganism or just
inhibit the growth of the organism. Generally, physicians
prefer antimicrobials that kill the organism. These drugs are
called “cidal” drugs. In addition to whether a drug is “cidal”,
it is also known that some antimicrobials work more quickly in causing
death of the microorganism.
|
|
·
|
Development of
Resistance: Much of the resistance problems of today are the result
of numerous factors, including the over utilization of drugs that may
stimulate resistance, and the inappropriate dosing of an
antimicrobial. It is possible to experimentally determine the
likelihood of the development of resistance when an antimicrobial is used,
and to potentially optimize dosing to minimize the development of
resistance.
|
|
·
|
Pharmacokinetic/Pharmacodynamic
(PK/PD) Profile: For most classes of currently available
antimicrobials, much is known about what drug concentration profiles are
predictive of a successful outcome. For example, for some
classes of antimicrobials, if the drug concentrations remain above the
minimum inhibitory concentration (MIC) required to inhibit the growth of
the microorganism being treated for a target percent of the dosing
interval, then there is a very high likelihood of a successful
result. By understanding the relevant PK/PD target required for
the antimicrobial being developed, utilizing data from animal studies, and
utilizing human data on blood/tissue concentrations obtained, one can
determine the required dose and frequency likely to result in successful
outcomes.
|
|
·
|
Dosing Convenience
Factors: Dosing convenience factors include the frequency, duration
of treatment, and mode of administration that an antimicrobial needs to be
administered/taken. Generally, the less frequently an
antimicrobial needs to be administered/taken, the better as this would
improve patient compliance in the outpatient setting, and decrease the
amount of nursing time and potentially time that an intravenous line is
utilized for inpatients. Less frequent dosing would also lessen
the opportunity for potential missed doses. In the outpatient
setting, having an oral formulation is critically important, and if
treating children should include liquid formulations, dissolvable sachets,
and/or chewable tablets. Ideally, an antimicrobial that can be
administered both orally and intravenously, that can provide similar drug
levels when administered by either route is preferable. This
allows a patient that requires hospitalization and initial treatment with
an intravenous antimicrobial to be easily transitioned to an equivalent
oral drug and to be discharged from the hospital sooner. The
required duration of therapy is also an important
consideration. Some classes of antimicrobials are known to kill
organisms quickly, compared to other classes. If one can more
quickly kill these organisms and reduce their numbers, it would be
anticipated that a shorter course of therapy could be
possible.
|
|
·
|
Safety and
Tolerability: The safety of an antimicrobial determined through the
evaluation of any changes in laboratory tests and physical signs and
symptoms than can be possibly attributed to the use of the
antimicrobial. Much of this information is gathered during the
clinical development of a drug, as well as during post-marketing
surveillance of safety. Tolerability factors tend to be noted
by the patient, such as nausea, vomiting, headache, or other
discomfort. For an antimicrobial to be accepted by the
physician, the safety and tolerability profile must be appropriate
relative to the seriousness of the infection being treated and other
effective alternatives.
|
PB-101
(zabofloxacin)
Market
Opportunity
We
believe there is a need for new antibiotic therapies for the treatment of
community acquired respiratory infections. The largest use of
antibiotics is for respiratory tract infections, which include CAP, ABECB and
ABS. Treatment of these respiratory infections has been hindered by
the increasing prevalence of drug-resistant and multi-drug resistant bacterial
strains, particularly S.
pneumoniae, the most common causative bacteria of such
infections. S.
pneumoniae has been demonstrated to be the causative bacteria of 40% or
more of all bacterial pneumonias. Over the years, the incidence of
strains of S.
pneumoniae
resistant to β-lactam antibiotics (e.g. penicillin, ampicillin, cephalosporins)
and macrolide antibiotics (e.g. azithromycin) have increased. In
addition, there has been the emergence of strains resistant to currently
available quinolone antibiotics (e.g. levofloxacin). These resistant
strains have been encountered in the community setting, and are therefore, not a
problem which is unique to hospitalized patients.
Zabofloxacin
is a quinolone antibiotic. Due to the organisms responsible for these
infections, the convenience of use, ability to easily transition from
intravenous to oral therapy, and the safety profile of currently marketed
quinolones, these drugs are commonly used by physicians for the treatment of
such infections. We believe that zabofloxacin will have the
characteristics of the currently used quinolones but with the advantage of being
able to handle many of the strains of S. pneumoniae that are
resistant to the currently marketed products.
Community
Acquired Pneumonia (CAP)
CAP is a
common infection associated with significant morbidity and
mortality. The incidence of CAP in the U.S. is estimated at 19
million infections each year, resulting in over one million hospitalizations and
over 50,000 deaths per year. CAP is the sixth most common cause of
death in the U.S. The bacterial strains most commonly causing CAP are S. pneumoniae, Mycoplasma
pneumoniae, Haemophilus influenzae, Chlamydia pneumoniae, and Moraxella
catarrhalis. The practice guidelines of the American Thoracic
Society and the Infectious Diseases Society of American recommend the use of
respiratory quinolone antibiotics as empiric drugs of choice for outpatients
with co-morbidities and hospitalized patients outside of the intensive care
unit.
Acute
Bacterial Exacerbation of Chronic Bronchitis (ABECB)
Bronchitis,
an inflammatory condition of the airways in the lungs is generally considered
chronic when a patient experiences a cough and sputum production on most days
during three consecutive months for over two successive years. Acute exacerbation of
this chronic process as a result of bacterial infection is termed an acute
bacterial exacerbation of chronic bronchitis. Episodes of ABECB occur
over 30 million times yearly in the U.S. The most common bacteria
isolated from the sputum of ABECB patients are similar to those isolated from
patients with CAP, namely S.
pneumoniae, H. influenzae and M. catarrhalis. Additionally, the increasing
resistance of these bacterial strains to antibiotics has complicated treatment
of ABECB.
Acute
Bacterial Sinusitis (ABS)
Acute
bacterial sinusitis is an infection in one or more of the paranasal
sinuses. It is one of the most common health conditions in the United
States. Each year, one out of six adults are diagnosed with sinusitis
(bacterial or viral), and it is the fifth most common condition for which
antibiotics are prescribed. Studies have indicated that S. pneumoniae,
H. influenzae, and M. catarrhalis are the most
common bacterial pathogens encountered in ABS. As with CAP and ABECB,
the increasing resistance of these bacterial strains to commonly used
antibiotics can make the treatment of these infections difficult.
Our
Product (PB-101)
PB-101
(zabofloxacin) is being developed for the treatment of community acquired
respiratory infections (CAP, ABECB, ABS). We believe that
PB-101 is the furthest advanced new generation quinolone being specifically
developed for the treatment of these infections. PB-101 shares
many of the characteristics that have made the quinolone antibiotics so popular:
available both intravenously and orally with similar blood concentrations, good
microbiologic spectrum, once daily dosing, kills bacteria and does so quickly,
well characterized PK/PD characteristics required for successful therapy allows
for selection of efficacious dosage, well characterized chemical properties
allow one to minimize the development of a compound which is likely to have
toxicity, over 20 years of clinical experience with this class. As is
the case with most classes of antibiotics, some resistance has developed over
the years to the currently used members of the quinolone class. As a
result, there is the need for a new quinolone antibiotic that will effectively
treat those organisms that have developed resistance.
Based
upon the currently available non-clinical and clinical data, we believe that
PB-101 offers advantages over the currently available antibiotics for the
treatment of community acquired respiratory tract infections.
|
·
|
Currently
available quinolones (e.g. levofloxacin, moxifloxacin): As discussed
below, in preclinical studies, PB-101 has exhibited more potency against
S. pneumoniae
than these currently available quinolone
antibiotics.
|
|
·
|
Macrolides
(e.g. azithromycin): Preclinical data indicates that PB-101 may be more
potent against both S.pneumoniae and H. influenzae than
macrolides. There is a high incidence of S. pneumoniae strains
that are resistant to the macrolides, and in many parts of the country
these rates are so high as to make these drugs poor choices for the
treatment of these infections.
|
|
·
|
Beta-Lactams
(e.g. penicillin, ampicillin, cephalosporins): Preclinical studies also
have shown that PB-101 may be more potent against S. pneumoniae, while
remaining equally active against strains that are resistant to this class
of drugs. In addition, due to the pharmacokinetic properties of
beta-lactams, and their chemical structures, they need to be taken
numerous times per day, and there are not equivalent intravenous and oral
formulations which would allow for convenient transition for hospitalized
patients. This class of drugs are also not active against the
so-called “atypical” bacteria (i.e. M. pneumoniae, C. pneumoniae,
L. pneumophila) which frequently cause these
infections.
|
Development
Preclinical
In Vitro Studies
PB-101
exhibits bactericidal activity against the bacteria responsible for most
community acquired respiratory tract infections. In vitro studies suggest that
PB-101 is two to eight times more active against common respiratory tract
bacteria compared to currently marketed quinolone antibiotics. In
addition, no antibiotic currently marketed for the treatment of community
acquired respiratory tract infections is more potent than zabofloxacin against
penicillin non-susceptible strains of S.
pneumoniae. Zabofloxacin is also very active against the
so-called “atypical” pathogens, C. pneumoniae, M. pneumoniae,
and L. pneumophila
which cause pneumonia.
Preclinical
In Vivo Studies
The in vivo efficacy of PB-101
was examined in a standard mouse model of systemic infection. In
these mice, PB-101 displayed substantial bactericidal activity against systemic
infections caused by three types of Gram-positive bacteria, based on a standard
measure of viable bacteria post-administration. The in vivo efficacy of PB-101
appeared consistent with its in vitro
potency. The median effective dose (ED50) of
PB-101 was significantly lower than those of ciprofloxacin, moxifloxacin and
gemifloxacin, meaning that less zabofloxacin is required for a successful
outcome relative to the other quinolone antibiotics.
Preclinical
Toxicology Studies
Preclinical
oral toxicity studies in rats, mice and dogs were completed as part of
IND-enabling studies to support the advancement of PB-101 into clinical
studies. To put these studies into perspective, the dose of PB-101
which will be utilized in the treatment of infections in humans will be in the
range of 5.5 to 7.5 mg/kg/day, generally for up to five days. There
were no findings of concern in these studies to indicate that there are likely
to be toxicity issues for PB-101.
The
bacterial reverse mutation assay (using bacteria cells) and the micronucleus
test (using the bone marrow cells of ICR mice) were employed to evaluate the
genetic toxicity of PB-101. Neither test revealed that the compound
was mutagenic in the cells tested. The chromosome aberration test was
employed to evaluate whether PB-101 causes structural chromosome aberrations in
cultured mammalian cells, in this case from the Chinese hamster lung (CHL) cell
line. PB-101 was found to cause structural aberrations in these cells
only at concentrations that are significantly higher than the anticipated
therapeutic concentration.
Single
dose studies in rats and mice showed that PB-101 did not display detectable
toxicity in mice orally administered 1000 mg/kg of the
compound. Additionally, to establish the toxicity profile of this
drug, standard, two- and four-week repeat-dose toxicity studies were performed
in rats and beagle dogs.
The
potential of PB-101 to affect cardiac repolarization was assessed in a study of
its effects on hERG (human ether-a-go-go gene) channel
current expressed I Chinese hamster ovary (CHO) cells. In this
experiment, PB-101 was found to have little interaction with the hERG channel:
The concentration of PB-101 necessary for inhibition (IC50 = 218 µM)
was approximately 4- to 10- fold higher than that of sparfloxacin (IC50 = 18 µM)
and grepafloxacin (IC50 = 50 µM),
and approximately 2– fold higher than that of the marketed antibiotic
moxifloxacin (IC50 = 129
µM).
In
accordance with the “Note for Guidance on Non-Clinical Safety Studies for the
Conduct of Human Clinical Trials for Pharmaceuticals” (CPMP/ICH/286/95,
modification), the likely duration of therapy with PB-101 will be between three
and seven days; therefore, we believe the duration of these toxicology
studies (up to four weeks) is sufficient to allow a clinical trial in humans
based on the guidelines.
Clinical
Studies in Humans
Two Phase
1, escalating-dose studies with PB-101 were completed by Dong Wha in the United
Kingdom in healthy male volunteers, and one Phase 1 thorough ECG trial was
conducted by us in the United States.
A Randomized, Double-Blind,
Placebo-Controlled Study in Healthy Male Subjects to Investigate the Safety,
Tolerability and Pharmacokinetics of Ascending Single Oral Doses of PB-101
Incorporating a Comparison of Fed/Fasted Pharmacokinetics
The
objective of this Phase 1 study was to assess the safety and tolerability of
single oral doses of PB-101 at five dose levels. The secondary objectives were
to assess the pharmacokinetics of a single oral dose of PB-101 and to assess the
effect of food on the pharmacokinetics of PB-101. This study was a
first-in-man, single-center, randomized, double-blind, placebo-controlled,
ascending, single-dose study. In addition to subjects receiving a
placebo, doses of 10, 50, 100, 400 and 800 mg of PB-101 were
studied.
Safety
was evaluated by monitoring adverse events and vital signs (heart rate, blood
pressure, temperature and respiration rate), and by performing physical
examinations, electrocardiograms (ECGs) and
clinical laboratory tests. Thirty male adult subjects were enrolled
and completed the clinical phase of the study. All 30 subjects were
included in the safety assessment. Pharmacokinetic assessments were
performed on the 25 subjects who received PB-101.
No severe
or serious adverse events occurred during this study, and no subject was
withdrawn due to an adverse event. Seven subjects (23%) had one
treatment-emergent adverse event during this study. This percentage
of subjects with adverse events is standard for a Phase 1 study of this
nature. All adverse events were mild and all were classified as
either unrelated or unlikely related to the study treatments, with one
exception. One episode of headache (PB-101 HCL 10 mg group) was
considered to be possibly related to study treatment.
An Ascending Dose Study to
Assess the Safety and Tolerability of PB-101 When Given in Multiple Doses to
Healthy Male Volunteers
The
objective of this Phase 1 study was to assess the safety and tolerability of
multiple oral doses of PB-101 at three dose levels. The secondary
objectives of this study were to assess the pharmacokinetic linearity, dose
proportionality and accumulation after repeated once daily oral doses for seven
days.
This was
a single-center, randomized, double-blind, placebo-controlled, ascending
multiple-dose study. In addition to subjects receiving a placebo,
doses of 200, 400 and 800 mg of PB-101 were studied in 24 subjects.
Safety
was evaluated by monitoring adverse events, physical examination findings, vital
signs (heart rate, blood pressure, temperature and respiratory rate), ECGs and
clinical laboratory test results. Twenty-four male adult
subjects ranging in age from 19 to 45 years were enrolled and completed the
clinical phase of the study. All 24 subjects were included in the
safety assessment. Pharmacokinetic assessments were performed on the
18 subjects who received active treatments.
No severe
or serious adverse events occurred during this study, and no subject was
withdrawn due to an adverse event. Fifteen subjects (62.5%) presented
with 34 treatment-emergent adverse events during this study. This
percentage of subjects with adverse events is standard for a Phase 1 study of
this nature. Two adverse events were moderate and the remaining
adverse events were mild. Three subjects (12.5%) had mild elevations
of their liver enzymes, which were judged mild adverse events and likely
treatment-related. One subject (4.2%) experienced mild
tachycardia judged unlikely related to the study treatment. Two
subjects (8.3%), both in the highest dose (800 mg) group, developed a rash, one
rash of mild intensity and the other of moderate intensity. The mild
rash resolved without therapy, and the moderate rash resolved with
therapy. No ECG abnormalities were seen that were considered to be an
adverse event.
The study
researchers concluded that multiple oral doses of 200 and 400 mg of PB-101
appear to be safe and well tolerated when administered to healthy male
subjects. Multiple doses of 800 mg appear to be less well tolerated
due to the two rashes seen. The pharmacokinetic profile of these
doses was well characterized. Dose proportionality between the 200 to
800 mg dose levels was confirmed. These results indicate that rate
and extent of absorption of PB-101 on Day 1 and Day 7 increased in a
dose-proportional manner over the dose range studied. In addition, no
significant accumulation of PB-101 was observed.
A Single-Center,
Triple-Blind, Triple-Dummy, Randomized, Single-Dose, Four-Way Crossover Trial to
Define the ECG Effects of PB-101 Using a Clinical and
a Supratherapeutic Dose Compared to Placebo and Moxifloxacin (a Positive
Control) in Healthy Men and Women: A Thorough ECG Trial
This
study is required by regulatory authorities in early stages of a drug’s
development to examine if a new drug has the potential to cause cardiac effects
which would be seen in the ECG. This study was conducted following
established standards as required by regulatory authorities, and was reviewed
prior to being conducted by the FDA. Enrollment in this trial
concluded in December 2009, and the ECG data was analyzed by a group with
expertise in conducting such evaluations. The conclusions of the
report from these experts are as follows, “in conclusion, this well conducted
and valid (assay sensitivity being reached and placebo group showing control of
background QTc variability) thorough ECG Trial demonstrated that PB-101 had no
effects on heart rate, PR and QRS interval duration or clear important changes
in cardiac morphology. The effects on cardiac repolarization by the
preponderance of data including a careful pharmacodynamic-pharmacokinetic
analysis also show that PB-101 does not have any clear signal affecting cardiac
repolarization.” The final clinical and PK data are not yet available
from this trial; however, there were no serious adverse events
reported.
Hollow
Fiber Models
The
Hollow Fiber infection model allows an in vitro system to mimic the
pharmacokinetic profile of a drug seen in man, including dose and half-life,
with a certain strain of bacteria. This model overcomes many of the
limitations of animal models. Hollow Fiber Models have become a very
powerful tool in the evaluation of antibiotics. This model has been
utilized to allow various dose regimens of PB-101 to be tested against
pathogenic strains of S.
pneumoniae.
Dose
ranging studies were conducted using the hollow fiber model to determine the
amount of drug needed to kill these organisms and to prevent the emergence of
resistance during therapy. PB-101 was administered once daily in the
Hollow Fiber System to simulate the pharmacokinetic profile seen in humans,
based upon the results of the Phase 1 single-escalation dose study in healthy
male volunteers.
Doses of
PB-101 of 400 mg and greater every 24 hours were successful. These
dose regimens killed the total bacterial population and did not select for
resistance. Doses of PB-101 of 400 mg or greater were so effective
that a single dose sterilized the system.
Utilizing this hollow fiber model data,
along with all of the pre-clinical and clinical data from the Phase 1 studies,
we are in a position to select the dosage regimen for our Phase 2 trial which is
likely to be successful in treating community acquired respiratory infections
and to be safe.
Our
Phase 2 Clinical Trial for PB-101
In
March 2010, we started our Phase 2 trial of PB-101 for the
treatment of Community Acquired Pneumonia (CAP). This study was
rigorously designed taking into consideration FDA guidance for such
studies. The study design was also reviewed by the
FDA. This is a three arm, randomized, double-blinded, double-dummy
study to examine two dosing regimens of PB-101 compared to a standard currently
approved quinolone antibiotic. The doses of PB-101 to be studied in
the Phase 2 study were determined based upon the microbiologic activity, animal
studies and hollow fiber modeling which utilized pharmacologic data from the
Phase 1 trials. It is anticipated that approximately 180
bacteriologically confirmed cases of CAP will be enrolled into this
study. The study is planned to be conducted in the U.S., Europe, and
South Africa. In addition to the standard clinical and microbiologic
endpoints, evaluations will be conducted to determine the impact of PB-101
on patient reported factors, and the speed at which improvement and resolution
occurs. Pharmacokinetic samples will also be obtained to get a more
thorough understanding of the pharmacokinetic profile of PB-101 in
patients. Routine evaluation of safety will be accomplished through
laboratory tests, electrocardiograms, vital signs, and physical signs and
symptoms. It is anticipated that the results of this study will allow
us to move into Phase 3 clinical trials for CAP, Acute Bacterial Exacerbations
of Chronic Bronchitis (ABECB), and Acute Bacterial Sinusitis (ABS) required for
regulatory approvals.
Development
Leading to Regulatory Approval
We expect
that the following additional clinical studies will be required to be conducted
in order to obtain regulatory approval for the marketing of PB-101 for the
treatment of Community Acquired Pneumonia, Acute Bacterial Exacerbation of
Chronic Bronchitis and Acute Bacterial Sinusitis:
|
·
|
One
Phase 1 study of an intravenous
formulation;
|
|
·
|
One
Phase 1 study to determine dosing in renally impaired
subjects;
|
|
·
|
Two
Phase 3 trials of Community Acquired
Pneumonia;
|
|
·
|
One
Phase 3 trial of Acute Bacterial Exacerbation of Chronic Bronchitis;
and
|
|
·
|
Two
Phase 3 trials of Acute Bacterial
Sinusitis.
|
Except for the Phase 1 study for an
intravenous formulation of PB-101, we will require additional funds to conduct
all of the above studies and trials.
Product
Commercialization
We anticipate that we would
commercialize PB-101 through a commercialization partnership with a
pharmaceutical company with a large sales force. To successfully
commercialize such a product, a sales force of significant size would be
required as the target physician prescribers are family physicians, internists,
emergency room physicians, pulmonologists and infectious diseases
physicians.
PB-200a
Market
Opportunity
Systemic fungal infections are
increasing as a result of the increasing numbers of immunocompromised patients,
primarily due to cancer patients who become neutropenic due to chemotherapy, and
transplant recipients who receive immunosuppressive
therapy. Approximately 25% of such patients will ultimately have a
systemic fungal infection, and it is estimated that 2 million patients or more
are treated per year for systemic fungal infections. Despite the
available treatment options, mortality following fungal infection remains
high, for example, mortality rates are 40% for
candidemia, an infection of the blood stream caused by Candida, and mortality rates are approximately 60% for
aspergillosis, an infection caused by the Aspergillus fungus that
usually affects the lungs. Although there are numerous antifungal
therapies available, there is still no ideal drug. As a result of
this, we believe there is a need for new antifungal therapies for the treatment
of systemic fungal infections.
There are
currently three classes of antifungal therapies available, the polyenes (e.g.
amphotericin B), azoles (e.g. voriconazole, posaconazole), and the echinocandins
(e.g. caspofungin, micafungin). Amphotericin B has been utilized for
over 40 years, however this use of this drug is complicated by both infusion
related reactions and nephrotoxicity. In addition, an increasing
percentage of strains of Candida have become resistant
to amphotericin B.
The
azoles have also been available commercially for quite awhile, and although an
improvement from a safety perspective compared to amphotericin B, it is also not
an ideal drug. These agents have been associated with hepatic toxicity and drug interactions. In
addition, these drugs have limited fungicidal activity, and do not appear to be
as effective against systemic infections caused by Aspergillus. .
The newest class of antifungal drugs, known as the
echinocandins were first introduced approximately eight years
ago. The echinocandins, also known as glucan synthase inhibitors
(GSIs), work by inhibiting the synthesis of β (1,3)-D-glucan, a
component of the fungal cell wall. These drugs represented an advance in that
they are quite effective, with few drug interactions, and a good safety
profile. The major drawback for this class of drugs is that they are
not available in oral formulations. As a result of their
effectiveness, good safety profile, and lack of significant drug interactions,
the echinocandins have been well accepted by physicians.
An agent
that is safe and efficacious and provides flexibility in methods of
administration likely would capture a large share of the antifungal
market.
Our
Product (PB-200a)
PB-200a,
is an echinocandin antifungal which we believe will be available in both
intravenous and oral formulations. This would allow the physician,
for the first time, to utilize this very effective and safe class of drugs with
the flexibility of both intravenous and oral therapeutic options.
We have
obtained the rights to compounds that have been screened against glucan synthase
to identify lead fragments that inhibit the glucan synthase enzyme purified from
Candida albicans
and Aspergillus
fumigatus. These compounds inhibit proliferation of not only
C. albicans and A. fumigatus, but also a
wide range of other pathogenic fungi in a
concentration-dependent manner. In addition, these compounds have
been shown to be synthetically very accessible and amenable to medicinal
chemistry optimization.
Based
upon the data we have obtained from studies conducted to date, we believe that
PB-200a will share many of the characteristics that have made the echinocandin
antifungals so popular: fungicidal and good activity against both Candida and Apergillus, good safety
profile, and few if any drug interactions.
Development
Preclinical
In Vitro Studies
Preclinical
studies have shown that lead candidate product PB-200a exhibits the potential to
inhibit glucan synthesis in C.
albicans and A.
fumigatus, and may do so to a greater extent than
caspofungin.
Our lead
compound PB-200a has been demonstrated to be orally bioavailable in mice, which
could potentially lead to a broad-spectrum anti-fungal drug that can be
administered both intravenously and orally.
Development
Leading to IND Submission
We expect
that the following activities will be required for us to submit an IND in order
to proceed with the first Phase 1 study for PB-200a.
|
·
|
Medicinal
chemistry work to optimize the compound for fungicidal activity and
solubility;
|
|
·
|
In vitro studies to
characterize the activity of the compound against a large number of
clinically relevant fungal
isolates;
|
|
·
|
In vivo animal studies
to better define the antifungal activity of the compound;
and
|
|
·
|
Pre-clinical
toxicology studies (in
vitro and in
vivo).
|
PB-201
Market
Opportunity
Onychomycosis is a fungal infection
that affects the toenails or fingernails, and is responsible for half of all
nail disorders. The incidence of onychomycosis in North America has been
reported to be between 2-13%. Due to the increasing incidence of
diabetes, immunosuppression and aging of the population, the incidence of
onychomycosis has been increasing.
The most effective treatments of
onychomycosis consist of one of the three oral antifungal drugs, terbinafine,
diflucan, or itraconazole. All three agents work
well. Itraconazole was the preferred drug for many years; however,
unpredictable absorption of the oral capsules makes it difficult to reliably
achieve therapeutically effective and non-toxic doses.
Our
Product (PB-201)
Itraconazole
(marketed as Sporanox® by
Ortho-McNeil-Janssen and available generically) is an antifungal agent that
often is prescribed to patients to treat
onychomycosis (fungal nail infections). It currently is available in
the U.S. as oral capsules and oral solution. With the exception of
the oral solution, which is not well accepted by most adult patients,
unpredictable absorption makes it difficult to reliably achieve therapeutically
effective and non-toxic dosage. We are working to reformulate
itraconazole to make it more water soluble, which we believe will result in more
predictable absorption and thereby allow physicians to administer
therapeutically effective doses while decreasing the likelihood of
toxicity.
Our
reformulation of itraconazole employs a beta-cyclodextrin and phospholipid
technology and utilizes an organic solvent process as well as a matrix that both
provides stability and is readily water soluble. In contrast to other
types of beta-cyclodextrin technologies, we do no expect that our formulation
will negatively affect kidney function. Also, our formulation
technology can be applied for both intravenous and oral routes of administration
for itraconazole and may result in greater solubility, biologic availability,
extended release, and efficacy of the drug. The resultant advantages
of this preparation revolve around the simplicity, cost of goods, short
preparation time, and the need for no additional co-solvents.
The
utility of the oral capsule formulation of itraconazole presently is limited by
low and variable absorption; the oral solution is better and more consistently
absorbed, but requires 20 ml (200 mg itraconazole) doses twice
daily. We plan to use our reformulation technology to formulate
capsules that we expect will have improved absorption and pharmacokinetic
parameters as compared to the original formulation and therefore allow for less
frequent dosing and/or lower daily dosage.
Development
An in vivo study of the first
formulation revealed a low level of absorption compared to the current
itraconazole formulation. At this point, we will work to modify the
formulation and conduct additional animal studies in an attempt to find a
formulation that will accomplish our objective.
Manufacturing
All of
our manufacturing processes currently are outsourced to third
parties. We rely on third-party manufacturers to produce sufficient
quantities of drug product for use in clinical trials. With the
exception of PB-101, we intend to continue this practice for any future clinical
trials and commercialization of our products.
We
anticipate that PB-101 will be manufactured and supplied by our partner, Dong
Wha.
We are
confident that there exist a sufficient number of potential sources for the drug
substances required to produce our products, as well as third-party
manufacturers, that we will be able to find alternate suppliers and third-party
manufacturers in the event that our relationship with any supplier or
third-party manufacturer deteriorates.
Competitive
Landscape for Our Products
PB-101
(zabofloxacin)
PB-101 is
a quinolone antibiotic that we intend to develop initially for the treatment of
community acquired respiratory infections (CAP, ABECB, ABS). There
are only three quinolone antibiotics that are currently approved for marketing
in the United States and are used for the treatment of respiratory infections.
These drugs are listed below along with their manufacturers:
|
Product (Brand Name)
|
Manufacturer
|
|
|
Levofloxacin
(LevaquinÒ)
|
Ortho-McNeil-Janssen
|
|
|
Moxifloxacin
(AveloxÒ)
|
Bayer
|
|
|
Gemifloxacin
(FactiveÒ)
|
Cornerstone
Therapeutics
|
Levofloxacin
has a much larger market share than the other drugs listed above; however, it is
anticipated that its patent protection will expire within the next one to two
years, while patent protection for moxifloxacin will likely expire sometime
between 2014 and 2016. Gemifloxacin has not done well in the market
primarily due to perceived safety issues, no intravenous formulation available,
and limited marketing efforts. We are not aware of any other
quinolone antibiotic in clinical development that is currently being developed
for the treatment of respiratory tract infections.
PB-200a
PB-200a
is an echinocandin antifungal drug that we intend to develop for the treatment
of systemic infections caused by Candida and Aspergillus. There
are only three echinocandin antifungal drugs currently approved for marketing in
the United States. These drugs are listed below along with their
manufacturers:
|
Product (Brand Name)
|
Manufacturer
|
|
|
Caspofungin
(CancidasÒ)
|
Merck
Sharp & Dohme
|
|
|
Micafungin
(MycamineÒ)
|
Astellas
Pharma
|
|
|
Anidulafungin
(EraxisÒ)
|
Roerig
|
The
patent protection for Caspofungin is likely to expire within the next five
years, while the other compounds are likely to maintain exclusivity for between
five and 10 years. All three of these antifungal drugs are considered
to be efficacious and safe; however, none of them are currently available both
intravenously and orally. We are not aware of any other echinocandin antifungal
drug in clinical development at the current time.
PB-201
PB-201 is
a formulation technology that we will seek to utilize to reformulate the
anti-fungal drug itraconazole, one of the accepted oral antifungal drug
therapies for the treatment of onychomycosis (nail fungus). There are
three systemic antifungal drugs currently utilized for the treatment of
onychomycosis. These drugs are listed below along with their
manufacturers:
|
Product (Brand Name)
|
Manufacturer
|
|
|
Itraconazole
(SporanoxÒ)
|
Ortho-McNeil-Janssen,
Ortho Biotech
|
|
|
Fluconazole
(DiflucanÒ)
|
Pfizer
|
|
|
Terbinafine
(LamisilÒ)
|
Novartis
|
Terbinafine
and fluconazole have garnered larger market shares in recent years due to
greater commercialization efforts, and due to the somewhat unpredictable
absorption seen with the current formulation of itraconazole.
Government
Regulation
General
The
production, distribution, and marketing of products employing our technology,
and our development activities, are subject to extensive governmental regulation
in the United States and in other countries. In the United States,
our products are regulated as drugs and are subject to the Federal Food, Drug,
and Cosmetic Act, as amended, and the regulations of the FDA, as well as to
other federal, state, and local statutes and regulations. These laws,
and similar laws outside the United States, govern the clinical and preclinical
testing, manufacture, safety, effectiveness, approval, labeling, distribution,
sale, import, export, storage, record-keeping, reporting, advertising, and
promotion of our products. Product development and approval within
this regulatory framework, if successful, will take many years and involve the
expenditure of substantial resources. Violations of regulatory
requirements at any stage may result in various adverse consequences, including
the FDA’s and other health authorities’ delay in approving or refusal to approve
a product. Violations of regulatory requirements also may result in
enforcement actions.
The
following paragraphs provide further information on certain legal and regulatory
issues with a particular potential to affect our operations or future marketing
of products employing its technology.
Research,
Development, and Product Approval Process
The
research, development, and approval process in the United States and elsewhere
is intensive and rigorous and generally takes many years to
complete. The typical process required by the FDA before a
therapeutic drug may be marketed in the United States includes:
|
·
|
preclinical
laboratory and animal tests performed under the FDA’s Good Laboratory
Practices regulations, referred to herein as
GLP;
|
|
·
|
submission
to the FDA of an IND, which must become effective before human clinical
trials may commence;
|
|
·
|
human
clinical studies performed under the FDA’s Good Clinical Practices
regulations, to evaluate the drug’s safety and effectiveness for its
intended uses;
|
|
·
|
FDA
review of whether the facility in which the drug is manufactured,
processed, packed, or held meets standards designed to assure the
product’s continued quality; and
|
|
·
|
submission
of a marketing application to the FDA, and approval of the application by
the FDA.
|
During
preclinical testing, studies are performed with respect to the chemical and
physical properties of candidate formulations. These studies are subject to GLP
requirements. Biological testing is typically done in animal models to
demonstrate the activity of the compound against the targeted disease or
condition and to assess the apparent effects of the new product candidate on
various organ systems, as well as its relative therapeutic effectiveness and
safety. An IND must be submitted to the FDA and become effective before studies
in humans may commence.
Clinical
trial programs in humans generally follow a three-phase
process. Typically, Phase 1 studies are conducted in small numbers of
healthy volunteers or, on occasion, in patients afflicted with the target
disease. Phase 1 studies are conducted to determine the metabolic and
pharmacological action of the product candidate in humans and the side effects
associated with increasing doses, and, if possible, to gain early evidence of
effectiveness. In Phase 2, studies are generally conducted in larger
groups of patients having the target disease or condition in order to validate
clinical endpoints, and to obtain preliminary data on the effectiveness of the
product candidate and optimal dosing. This phase also helps determine further
the safety profile of the product candidate. In Phase 3, large-scale
clinical trials are generally conducted in patients having the target disease or
condition to provide sufficient data for the statistical proof of effectiveness
and safety of the product candidate as required by United States regulatory
agencies.
In the
case of products for certain serious or life-threatening diseases, the initial
human testing may be done in patients with the disease rather than in healthy
volunteers. Because these patients are already afflicted with the target disease
or condition, it is possible that such studies will also provide results
traditionally obtained in Phase 2 studies. These studies are often referred to
as “Phase 1/2” studies. However, even if patients participate in initial human
testing and a Phase 1/2 study carried out, the sponsor is still responsible for
obtaining all the data usually obtained in both Phase 1 and Phase 2
studies.
Before
proceeding with a study, sponsors may seek a written agreement from the FDA
regarding the design, size, and conduct of a clinical trial. This is known as a
Special Protocol Assessment (“SPA”). Among other things, SPAs can cover clinical
studies for pivotal trials whose data will form the primary basis to establish a
product’s efficacy. SPAs help establish upfront agreement with the FDA about the
adequacy of a clinical trial design to support a regulatory approval, but the
agreement is not binding if new circumstances arise. There is no guarantee that
a study will ultimately be adequate to support an approval even if the study is
subject to an SPA.
United
States law requires that studies conducted to support approval for product
marketing be “adequate and well controlled.” In general, this means that either
a placebo or a product already approved for the treatment of the disease or
condition under study must be used as a reference control. Studies must also be
conducted in compliance with good clinical practice requirements, and informed
consent must be obtained from all study subjects.
The
clinical trial process for a new compound can take ten years or more to
complete. The FDA may prevent clinical trials from beginning or may place
clinical trials on hold at any point in this process if, among other reasons, it
concludes that study subjects are being exposed to an unacceptable health risk.
Trials may also be prevented from beginning or may be terminated by
institutional review boards, who must review and approve all research involving
human subjects. Side effects or adverse events that are reported during clinical
trials can delay, impede, or prevent marketing authorization. Similarly, adverse
events that are reported after marketing authorization can result in additional
limitations being placed on a product’s use and, potentially, withdrawal of the
product from the market.
Following
the completion of clinical trials, the data are analyzed to determine whether
the trials successfully demonstrated safety and effectiveness and whether a
product approval application may be submitted. In the United States, if the
product is regulated as a drug, an NDA must be submitted and approved before
commercial marketing may begin. The NDA must include a substantial amount of
data and other information concerning the safety and effectiveness of the
compound from laboratory, animal, and human clinical testing, as well as data
and information on manufacturing, product quality and stability, and proposed
product labeling.
Each
domestic and foreign manufacturing establishment, including any contract
manufacturers we may decide to use, must be listed in the NDA and must be
registered with the FDA. The application generally will not be
approved until the FDA conducts a manufacturing inspection, approves the
applicable manufacturing process and determines that the facility is in
compliance with cGMP requirements.
Under the
Prescription Drug User Fee Act, as amended, the FDA receives fees for reviewing
an NDA and supplements thereto, as well as annual fees for commercial
manufacturing establishments and for approved products. These fees can be
significant. For fiscal year 2010, the NDA review fee alone is $1,405,500,
although certain limited deferral, waivers, and reductions may be
available.
Each NDA
submitted for FDA approval is usually reviewed for administrative completeness
and reviewability within 45 to 60 days following submission of the application.
If deemed complete, the FDA will “file” the NDA, thereby triggering substantive
review of the application. The FDA can refuse to file any NDA that it deems
incomplete or not properly reviewable. The FDA has established performance goals
for the review of NDAs— six months for priority applications and 10 months for
standard applications. However, the FDA is not legally required to complete its
review within these periods and these performance goals may change over
time.
Moreover,
the outcome of the review, even if generally favorable, typically is not an
actual approval but an “action letter” that describes additional work that must
be done before the application can be approved. The FDA’s review of an
application may involve review and recommendations by an independent FDA
advisory committee. Even if the FDA approves a product, it may limit the
approved therapeutic uses for the product as described in the product labeling,
require that warning statements be included in the product labeling, require
that additional studies be conducted following approval as a condition of the
approval, impose restrictions and conditions on product distribution,
prescribing, or dispensing in the form of a risk management plan, or otherwise
limit the scope of any approval.
Significant
legal and regulatory requirements also apply after FDA approval to market under
an NDA. These include, among other things, requirements related to adverse event
and other reporting, product advertising and promotion and ongoing adherence to
cGMPs, as well as the need to submit appropriate new or supplemental
applications and obtain FDA approval for certain changes to the approved product
labeling, or manufacturing process. The FDA also enforces the requirements of
the Prescription Drug Marketing Act which, among other things, imposes various
requirements in connection with the distribution of product samples to
physicians.
The
regulatory framework applicable to the production, distribution, marketing,
and/or sale, of our products may change significantly from the current
descriptions provided herein in the time that it may take for any of its
products to reach a point at which an NDA is approved.
Overall
research, development, and approval times depend on a number of factors,
including the period of review at FDA, the number of questions posed by the FDA
during review, how long it takes to respond to the FDA’s questions, the severity
or life-threatening nature of the disease in question, the availability of
alternative treatments, the availability of clinical investigators and eligible
patients, the rate of enrollment of patients in clinical trials, and the risks
and benefits demonstrated in the clinical trials.
Other
United States Regulatory Requirements
In the
United States, the research, manufacturing, distribution, sale, and promotion of
drug and biological products are potentially subject to regulation by various
federal, state, and local authorities in addition to the FDA, including the
Centers for Medicare and Medicaid Services (formerly the Heath Care Financing
Administration), other divisions of the United States Department of Health and
Human Services (e.g., the Office of Inspector General), the United States
Department of Justice and individual United States Attorney offices within the
Department of Justice, and state and local governments. For example, sales,
marketing, and scientific/educational grant programs must comply with the
anti-fraud and abuse provisions of the Social Security Act, the False Claims
Act, the privacy provision of the Health Insurance Portability and
Accountability Act, and similar state laws, each as amended. Pricing and rebate
programs must comply with the Medicaid rebate requirements of the Omnibus Budget
Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as
amended. If products are made available to authorized users of the Federal
Supply Schedule of the General Services Administration, additional laws and
requirements apply. All of these activities are also potentially subject to
federal and state consumer protection, unfair competition, and other
laws.
Moreover,
we are now, and may become subject to, additional federal, state, and local
laws, regulations, and policies relating to safe working conditions, laboratory
practices, the experimental use of animals, and/or the use, storage, handling,
transportation, and disposal of human tissue, waste, and hazardous substances,
including radioactive and toxic materials and infectious disease agents used in
conjunction with our research work.
Foreign
Regulatory Requirements
We and
our collaborative partners may be subject to widely varying foreign regulations,
which may be quite different from those of the FDA, governing clinical trials,
manufacture, product registration and approval, and pharmaceutical sales.
Whether or not FDA approval has been obtained, we or our collaboration partners
must obtain a separate approval for a product by the comparable regulatory
authorities of foreign countries prior to the commencement of product marketing
in these countries. In certain countries, regulatory authorities also establish
pricing and reimbursement criteria. The approval process varies from country to
country, and the time may be longer or shorter than that required for FDA
approval. In addition, under current United States law, there are restrictions
on the export of products not approved by the FDA, depending on the country
involved and the status of the product in that country.
Reimbursement
and Pricing Controls
In many
of the markets where we or our collaborative partners would commercialize a
product following regulatory approval, the prices of pharmaceutical products are
subject to direct price controls (by law) and to drug reimbursement programs
with varying price control mechanisms. Public and private health care payors
control costs and influence drug pricing through a variety of mechanisms,
including through negotiating discounts with the manufacturers and through the
use of tiered formularies and other mechanisms that provide preferential access
to certain drugs over others within a therapeutic class. Payors also set other
criteria to govern the uses of a drug that will be deemed medically appropriate
and therefore reimbursed or otherwise covered. In particular, many public and
private health care payors limit reimbursement and coverage to the uses of a
drug that are either approved by the FDA or that are supported by other
appropriate evidence (for example, published medical literature) and appear in a
recognized drug compendium. Drug compendia are publications that summarize the
available medical evidence for particular drug products and identify which uses
of a drug are supported or not supported by the
56
available
evidence, whether or not such uses have been approved by the FDA. For example,
in the case of Medicare coverage for physician-administered oncology drugs, the
Omnibus Budget Reconciliation Act of 1993, with certain exceptions, prohibits
Medicare carriers from refusing to cover unapproved uses of an FDA-approved drug
if the unapproved use is supported by one or more citations in the American
Hospital Formulary Service Drug Information the American Medical Association
Drug Evaluations, or the United States Pharmacopoeia Drug Information. Another
commonly cited compendium, for example under Medicaid, is the DRUGDEX
Information System.
License
Agreements and Intellectual Property
The
following summary table lists the outstanding patents most material to our
business with respect to which we have licensed rights, as well as their
jurisdiction, duration and related product candidate. Such patents are discussed
in more detail in the context of our product candidates related to them
below.
|
Jurisdiction
|
Patent
Number/
Registration
Number
|
Expiration
Date
|
Related
Product Candidate
|
|
U.S.
|
6,313,299
|
June
26, 2018
|
PB-101
|
|
U.S.
|
6,552,196
|
June
26, 2018
|
PB-101
|
|
Europe
|
0994878
|
June
26, 2018
|
PB-101
|
|
U.S.
|
7,678,785
|
July
24, 2027
|
PB-200a
|
|
U.S.
|
7,105,554
|
August
30, 2021
|
PB-200a
|
|
Europe
|
1313471
|
August
30, 2021
|
PB-200a
|
European
patent 0994878, issued by the European Patent Office, has been validated in the
following countries: Spain, Italy, Germany, France and the United Kingdom.
European patent 1313471, issued by the European Patent Office, has been
validated in the following countries: Spain, Italy, Germany, France, Switzerland
and the United Kingdom.
PB-101
On June
12, 2007, we entered into an exclusive, multinational license agreement with
Dong Wha for PB-101, which we amended on April 22,
2008. Specifically, we in-licensed a quinolone compound (PB-101) for
the treatment of various bacterial infections, and the corresponding United
States and foreign patents and applications for all therapeutic
uses. Under the terms of the license agreement, we are permitted to
develop and commercialize PB-101 in all of the countries of the world other than
Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore,
Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. As
consideration in part for the aforementioned rights to PB-101, we paid to Dong
Wha an upfront license fee of $1,500,000, as well as additional license fees
totaling $2,250,000 and are required to make substantial payments, up to an
additional $53,500,000 in total, to Dong Wha upon the achievement of certain net
sales, clinical and regulatory-based milestones. In the event that
PB-101 is commercialized, we are obligated to pay to Dong Wha annual royalties
equal to a percentage of net sales. In the event that we sublicense
PB-101 to a third party, we are obligated to pay to Dong Wha a portion of the
royalties, sublicensing fees or other lump sum payments we receive from the
sublicensee. Pursuant to the terms of the license agreement, we were
required to initiate a Phase 2 clinical trial for an oral formulation of PB-101
within nine months of execution of the license agreement. In
accordance with the license agreement, we previously purchased certain
“extension periods” from Dong Wha, which extend the deadline before which we
were required to initiate the Phase 2 clinical trial, in return for certain cash
payments. We purchased extension periods for the extension of such deadline
until March 2010. We initiated a Phase 2 clinical trial in the United
States for the CAP indication in March 2010. The license agreement
contains other customary clauses and terms as are common in similar agreements
in the industry. Paramount Biosciences, LLC has guaranteed the
payment in full of all amounts owed by us under the license to Dong Wha until
such time as we have certifiable net tangible assets of at least
$10,000,000.
PB-101 is
protected by a first family of patents and patent applications consisting of two
issued patents in the United States and one validated European
patent. The patents broadly cover compositions comprising PB-101 and
methods of making compositions comprising PB-101. In March 2007, an
additional provisional patent application directed to salt compositions
comprising PB-101 (including aspartic acid salts) was filed and a corresponding
international patent application was filed in 2008.
PB-200a
On June
12, 2007, we entered into an exclusive, worldwide license agreement with UCB
Celltech, a United Kingdom corporation and a registered branch of UCB Pharma
S.A., referred to herein as UCB, for a platform of aniline derivative compounds
including PB-200a. Specifically, we in-licensed a series of compounds
for the treatment of various fungal conditions, and the corresponding United
States and foreign patents and applications for all therapeutic
uses. As consideration in part for the aforementioned rights, we paid
to UCB an upfront license fee of $100,000. In addition, we are
required to make substantial payments, up to an additional $12,000,000 in total,
to UCB upon the achievement of certain clinical and regulatory-based
milestones. In the event that PB-200a or another covered compound is
commercialized, we and our sublicensees are obligated to pay to UCB annual
royalties equal to a percentage of net sales in the single-digit
range. We are also obligated to pay to UCB an annual license
maintenance fee of $100,000, which is creditable against royalties otherwise due
to the licensor. The license agreement contains other customary
clauses and terms as are common in similar agreements in the
industry.
PB-200a
and the other compounds licensed to us by UCB are protected by several families
of patents and patent applications in the United States and in certain foreign
countries. Specifically, we have acquired rights to patents and
patent applications relating to the following:
|
·
|
Substituted
aniline compounds;
|
|
·
|
CCA1
targeted inhibitors and assays;
|
|
·
|
SEC14
targeted inhibitors and assays;
|
|
·
|
Benzylidine
thiazolidine derivatives;
|
|
·
|
Thiazolidine
derivatives;
|
|
·
|
TRL1
targeted inhibitors and assays; and
|
|
·
|
MSS4
targeted inhibitors and assays.
|
Effective
as of November 4, 2009, we entered into a non-exclusive patent sublicense
agreement with a third-party. Pursuant to the sublicense agreement,
we granted a non-exclusive worldwide license to the sublicensee for the use of a
compound, which is covered by one of the European patents licensed to us by UCB
related to benzylidine thiazolidine derivatives. The sublicense
agreement provides for the payment to us of an upfront license fee of $480,000.
The sublicensee paid us a milestone fee of $180,000 related to the initiation of
a Phase II trial related to this product. The sublicense
agreement provides for additional payments totaling up to $540,000 upon the
achievement of certain milestones. Under the terms of the original
license agreement with UCB, $132,000 became due to UCB in connection with the
sublicense agreement with the sublicensee. The sublicense agreement may be
terminated by the sublicensee at any time in its sole discretion by giving us 30
days’ advance written notice.
PB-201
On July
10, 2007, we entered into an exclusive, multinational sublicense agreement with
Santee Biosciences, Inc., a Delaware corporation, referred to herein as Santee,
for PB-201, a formulation technology. Specifically, we in-licensed
this technology from Santee for use in the development of azole-based antifungal
drug formulations, including without limitation an itraconazole formulation, and
the corresponding United States and foreign patents and
applications. Under the terms of the sublicense agreement, we are
permitted to develop and commercialize azole-based antifungal drugs we formulate
using the PB-201 technology throughout North America and Europe. As
consideration in part for the aforementioned rights, we paid to Santee an
upfront license fee of $50,000. In addition, we are required to make
substantial payments, up to an additional $10,000,000 in total, to Santee upon
the achievement of certain clinical and regulatory-based
milestones. In the event that any drug we formulate using the PB-201
technology is commercialized, we and our sublicensees are obligated to
pay to
Santee annual royalties equal to a percentage of net sales in the single-digit
range. In the event that we sublicense PB-201 to a third party, we
are obligated to pay Santee a portion of the royalties we receive from the
sublicensee. The sublicense agreement contains other customary clauses and terms
as are common in similar agreements in the industry. Santee is
similarly supported by Paramount Biosciences, LLC and is similarly owned, and
thus is an affiliate of ours. See “Certain Relationships &
Transactions”.
PB-201 is
protected by three families of patent applications pending
globally. Two such families broadly cover a novel system for
nano-scale pharmaceutical transport comprising micelles and vesicles that
combine with a therapeutic agent to form a complex. These patent
applications include claims directed to formulations of such systems and methods
of preparing such formulations. The international patent applications
underlying these two families have entered the national phase in the United
States and Europe. In March 2007, we filed a provisional patent
application directed to additional formulations of PB-201. We plan to
file an international patent application claiming priority to this provisional
application.
Employees
We
currently employ three full-time employees. None of our employees is represented
by a labor union and we have not experienced any strikes or work stoppages. We
believe our relations with our employees are good.
Facilities
Our
facilities consist of temporary office space in San Diego,
California. We believe that these facilities are adequate to meet our
current needs. We believe that if additional or alternative space is needed in
the future, such space will be available on commercially reasonable terms as
necessary.
Corporate
History
We were
organized as a Delaware corporation on October 5, 2006 under the name “Pacific
Beach BioSciences, Inc.” and we changed our corporate name to “IASO Pharma Inc.”
on April 12, 2010. Our principal executive offices are located at
12707 High Bluff Drive, Suite 200, San Diego, California 92130.
Legal
Proceedings
We are
not currently a party to any material legal proceedings.
Executive
Officers and Directors
The
following table sets forth the name, age and position of each of our directors
and executive officers.
|
Name
|
Age
|
Position
|
||
|
Matthew
A. Wikler
|
60
|
President,
Chief Executive Officer and Director (Principal Executive Officer and
Principal Financial Officer)
|
||
|
James
Rock
|
42
|
Director
of New Product Development
|
||
|
Mark
W. Lotz
|
57
|
Vice
President of Regulatory Affairs
|
||
|
J.
Jay Lobell
|
46
|
Director
|
The
business experience for the past five years (and, in some instances, for prior
years) of each of our executive officers and directors are as
follows:
Matthew A.
Wikler, M.D., M.B.A. has served as our President and Chief Executive
Officer and director since February 28, 2010 and from November 2006 to January
2009. From January 2009 to February 26, 2010, Dr. Wikler served as
Chief Medical Officer at the Institute for One World Health, an institute that
develops new medicines for people with infectious diseases in the developing
world. Prior to joining us in Noveber 2006, Dr. Wikler served as the Chief
Medical Officer at MPEX Pharmaceuticals, Inc., a private biopharmaceutical
company developing new therapies to combat antibiotic resistance, from January
2006 to November 2006, and as the Chief Medical Officer and Executive Vice
President at Peninsula Pharmaceuticals, Inc., a private biopharmaceutical
company focused on developing and commercializing antibiotics to treat
life-threatening infections, from November 2002 to December
2005. From 1994 to 1995, Dr. Wikler worked at the FDA, and for part
of that time served as the Deputy Director of the Division of Anti-infective
Drug Products for the FDA. Dr. Wikler is the current vice-chair of
the Clinical and Laboratory Standards Institute (CLSI) Antimicrobial
Susceptibility Testing Subcommittee. Dr. Wikler received his M.D.
from Temple University, completed an Infectious Diseases fellowship at the
Hospital of the University of Pennsylvania, and received his M.B.A. from the
Wharton School of Business. We believe Dr. Wikler’s qualifications to
sit on our Board of Directors include his vast knowledge and experience in the
development of infectious diseases products and the integral role he played in
the success of other small biotechnology companies.
James Rock, M.S.,
M.B.A. has served as our Director of New Product Development since
January 2007. Prior to that, Mr. Rock served as Director of Clinical
Development at MPEX Pharmaceuticals, Inc., a private biopharmaceutical company
developing new therapies to combat antibiotic resistance, from December 2005 to
February 2007. From June 2002 to December 2005, Mr. Rock served as
Clinical Trial Manager at Santarus, Inc. (NasdaqGM: SNTS), a specialty
biopharmaceutical company focused on acquiring, developing and commercializing
proprietary products that address the needs of patients treated by
gastroenterologists, endocrinologists, and other physicians. Mr. Rock
holds a B.S. from the University of Vermont, received his M.Sc. degree from
Springfield College, and received his M.B.A from Pepperdine
University.
Mark W.
Lotz has served as our Vice President of Regulatory Affairs since May
2007. Previously, Mr. Lotz served as Senior Director, Regulatory
Affairs at Elan Pharmaceuticals, Inc., a private neuroscience-based
biotechnology company, from October 2005 to April 2007. Prior to
that, Mr. Lotz served as Vice President, Regulatory Affairs and Quality
Assurance at MediciNova, Inc. (NasdaqGM: MNOV), a biopharmaceutical company
focused on acquiring and developing novel, small molecule therapeutics for the
treatment of diseases with unmet needs, from February 2004 until May
2005. Previously, Mr. Lotz worked for 14 years at Abbott
Laboratories (NYSE: ABT), a global broad-based health care company, where
he focused primarily on regulatory affairs. Mr. Lotz holds a B.Pharm. from
the St. Louis College of Pharmacy.
J. Jay
Lobell has served a director of ours since October 2006. Mr.
Lobell has served as the President and Chief Operating Officer of Paramount
Biosciences, LLC, a global pharmaceutical development and healthcare investment
firm that is an affiliate of ours, since January 2005. Mr. Lobell is
a founder of, and, since December 2009, has served as Vice Chairman of Beech
Street Capital, LLC, a real estate lending company. Mr. Lobell has
served as an officer of Meridian Capital Group, LLC, a real estate mortgage
brokerage firm, since January 2010. Mr. Lobell was a partner in the
law firm Covington & Burling LLP from October 1996 through January 2005,
where he advised companies and individuals as a member of the firm’s Securities
Litigation and White Collar Defense practice group. Mr. Lobell
previously served on the boards of directors of NovaDel Pharma Inc. (OTCBB:
NVDL), Innovive Pharmaceuticals, Inc. and ChemRx Corporation (OTCPK: CHRX), and
currently serves on the boards of several private biotechnology
companies. Mr. Lobell received his B.A. (summa cum laude, Phi Beta
Kappa) from the City University of New York and his J.D. from Yale Law School,
where he was senior editor of the Yale Law Journal. We believe Mr.
Lobell’s qualifications to sit on our Board of Directors include his financial,
regulatory and deal-structuring experience in healthcare and biotechnology
transactions and his management experience related to healthcare and
biotechnology companies.
Director
Independence
We
anticipate that each of our directors, with the exception of Dr. Wikler
and ,
will qualify as “independent” under the listing standards of NYSE Amex (even
though we are not currently listed on such exchange), federal securities laws
and SEC rules with respect to members of boards of directors and members of all
board committees on which he or she serves.
Arrangements
Regarding Nomination for Election to the Board of Directors
The
underwriting agreement with Maxim will provide that we will permit Maxim to
either (i) designate one individual who meets the independence criteria of NYSE
Amex to serve on the Board of Directors for the three-year period following the
closing of this offering or (ii) in the event that the individual designated by
Maxim is not elected to the Board of Directors, have a representative of Maxim
attend all meetings of the Board of Directors as an observer during such
three-year period. Such director or observer, as the case may be,
will attend meetings of the Board of Directors, receive all notices and other
correspondence and communications sent by us to our directors, and such director
will receive compensation equal to the highest compensation of other
non-employee directors, excluding the Chairman of the Audit
Committee. We expect to appoint a designee of Maxim to our Board of
Directors prior to the completion of this offering.
Board
Committees
Our Board
of Directors does not have any committees at this time. Prior to the
completion of this offering, our Board of Directors will have the following
committees: an Audit Committee, a Compensation Committee, and a Nominating and
Corporate Governance Committee. The composition and responsibilities
of each committee are described below. Members will serve on these
committees until their resignation or until otherwise determined by our Board of
Directors.
Audit
Committee
Our Audit
Committee will consist of , each of whom
will satisfy the independence requirements under NYSE Amex and SEC rules and
regulations applicable to audit committee members and have an understanding of
fundamental financial
statements. will serve as
chairman of the Audit Committee.
will qualify as an “audit committee financial expert” as that term is defined in
the rules and regulations of the SEC. The designation of
as an “audit committee financial expert”
will not impose on him any duties, obligations or liability that are greater
than those that are generally imposed on him as a member of our Audit Committee
and our Board of Directors, and his designation as an “audit committee financial
expert” pursuant to this SEC requirement will not affect the duties, obligations
or liability of any other member of our Audit Committee or Board of
Directors.
The Audit
Committee will monitor our corporate financial statements and reporting and our
external audits, including, among other things, our internal controls and audit
functions, the results and scope of the annual audit and other services provided
by our independent registered public accounting firm and our compliance with
legal matters that have a significant impact on our financial statements. Our
Audit Committee also will consult with our management and our independent
registered public accounting firm prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into aspects
61
of our
financial affairs. Our Audit Committee will be responsible for establishing
procedures for the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls or auditing matters, and for the
confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters, and will have established such
procedures to become effective upon the effectiveness of the registration
statement of which this prospectus forms a part. In addition, our Audit
Committee will be directly responsible for the appointment, retention,
compensation and oversight of the work of our independent auditors, including
approving services and fee arrangements. All related party transactions will be
approved by our Audit Committee before we enter into them.
Both our
independent auditors and internal financial personnel will regularly meet with,
and will have unrestricted access to, the Audit Committee.
Compensation
Committee
Our
Compensation Committee will consist of ,
each of whom will satisfy the independence requirements of NYSE Amex and SEC
rules and regulations. Each member of this committee will be a non-employee
director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act,
and an outside director, as defined pursuant to Section 162(m) of the Internal
Revenue Code of 1986, as
amended. will serve as chairman
of the Compensation Committee.
The
Compensation Committee will review and approve our compensation policies and all
forms of compensation to be provided to our executive officers and directors,
including, among other things, annual salaries, bonuses, and other incentive
compensation arrangements. In addition, our Compensation Committee will
administer our stock option and employee stock purchase plans, including
granting stock options to our executive officers and directors. Our Compensation
Committee also will review and approve employment agreements with executive
officers and other compensation policies and matters.
Nominating
and Corporate Governance Committee
Our
Nominating and Corporate Governance Committee will consist of
, each of whom will satisfy the independence
requirements of NYSE Amex and SEC rules and
regulations. will serve as
chairman of the Nominating and Corporate Governance Committee.
Our
Nominating and Corporate Governance Committee will identify, evaluate and
recommend nominees to our Board of Directors and committees of our Board of
Directors, conduct searches for appropriate directors and evaluate the
performance of our Board of Directors and of individual directors. The
Nominating and Corporate Governance Committee also will be responsible for
reviewing developments in corporate governance practices, evaluating the
adequacy of our corporate governance practices and reporting and making
recommendations to the Board of Directors concerning corporate governance
matters.
Family
Relationships
There are
no family relationships between any of our directors or executive
officers.
Scientific
Advisory Board
We have
established a Scientific Advisory Board that provides guidance to us on numerous
matters, including the following: identifying current and future needs for the
treatment and prevention of infectious diseases; evaluation of potential new
opportunities; providing input into the development of current assets; providing
perspectives on the current and future commercial considerations in the
infectious diseases market. The Scientific Advisory Board is composed
of leading physicians and scientists with special expertise in clinical
infectious diseases, microbiology, and
pharmacokinetics/pharmacodynamics. We believe that these individuals
will provide the critical thinking and input that will allow us to move forward
more innovatively and with a greater opportunity for success.
Summary
Compensation Table
The
following Summary Compensation Table shows the compensation awarded to or earned
by our President and Chief Executive Officer and other two most
highly-compensated executive officers for fiscal 2009. The persons listed in the
following Summary Compensation Table are referred to herein as the “Named
Executive Officers.”
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
All
other compensation
($)
|
Total
($)
|
|||||||||||||
|
Matthew
A. Wikler
President and Chief Executive
Officer (1)
|
2009
|
14,583 | - | - | 14,583 | |||||||||||||
|
James
Rock
Director of New Product
Development (2)
|
2009
|
135,000 | 25,000 | (4) | 5,403 | (5) | 165,403 | |||||||||||
|
Mark
W. Lotz
Vice President of Regulatory
Affairs (3)
|
2009
|
220,000 | - | 11,513 | (6) | 231,513 | ||||||||||||
__________
|
(1)
|
Dr.
Wikler has served as our President and Chief Executive Officer and
director since February 28, 2010. Dr. Wikler previously served
as our President and Chief Executive Officer from November 2006 to January
2009.
|
|
(2)
|
Mr.
Rock has served as our Director of New Product Development since January
2007.
|
|
(3)
|
Mr.
Lotz has served as our Vice President of Regulatory Affairs since May
2007.
|
|
(4)
|
Represents
a bonus accrued for the year ended December 31, 2009 and paid in 2010 in
connection with Mr. Rock’s efforts on our behalf relating to the
non-exclusive patent sublicense agreement entered into with a third-party
effective on November 4, 2009.
|
|
(5)
|
Represents
$5,184 in 401(k) Plan contributions and $219 in life insurance premiums
paid by us for Mr. Rock.
|
|
(6)
|
Represents
$10,650 in 401(k) Plan contributions and $863 in life insurance premiums
paid by us for Mr. Lotz.
|
Employment
Agreements and Arrangements
Matthew
A. Wikler
We
entered into an employment agreement with Matthew A. Wikler, MD, MBA, FIDSA,
effective as of February 28, 2010, pursuant to which Dr. Wikler serves as our
President and Chief Executive Officer. Dr. Wikler’s employment
agreement has a two-year term and will automatically renew for additional
one-year terms unless three months’ prior written notice of an election not to
renew is given by either us or Dr. Wikler to the other party. Pursuant to Dr.
Wikler’s employment, we agreed to use our best efforts to cause Dr. Wikler to be
elected as a member of our Board of Directors and include him in the management
slate for election as a director at every stockholder meeting during the term of
his employment agreement. Dr. Wikler agreed to accept election and to
serve as director during the term of his employment agreement.
Dr.
Wikler’s employment agreement provides for an annual base salary of $300,000 and
an annual guaranteed cash bonus of $60,000, referred to herein as the Guaranteed
Bonus. Dr. Wikler may also be awarded an additional cash bonus equal
to as much as his annual base salary in the Board of Director’s sole and
complete discretion, based on, among other things, the attainment by Dr. Wikler
and/or us of certain financial, clinical development and business milestones, as
established annually by the Board of Directors, after consultation with Dr.
Wikler, referred to herein as the Annual Milestone Bonus. Dr. Wikler
will receive a onetime cash payment of $100,000 in full and final consideration
and settlement of any amount of compensation claimed by or due to Dr. Wikler
with respect to his services to us during his earlier term of employment with
us. Dr. Wikler is also eligible to receive a onetime cash bonus, of
(i) $100,000 within 30 days after the closing of our initial public offering;
(ii) $125,000 the first time that our market capitalization exceeds $125,000,000
for a period of ten consecutive trading days during the term of Dr. Wikler’s
employment agreement and the average trading volume of our common stock during
such period is at least 50,000 shares per trading day; (iii) $300,000 the first
time that our market capitalization exceeds $300,000,000 for a period of ten
consecutive trading days during the term of Dr. Wikler’s employment agreement
and the average trading volume of our common stock during such period is at
least 100,000 shares per trading day; (iv) $500,000 the first time that our
market capitalization exceeds $500,000,000 for a period of ten consecutive
trading days during the term of Dr. Wikler’s employment agreement and the
average trading volume of our common stock during such period is at least
100,000 shares per trading day; (v) $750,000 the first time that our market
capitalization exceeds $750,000,000 for a period of ten consecutive trading days
during the term of Dr. Wikler’s employment agreement and the average trading
volume of our common stock during such period is at least 100,000 shares per
trading day; and (vi) $1,000,000 the first time that our market capitalization
exceeds $1,000,000,000 for a period of ten consecutive trading days during the
term of Dr. Wikler’s employment agreement and the average trading volume of our
common stock during such period is at least 100,000 shares per trading
day. The events described in (ii) through (vi) above are referred to
herein each as a Market Capitalization Milestone.
Pursuant
to Dr. Wikler’s employment agreement we must issue to Dr. Wikler one or more
options to purchase common stock in an amount that, together with the shares of
common stock already owned by Dr. Wikler, collectively represents 7.5% of our
outstanding common stock at an exercise price per share equal to the price per
share of common stock that we will issue in this offering, assuming this
offering is consummated within six months of the date of Dr. Wikler’s employment
agreement, or, to the extent it is not, at the fair market value of our common
stock at such date, as determined in the sole discretion and good faith of the
Board of Directors. The option will vest on February 28,
2011. Dr. Wikler’s stock option will have certain anti-dilution
protections under his employment agreement.
Dr.
Wikler’s employment agreement will be terminated upon his death and may be
terminated: (i) by the Board of Directors with or without cause, due to Dr.
Wikler’s disability or upon a change of control and (ii) by Dr. Wikler with or
without good reason.
Paramount
Biosciences, LLC agreed that, in the event a payment is not made to Dr. Wikler
by us, it will guarantee the payment to Dr. Wikler of severance in an amount
equal to three months of his guaranteed salary and pro rated bonus as well as
the costs of continuing his benefit programs during that three-month
period. Paramount Biosciences, LLC’s guarantee will be released upon
the completion by us of an initial public offering.
James
Rock
On
January 19, 2007, we entered into an employment agreement with James Rock,
pursuant to which Mr. Rock accepted an at-will position with us to serve as our
Director of New Product Development. Under his employment agreement,
Mr. Rock receives an annual base salary of $135,000 and is also eligible to
receive an annual discretionary bonus in an amount up to 15% of his base salary
dependent on our and Mr. Rock’s performance, subject to the sole discretion of
our Board of Directors and based on the achievement of certain financial,
clinical development and business milestones. In addition, we
have paid a $25,000 bonus to Mr. Rock in connection with his efforts on our
behalf relating to the non-exclusive patent sublicense agreement entered into
with a third-party effective on November 4, 2009. In conjunction with
the execution of his employment agreement, Mr. Rock also purchased 41,251
restricted shares of our common stock at a price of $0.001 per share pursuant to
the terms and conditions of a stock purchase agreement. One third of
these purchased shares vest annually in equal parts on each of the first three
anniversaries of such purchase, in each case only if Mr. Rock remains employed
by us at such times. Mr. Rock’s employment agreement contains other
customary terms and provisions that are standard in our industry.
Mark
W. Lotz
On May
17, 2007, we entered into an employment agreement with Mark W. Lotz, pursuant to
which Mr. Lotz accepted an at-will position with us to serve as our Vice
President of Regulatory Affairs, beginning on May 28, 2007. Under his
employment agreement, Mr. Lotz receives an annual base salary of $220,000 and is
also eligible to receive an annual discretionary bonus in an amount up to 20% of
his base salary dependent on our and Mr. Lotz’s performance, subject to the sole
discretion of our Board of Directors. Mr. Lotz also was granted an
option to purchase 72,000 shares of our common stock at an exercise price equal
to the fair market value at the time of such grant, pursuant to the 2007 Stock
Incentive Plan. These purchased shares vest annually in equal parts
on each of the first three (3) anniversaries of May 28, 2007. Mr.
Lotz’s employment agreement contains other customary terms and provisions
standard in our industry.
Potential
Payments Upon Termination or Change in Control
Matthew
A. Wikler
In the
event that Dr. Wikler’s employment is terminated as a result of his death or
disability, we will pay Dr. Wikler or his estate, as applicable, (i) his annual
base salary through the date of his termination, benefits (if disabled), and any
expense reimbursement amounts owed Dr. Wikler, (ii) the Guaranteed Bonus, pro
rated to the date of Dr. Wikler’s death or disability; and (iii) any accrued but
unpaid Annual Milestone Bonuses earned by Dr. Wikler prior to the date of his
death or disability. All stock options held by Dr. Wikler that were
granted under his employment agreement that are scheduled to vest on February
28, 2011, will be accelerated and deemed to have vested as of the termination
date. Other than the stock options described in the preceding
sentence, all stock options that were granted under his employment agreement
that have not vested as of the date of termination will be terminated as of such
date. Stock options that have vested as of the termination date will
remain exercisable for 90 days following such termination.
In the
event that Dr. Wikler’s employment is terminated by the Board of Directors for
cause, we will pay him his annual base salary through the date of his
termination. All stock options held by Dr. Wikler that were granted under this
employment agreement that have not vested as of the date of termination will be
terminated as of such date. Stock options that have vested as of the
termination date will remain exercisable for 90 days following such
termination.
In the
event that Dr. Wikler’s employment is terminated by us other than as a result of
Dr. Wikler’s death, or disability and other than for cause or due to a change of
control, or if Dr. Wikler terminates his employment for good reason, we will pay
Dr. Wikler (i) his annual base salary and benefits for a period of six months
following termination; (ii) the Guaranteed Bonus, pro rated to the date of
termination; (iii) any accrued but unpaid Annual Milestone Bonuses earned by Dr.
Wikler; and (iv) any expense reimbursements owed him. All stock
options held by Dr. Wikler that were granted under this employment agreement
that are scheduled to vest during the 12-month period following such termination
will be accelerated and deemed to have vested as of the termination
date. Stock options that have vested as of the termination date will
remain exercisable for 90 days following such termination.
In the
event that Dr. Wikler’s employment is terminated by us (or our successor) upon
the occurrence of a change of control, and on the date of termination the fair
market value of our common stock, in the aggregate, as determined in good faith
by the Board of Directors on the date of the change of control, is more than
$35,000,000, then (i) we (or our successor, as applicable) will continue to pay
Dr. Wikler his annual base salary and benefits for a period of six months
following the termination and (ii) we will pay Dr. Wikler (a) the Guaranteed
Bonus, pro rated to the date of termination; (b) any accrued but unpaid Annual
Milestone Bonuses earned by Dr. Wikler prior to the date of termination; and (c)
any expense reimbursement amounts owed him. All stock options held by
Dr. Wikler that were granted under this employment agreement will be accelerated
in full and deemed to have fully vested as of the termination
date. Stock options that have vested as of the termination date will
remain exercisable for 90 days following such termination.
In the
event that Dr. Wikler’s employment agreement is terminated by us other than for
cause or by Dr. Wikler for good reason, within 90 days prior to the occurrence
of a Market Capitalization Milestone, then we will pay Dr. Wikler the applicable
cash bonus as if he were employed by us on the date of such
occurrence.
James
Rock
Pursuant
to an amendment to Mr. Rock’s employment agreement, dated August 18, 2008, we
agreed that in the event we terminate Mr. Rock’s employment without cause, Mr.
Rock will be entitled to (i) severance payments in the form of a continuation of
his base salary in effect at the time of termination for a period of three
months following the date of termination and (ii) reimbursement for certain
costs related to health insurance until the earlier of three months after the
date of termination or the last day of the month in which Mr. Rock begins
full-time employment with another company or business
entity. Pursuant to the amendment, Paramount BioSciences, LLC agreed
to guarantee the performance of our obligations to provide Mr. Rock with the
above-enumerated benefits upon a termination without cause, which guarantee will
terminate upon the consummation by us of a financing in which we (in one
transaction or a series of transactions) receive aggregate gross proceeds of
$20,000,000 in connection with the sale or issuance of any of our equity and/or
debt securities (convertible or otherwise).
Mark
W. Lotz
If Mr.
Lotz’s employment is terminated by us other than as a result of Mr. Lotz’s death
or disability and for reasons unrelated to cause, then we agreed to continue to
pay Mr. Lotz his base salary and benefits for a period of four months following
the termination of his employment and pay any expense reimbursements amounts
owed Mr. Lotz through the termination of his employment. In addition,
all options that have vested as of the date of Mr. Lotz’s termination will
remain exercisable for a period of ninety days.
Outstanding
Equity Awards at Fiscal Year-End Table
The
following table sets forth certain information, on an award-by-award basis, for
each Named Executive Officer concerning unexercised options to purchase common
stock that have not yet vested and is outstanding as of December 31,
2009.
|
Option
Awards
|
||||
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|
Matthew
A. Wikler
|
-
|
-
|
-
|
-
|
|
James
Rock
|
-
|
-
|
-
|
-
|
|
Mark
W. Lotz (1)
|
48,000
|
24,000
|
0.95
|
09/27/17
|
__________
|
|
(1)
On September 27, 2007, Mr. Lotz was granted an option to purchase 72,000
shares of common stock. The option vested with respect to
one-third of the shares of common stock on each of May 28, 2008 and
2009. The option will vest with respect to the remaining
one-third of the shares of common stock on May 28, 2010, provided that Mr.
Lotz is an employee of ours or consultant to us at such
time.
|
Employee
Benefit and Stock Plans
2007
Stock Incentive Plan
We have
adopted a 2007 Stock Incentive Plan. The purpose of the 2007 Stock
Incentive Plan is to provide us with the flexibility to use restricted stock,
stock options and other awards based on our common stock as part of an overall
compensation package to provide performance-based compensation to attract and
retain qualified personnel. We believe that awards under the 2007
Stock Incentive Plan may serve to broaden the equity participation of key
employees and further link the long-term interests of management and
stockholders. Awards under the 2007 Stock Incentive Plan will be
limited to shares, cash, and options, stock appreciation rights, or similar
right, to purchase shares, of our common stock.
There are
20,000,000 shares of the common stock authorized for issuance under the 2007
Stock Incentive Plan, of which 15,448,271 are available for issuance as of the
date of this prospectus.
Administration
The 2007
Stock Incentive Plan will be administered by a Compensation Committee appointed
by our Board of Directors. The Compensation Committee shall consist
of two or more non-employee directors, each of whom is intended to be, to the
extent required by Rule 16b-3 under the Exchange Act and Section 162(m) of the
Internal Revenue Code, referred to here in as the Code, a non-employee director
under Rule 16b-3 and an outside director under Section 162(m), or if no
committee exists, the Board of Directors. References below to the
Compensation Committee include a reference to our Board of Directors for those
periods in which our Board of Directors is acting as the Compensation
Committee. The Compensation Committee has the full authority to
administer and interpret the 2007 Stock Incentive Plan and to take any other
actions and make all other determinations that it deems necessary or appropriate
in connection with the 2007 Stock Incentive Plan or the administration or
interpretation thereof.
Eligibility
and Types of Awards
Our
employees, directors and consultants, advisors or other independent contractors
who provide services to us are eligible to be granted stock options, stock
awards and performance shares under the 2007 Stock Incentive Plan.
Available
Shares
Subject
to adjustment upon certain corporate transactions or events, a maximum of
20,000,000 shares of our common stock may be issued under the 2007 Stock
Incentive Plan. In addition, subject to adjustment upon certain
corporate transactions or events, a participant may not receive awards with
respect to more than 1,000,000 shares of our common stock in any year (and an
additional 500,000 shares in connection with a grantee’s commencement of
continuous service). If an option or other award granted under the
2007 Stock Incentive Plan expires, is cancelled, or terminates, the shares
subject to any portion of the award that expires, is cancelled, or terminates
without having been exercised or paid, as the case may be, will again become
available for the issuance of additional awards. Unless previously
terminated by our Board of Directors, no new award may be granted under the 2007
Stock Incentive Plan after the tenth anniversary of the date that such plan was
initially approved by our stockholders.
Awards
Under the Plan
Stock Options. The
terms of specific options, including whether options shall constitute “incentive
stock options” for purposes of Section 422(b) of the Code, shall be determined
by the Compensation Committee. The exercise price of an option shall
be determined by the Compensation Committee and reflected in the applicable
award agreement. The exercise price with respect to incentive stock
options may not be lower than 100% (110% in the case of an incentive stock
option granted to a 10% stockholder, if permitted under the plan) of the fair
market value of our common stock on the date of grant. Each option
will be exercisable after the period or periods specified in the award
agreement, which will generally not exceed ten years from the date of grant (or
five years in the case of an incentive stock option granted to a 10%
stockholder, if permitted under the plan). Options will be
exercisable at such times and subject to such terms as determined by the
Compensation Committee.
Stock Awards and Restricted
Stock. A stock award consists of the transfer by us to a
participant of shares of common stock, without any payment therefor, as
additional compensation for services to us. Restricted stock will be
subject to restrictions as the Compensation Committee shall determine, and such
restrictions may include a prohibition against transfer until such time as the
Compensation Committee determines, forfeiture upon a termination of employment
or other service during the applicable restriction period and such other
conditions or restrictions as the Compensation Committee may deem
advisable.
Performance
Shares. A performance share consists of an award paid in
shares of our common stock or cash (as determined by the Compensation
Committee), subject to performance objectives to be achieved by the participant
before the end of a specified period. The grant of performance shares
to a participant does not create any rights in such participant as a stockholder
until the payment of shares of common stock with respect to an
award. In the event that a participant’s employment or consulting
engagement with us is terminated for any reason other than normal retirement,
death or disability prior to the achievement of the participant’s performance
objectives, the participant’s rights to the performance shares shall expire and
terminate unless otherwise determined by the Compensation
Committee.
Change in
Control. Upon a change in control of us (as defined in the
2007 Stock Incentive Plan), if the acquiring entity or successor to us does not
assume the incentive awards or replace them with substantially equivalent
incentive awards, all outstanding options will vest and become immediately
exercisable in full, the restrictions on all shares of restricted stock awards
shall lapse immediately and all performance shares shall be deemed to be met and
payment made immediately.
Amendment and
Termination. Our Board of Directors may amend, suspend or
terminate the 2007 Stock Incentive Plan as it deems advisable, except that it
may not amend the 2007 Stock Incentive Plan in any way that would adversely
affect a participant with respect to an award previously granted. In
addition, our Board of Directors may not amend the 2007 Stock Incentive Plan
without stockholder approval if such approval is then required pursuant to
Section 422 of the Code, the regulations promulgated thereunder or the rules of
any stock exchange or similar regulatory body.
Director
Compensation
Mr.
Lobell did not receive compensation for his service on our Board of Directors in
2009. The Board of Directors or a committee thereof will adopt a
comprehensive director compensation policy prior to the completion of this
offering.
Indemnification
of Officers and Directors
Our
amended and restated certificate of incorporation that will be in effect upon
the closing of this offering limits the personal liability of directors for
breach of fiduciary duty to the maximum extent permitted by the General
Corporation Law of the State of Delaware, referred to herein as the DGCL. Our
amended and restated certificate of incorporation provides that no director will
have personal liability to us or to our stockholders for monetary damages for
breach of fiduciary duty or other duty as a director. However, these provisions
do not eliminate or limit the liability of any of our directors for any of the
following:
|
·
|
any
breach of their duty of loyalty to us or our
stockholders;
|
|
·
|
acts
or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law;
|
|
·
|
voting
or assenting to unlawful payments of dividends or other distributions;
or
|
|
·
|
any
transaction from which the director derived an improper personal
benefit.
|
Any
amendment to or repeal of these provisions will not eliminate or reduce the
effect of these provisions in respect of any act or failure to act, or any cause
of action, suit or claim that would accrue or arise prior to any amendment or
repeal or adoption of an inconsistent provision. If the DGCL is amended to
provide for further limitations on the personal liability of directors of
corporations, then the personal liability of our directors will be further
limited in accordance with the DGCL.
In
addition, our amended and restated certificate of incorporation provides that we
must indemnify our directors and officers and we must advance expenses,
including attorneys’ fees, to our directors and officers in connection with
legal proceedings, subject to very limited exceptions.
We have
entered into, and intend to continue to enter into, separate indemnification
agreements with each of our officers and directors. These agreements, among
other things, require us to indemnify our officers and directors for certain
expenses, including attorney’s fees, judgments, fines and settlement amounts
incurred by an officer or director in any action or proceeding arising out of
their services as one of our officers and directors, or any of our subsidiaries
or any other company or enterprise to which the person provides services at our
request, to the fullest extent permitted by Delaware law. We will not indemnify
an officer director, however, unless he or she acted in good faith, reasonably
believed his or her conduct was in, and not opposed, to our best interests, and,
with respect to any criminal action or proceeding, had no reason to believe his
or her conduct was unlawful.
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2009 about the common
stock that may be issued upon exercise of options, warrants and rights under all
of our equity compensation plans as of December 31, 2009.
|
Plan
Category
|
Number
of Shares to
Be
Issued Upon
Exercise
of
Outstanding
Options,
Warrants
and Rights (1)
|
Weighted
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
Number
of Shares
Remaining
Available for
Future
Issuance Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected
in
Column (a))
|
|||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity compensation plans approved by security holders
|
72,000 | $ | 0.95 | 15,448,271 | ||||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
72,000 | $ | 0.95 | 15,448,271 | ||||||||
__________
|
(1)
|
The
number of shares is subject to adjustments in the event of stock splits
and other similar events.
|
Lindsay
A. Rosenwald, M.D., Paramount BioCapital, Inc. and Affiliates
Dr.
Rosenwald and his Family
Dr.
Rosenwald is the Chairman, Chief Executive Officer and sole stockholder of
Paramount BioCapital, Inc. (“Paramount”). As of April 14, 2010, Dr.
Rosenwald beneficially owned approximately 37.1% of our issued and outstanding
common stock. In addition, as of April 14, 2010, the Family Trusts,
which are certain trusts established for the benefit of Dr. Rosenwald and his
family, beneficially owned approximately 22.3% of our issued and outstanding
common stock. Following the completion of the offering, Dr. Rosenwald
will beneficially own approximately % of our
issued and outstanding common stock, and the Family Trusts will own
approximately % of our issued and outstanding
common stock.
In
February 2010, Dr. Rosenwald purchased 8% Notes in the principal amount of
$500,000. Upon the consummation of this offering, the outstanding
principal amount of such 8% Notes and all accrued interest thereon will
automatically convert into shares of common
stock assuming the conversion occurs on ,
2010. In connection with the issuance of the 8% Notes, Dr. Rosenwald also
received 8% Noteholder Warrants, which will be exercisable following the
consummation of this offering into shares
of common stock, at an exercise price equal to 110% of the portion of the price
of the Units sold in this offering that is allocated to the common
stock.
Paramount
Notes
As of
December 31, 2009, (i) PBS, of which Dr. Rosenwald is the sole member and which
is an affiliate of Paramount, has loaned us an aggregate amount of approximately
$2,067,205; (ii) the Family Trusts have loaned us an aggregate amount of
approximately $660,000; and (iii) and Capretti Grandi, LLC, an investment
partnership of which Dr. Rosenwald is the managing member, has loaned us an
aggregate amount of approximately $50,000. The loans from PBS, the
Family Trusts and Capretti are evidenced by the PBS Note, the Family Trusts Note
and the Capretti Note, respectively, which together are referred to herein as
the Paramount Notes. Pursuant to the PBS Note, the principal amount
of all loans made to us under the PBS Note, up to $1,000,000, immediately and
automatically converted into an 8% Note. As such, in February 2010,
we issued PBS an 8% Note in the aggregate principal amount of
$1,000,000. In connection with the issuance of the 8% Notes, PBS also
received 8% Noteholder Warrants. The Paramount Notes are unsecured
obligations of ours with a maturity date of September 30, 2010 and accrue
interest at the rate of 8% per annum. As of December 31, 2009,
$2,309,107, including accrued and unpaid interest, was outstanding under the PBS
Note, $793,761, including accrued and unpaid interest, was outstanding under the
Family Trusts Note, and $52,589, including accrued and unpaid interest, was
outstanding under the Capretti Note. All outstanding principal of the
Paramount Notes, and all accrued interest thereon, will automatically convert
into the securities issued in a Qualified Financing on the same terms as the 10%
Notes. This offering, if consummated, will be considered a Qualified
Financing. Assuming an offering price of $
per Unit (the mid-point of the price range
set forth on the cover page of this prospectus), the Paramount Notes will
automatically convert into
Units.
PCP
Notes and Warrants
On each
of January 15, 2009 and June 24, 2009, we issued a senior promissory note to PCP
in the principal amount of $2,750,000 and $125,000, respectively, each referred
to herein as a PCP Note, and together, the PCP Notes. The PCP Notes
are unsecured obligations of ours with current maturity dates of the earlier of
(i) December 31, 2013, (ii) the completion of a Qualified Financing (as defined
below), and (iii) the completion of a Reverse Merger (as defined
below). The PCP Notes accrue interest at the rate of 10% per
annum. The aggregate amount of accrued and unpaid interest under the
PCP Notes as of December 31, 2009 was $205,811.
For
purposes of the PCP Notes, “Qualified Financing” means the closing of an equity
financing or series of related equity financings by us resulting in aggregate
gross cash proceeds (before brokers’ fees or other transaction related expenses)
of at least $10,000,000. For purposes of the PCP Notes, “Reverse
Merger” means a merger, share exchange or other transaction or series of related
transactions in which (a) we merge into or otherwise becomes a wholly owned
subsidiary of a company subject to the public company reporting requirements of
the Exchange Act and (b) the aggregate consideration payable to us or our
stockholders in such transaction(s) (the “Reverse Merger Consideration”) is
greater than or equal to $10,000,000. This offering, if consummated,
will be considered a Qualified Financing.
In
connection with the issuance of the PCP Notes, we issued to PCP five-year
warrants to purchase a number of shares of common stock equal to 40% of the
aggregate principal amount of the PCP Notes ($2,875,000), divided by the lowest
price paid in a Qualified Financing, each referred to herein as a PCP Warrant,
and together, the PCP Warrants. The per share exercise price of each
of the PCP Warrants is equal to 110% of the lowest price paid in a Qualified
Financing.
If we
complete a Reverse Merger, other than in connection with a Qualified Financing,
the PCP Warrants will be exercisable immediately prior to the Reverse Merger for
a number of shares of common stock and exercise price determined in accordance
with, and on the same terms and conditions, as provided for in the event of a
Qualified Financing, except that the lowest price paid will be deemed equal to
the quotient obtained by dividing the Reverse Merger Consideration (less the
amount of unpaid principal and accrued interest under the applicable PCP Note)
by the number of shares of common stock outstanding immediately prior to such
Reverse Merger, on a fully diluted basis (without giving effect to the
conversion of the PCP Notes or any other senior promissory notes or any
placement warrants issued by us).
The PCP
Warrants will become exercisable commencing on the consummation of a Qualified
Financing or a Reverse Merger. However, in the event that neither a
Qualified Financing nor a Reverse Merger is consummated by the two-year
anniversary of the issuance of each PCP Note, the applicable PCP Warrant will be
automatically exercisable into an aggregate number of shares of common stock
equal to 40% of the principal amount of the corresponding PCP Note divided by
$1.00, at a per share exercise price of $1.00. The PCP Warrants are
subject to redemption by us in certain circumstances and in the event of a sale
of our company (whether by merger, consolidation, sale or transfer of our
capital stock or assets or otherwise) prior to, but not in connection with, a
Qualified Financing or Reverse Merger, the PCP Warrants will terminate without
the opportunity for exercise.
Placement
Agent Commission and Warrants
Paramount
received as compensation for serving as the lead placement agent in connection
with the offering of the 10% Notes, (i) $198,800 in commissions (a portion of
which was further paid to a selected dealer in the offering of the 10% Notes),
and (ii) a warrant exercisable for such number of shares of common stock equal
to 10% of the amount of the aggregate purchase price of the 10% Notes
($4,340,000), divided by the lowest price paid in a Qualified Financing,
referred to herein as the Placement Agent Warrant. Because a
Qualified Financing was not consummated by December 14, 2009, the Placement
Agent Warrant became automatically exercisable into 434,000 shares of common
stock, which is equal to 10% of the aggregate purchase price of the 10% Notes
($4,340,000) divided by $1.00, at a per share exercise price of
$1.00. “Qualified Financing” has the same meaning as with respect to
the 10% Notes. A portion of the Placement Agent Warrant is allocable
to the selected dealer in the offering of the 10% Notes.
PBS
Services Agreement
On June
1, 2007, we entered into a services agreement with PBS (the “PBS Services
Agreement”). Pursuant to the PBS Services Agreement, PBS agreed to
provide us with certain drug development, professional, administrative and back
office support services for a three-year period from the date of the PBS
Services Agreement. In return for the services provided under the PBS
Services Agreement, we agreed to pay PBS $25,000 per month and to reimburse PBS
for its actual out-of-pocket expenses, which are not to exceed $5,000 per month
without our prior written consent. The PBS Services Agreement was
terminated as of August 31, 2008. As of December 31, 2009, we still
have accrued an unpaid balance to PBS of approximately $375,000 under the PBS
Services Agreement (the “PBS Debt”).
Other
Transactions
Pursuant
to the Dong Wha License Agreement, Paramount Biosciences, LLC has guaranteed the
payment in full of amounts owed by us under the Dong Wha License Agreement,
until such time as we have certifiable net tangible assets of at least $10
million. This offering, if consummated, would cause the guarantee to
terminate according to its terms.
In July
2007, we entered into an exclusive worldwide sublicense agreement with Santee
Biosciences, Inc., an affiliate of ours and of Paramount. See
“License Agreements & Intellectual Property.”
J. Jay
Lobell, our director, and Timothy Hofer, our Corporate Secretary, are employees
of Paramount Biosciences, LLC and its affiliates.
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of April 14, 2010, as adjusted to reflect the
sale of the shares of common stock in this offering and the other adjustments
discussed below, by the following:
|
·
|
each
of our directors and Named Executive
Officers;
|
|
·
|
all
of our directors and executive officers as a group;
and
|
|
·
|
each
person, or group of affiliated persons, known to us to beneficially own 5%
or more of our outstanding common
stock.
|
Beneficial
ownership is determined in accordance with SEC rules and generally includes
voting or investment power with respect to securities. Unless otherwise
indicated, the stockholders listed in the table have sole voting and investment
power with respect to the shares indicated.
The table
below lists the number of shares and percentage of shares beneficially owned
prior to this offering based on 4,479,729 of common stock issued and outstanding
as of April 14, 2010. The table also lists the number of shares and percentage
of shares beneficially owned after this offering based
on shares
of common stock outstanding upon completion of this offering, assuming no
exercise by the underwriters of their over-allotment option and after giving
effect to the following:
|
·
|
the
automatic conversion of all of our outstanding convertible notes into an
aggregate of Units
and shares of common stock
upon the completion of this offering, assuming an initial public offering
price of $ per Unit (the mid-point of
the price range set forth on the cover page of this prospectus) and
assuming the conversion occurs
on ,
2010;
|
|
·
|
the
filing of our amended and restated certificate of incorporation and the
adoption of our amended and restated by-laws effective upon the completion
of this offering;
|
|
·
|
no
exercise of warrants or options outstanding on the date of this
prospectus, except as specifically set forth herein;
and
|
|
·
|
a 1
for reverse stock split of
our common stock to be effected prior to the completion of this
offering.
|
For
purposes of the table below, we treat shares of common stock subject to options
or warrants that are currently exercisable or exercisable within 60 days after
April 14, 2010 to be outstanding and to be beneficially owned by the person
holding the options or warrants for the purpose of computing the percentage
ownership of the person, but we do not treat the shares as outstanding for the
purpose of computing the percentage ownership of any other
stockholder.
Except as
otherwise set forth below, the address of each of the persons or entities listed
in the table is c/o IASO Pharma Inc., 12707 High Bluff Drive,
Suite 200, San Diego, California 92130.
|
Shares
Beneficially Owned
Prior
to Offering
|
Shares
Beneficially Owned
After
the Offering
|
|||||||||
|
Name
|
Number
|
Percentage
|
Number
|
Percentage
|
||||||
|
Named Executive Officers and Directors:
|
||||||||||
|
Matthew A. Wikler, M.D.
|
309,382 | 6.9 | % | |||||||
|
Mark. W. Lotz
|
72,000 | (1) | 1.6 | % | ||||||
|
James
Rock
|
41,251 | * | ||||||||
|
J.
Jay Lobell
|
300,000 | 6.7 | % | |||||||
|
All executive officers and directors as a group (four
persons)
|
722,633 | (2) | 15.9 | % | ||||||
|
5%
Stockholders:
|
||||||||||
|
Lindsay A. Rosenwald, M.D.
|
1,664,002 | (3) | 37.1 | % | ||||||
|
Lester E. Lipschutz
|
1,000,000 | (4) | 22.3 | % | ||||||
|
Robert
Feldman
|
300,000 | (5) | 6.3 | % | ||||||
________________________
*Represents
less than 1%
|
(1)
|
Represents
an option to purchase 72,000 shares of our common
stock.
|
|
(2)
|
Includes
650,633 shares of common stock and an option to purchase 72,000 shares of
common stock.
|
|
(3)
|
Does
not include (i) shares of common stock underlying the $500,000 principal
amount of 8% Notes held by Dr. Rosenwald and any accrued but unpaid
interest thereon, (ii) 1,000,000 shares of common stock held in trusts
established for the benefit of Dr. Rosenwald and his family referred to in
note 5 below and (iii) 434,000 shares of common stock underlying the
Placement Agent Warrant issued to Paramount BioCapital, Inc., of which Dr.
Rosenwald is Chairman, Chief Executive Officer and the sole
stockholder.
|
|
(4)
|
Represents
shares of common stock owned by the Family Trusts, which are four trusts
established for the benefit of Dr. Rosenwald and his
family. Mr. Lipschutz is the trustee of the Family Trusts and
may be deemed to beneficially own the shares held by the Family Trusts as
he has sole control over the voting and disposition of any shares held by
the Family Trusts.
|
|
(5)
|
Represents
shares of common stock underlying the Consultant
Warrant.
|
General
Currently,
our authorized capital stock consists of 25,000,000 shares, of which (i)
20,000,000 are designated as common stock, par value $0.001 per share, and (ii)
5,000,000 are designated as preferred stock, par value $0.001 per
share. Upon the completion of this offering and filing of our amended
and restated certificate of incorporation, our authorized capital stock will
consist of shares, of which (i)
shares will be designated as common stock,
and (ii) shares will be designated as
preferred stock, par value $0.001 per share.
The
following description of our capital stock are summaries and are qualified by
reference to the amended and restated certificate of incorporation and amended
and restated by-laws that will be in effect upon completion of this offering.
Copies of these documents will be filed with the SEC as exhibits to our
registration statement, of which this prospectus forms a part. The descriptions
of the common stock and preferred stock reflect changes to our capital structure
that will occur upon the closing of this offering.
Units
Each Unit
consists of two shares of common stock and a warrant to purchase one share of
common stock. The Units will begin trading on or promptly after the
date of this prospectus. The Units will automatically separate and
each of the common stock and warrants will trade separately on the 60th day
after the date of this prospectus, unless Maxim, the representative of the
underwriters, determines that an earlier date is acceptable based on its
assessment of the relative strengths of the securities markets and small
capitalization companies in general, and the trading pattern of, and demand for,
our securities in particular. If Maxim permits separate trading of the common
stock and warrants prior to the 60th day after the date of this prospectus, we
will issue a press release and file a Current Report on Form 8-K with the
Securities and Exchange Commission announcing when such separate trading will
begin.
Common
Stock
As of
April 14, 2010, there were 4,479,729 shares of common stock issued and
outstanding, that were held of record by 59 stockholders.
Holders
of common stock are entitled to one vote per share on matters on which our
stockholders vote. There are no cumulative voting
rights. Subject to any preferential dividend rights of any
outstanding shares of preferred stock, holders of common stock are entitled to
receive dividends, if declared by our Board of Directors, out of funds that we
may legally use to pay dividends. If we liquidate or dissolve,
holders of common stock are entitled to share ratably in our assets once our
debts and any liquidation preference owed to any then-outstanding preferred
stockholders are paid. Our certificate of incorporation does not
provide the common stock with any redemption, conversion or preemptive
rights. All shares of common stock that are outstanding as of the
date of this prospectus and, upon issuance and sale, all shares we are selling
in this offering, will be fully-paid and nonassessable.
Warrants
to Be Issued as Part of the Units
Each
warrant entitles the registered holder to purchase one share of our common stock
at a price equal to 110% of the offering price of the common stock underlying
Units. The warrants may only be exercised for cash. The
warrants will expire five years from the date of this prospectus at 5:00 p.m.,
New York City time. We may call the warrants issued as a part of the
Units for redemption as follows:
|
·
|
at
a price of $0.01 for each warrant at any time while the warrants are
exercisable, so long as a registration statement relating to the common
stock issuable upon exercise of the warrants is effective and
current;
|
|
·
|
upon
not less than 30 days prior written notice of redemption to each warrant
holder; and
|
|
·
|
if,
and only if, the reported last sale price of the common stock equals or
exceeds $ per share for any 20
trading days within a 30 consecutive trading day period ending on the
third business day prior to the notice of redemption to warrant
holders.
|
If the
foregoing conditions are satisfied and we call the warrants for redemption, each
warrant holder will then be entitled to exercise his or her warrant prior to the
date scheduled for redemption. However, there can be no assurance
that the price of the common stock will exceed the call price or the warrant
exercise price after the redemption call is made.
The
warrants will be issued in registered form under a warrant agreement between
, as warrant agent, and us. You
should review a copy of the warrant agreement, which has been filed as an
exhibit to the registration statement of which this prospectus is a part, for a
complete description of the terms and conditions applicable to the
warrants.
The
exercise price and number of shares of common stock issuable on exercise of the
warrants may be adjusted in certain circumstances, including but not limited to
in the event of a stock split, stock dividend, recapitalization, reorganization,
merger or consolidation. However, the warrants will not be adjusted
for the issuances of common stock or securities convertible or exercisable into
common stock at a price below their respective exercise prices.
The
warrants may be exercised upon surrender of the warrant certificate on or prior
to the expiration date at the offices of the warrant agent, with the exercise
form on the reverse side of the warrant certificate completed and executed as
indicated, accompanied by full payment of the exercise price, by certified check
payable to us, for the number of warrants being exercised. The
warrant holders do not have the rights or privileges of holders of common stock
and any voting rights until they exercise their warrants and received shares of
common stock. After issuance of shares of common stock upon exercise
of the warrants, each holder will be entitled to one vote for each share held of
record on all matters to be voted on by stockholders.
No
warrants will be exercisable unless at the time of exercise a prospectus
relating to common stock issuable upon exercise of the warrants is current and
the common stock has been registered or qualified or deemed to be exempt under
the securities laws of the state of residence of the holder of the
warrants. Under the terms of the warrant agreement, we have agreed to
meet these conditions and use our best efforts to maintain a current prospectus
relating to common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, we cannot assure you that we
will be able to do so, and if we do not maintain a current prospectus related to
the common stock issuable upon exercise of the warrants, holders will be unable
to exercise their warrants and we will not be required to settle any such
warrant exercise. If the prospectus relating to the common stock
issuable upon the exercise of the warrants is not current or if the common stock
is not qualified or exempt from qualification in the jurisdictions in which the
holders of the warrants reside, we will not be required to net cash settle or
cash settle the warrant exercise, the warrants may have no value, the market for
the warrants may be limited and the warrants may expire worthless.
Underwriters’
Warrant
We have
also agreed to issue to the underwriters a warrant to purchase a number of
shares of our common stock equal to an aggregate of 8% of the Units sold in this
offering. The warrant will have an exercise price equal to 110% of
the offering price of the Units sold in this offering and may be exercised on a
cashless basis. The warrant is exercisable commencing six months
after the effective date of the registration statement related to this offering,
and will be exercisable for four and a half years thereafter. The
warrant is not redeemable by us. The warrant also provides one demand
registration of the shares of common stock underlying the warrants at our
expense, an additional demand at the warrant holder’s expense and for unlimited
“piggyback” registration rights at our expense with respect to the underlying
shares of common stock during the five-year period commencing six months after
the effective date. The warrant and the
Units (including the shares of common stock
and warrants underlying the Units) have been deemed compensation by the
Financial Industry Regulatory Authority (“FINRA”) and are therefore subject to a
180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The
underwriters (or permitted assignees under the Rule) may not sell, transfer,
assign, pledge, or hypothecate the warrant or the securities underlying the
warrant, except to any underwriter and selected dealer participating in the
offering and their bona fide officers or partners, nor will they engage in any
hedging, short sale, derivative, put, or call transaction that would
76
result in
the effective economic disposition of the warrant or the underlying securities
for a period of 180 days from the date of this
prospectus. Additionally, the warrant may not be sold transferred,
assigned, pledged or hypothecated for a one-year period (including the foregoing
180 day period) following the effective date of the registration statement
except to any underwriter and selected dealer participating in the offering and
their bona fide officers or partners. The warrant will provide for
adjustment in the number and price of such warrant (and the shares of common
stock and warrants underlying such warrant) in the event of recapitalization,
merger or other structural transaction to prevent mechanical
dilution.
Preferred
Stock
The Board
of Directors has the authority at any time to establish the rights and
preferences of, and issue up to, 5,000,000 shares of preferred stock, of which
none currently have designation. Our amended and restated certificate
of incorporation, which will be effective upon the completion of this offering,
will provide for shares of preferred stock
over which the Board of Directors will have the authority to establish the
rights and preferences.
Convertible
Notes
10%
Notes
In
December of 2007, we issued a series of convertible promissory notes in the
aggregate principal amount of $4,340,000, referred to herein as the 10%
Notes. The 10% Notes are unsecured obligations of ours with a
maturity date of September 30, 2010 and accrue interest at the rate of 10% per
annum. The aggregate amount of accrued and unpaid interest under the
10% Notes as of December 31, 2009 was $800,730.
Originally,
the 10% Notes had a maturity date of December 14, 2008 and an interest rate of
8% per annum. Pursuant to the terms of the 10% Notes, in December
2008, we extended the maturity date to December 14, 2009 in exchange for an
increase in the interest rate to 10% per annum. Pursuant to an
amendment agreement dated as of December 14, 2009, we further extended the
maturity date to September 30, 2010. Also pursuant to the amendment
agreement, a cash premium equal to 42.8571% of the aggregate principal amount
plus all accrued and unpaid interest on the 10% Notes was added in the event the
10% Notes become due and payable prior to the consummation by us of a Qualified
Financing, reverse merger, sale of the company or other
transaction.
The
outstanding principal amount of the 10% Notes, and all accrued interest thereon,
will automatically convert into Units at a conversion price equal to 70% of the
lowest per unit price at which our equity securities are sold in a Qualified
Financing, upon the terms and conditions on which such securities are issued in
the Qualified Financing. For purposes of the 10% Notes, “Qualified
Financing” means the sale of our equity securities in an equity financing or
series of related equity financings in which we receive (minus the amount of
aggregate gross cash proceeds to us from our arm’s length sale of equity or debt
securities, or incurrence of new loans, after December 14, 2009) aggregate gross
proceeds of at least $10,000,000 (before brokers’ fees or other transaction
related expenses, and excluding any such proceeds resulting from any conversion
of the 10% Notes). This offering, if consummated, will be considered
a Qualified Financing. Assuming an offering price of
$ per Unit, the 10% Notes will
automatically convert
into Units.
8%
Notes
In
February and March 2010, we issued another series of convertible promissory
notes in the aggregate principal amount of $4,343,000, referred to herein as the
8% Notes. The 8% Notes are unsecured obligations of ours with a
maturity date of February 9, 2012 and accrue interest at the rate of 8% per
annum.
The
outstanding principal amount of the 8% Notes, and all accrued interest thereon,
will automatically convert into shares of common stock upon the completion of a
Qualified IPO. For purposes hereof, “Qualified IPO” means the
completion of an underwritten initial public offering of units consisting of
shares of common stock and warrants to purchase common stock by us resulting in
aggregate gross cash proceeds (before commissions or other expenses) to us of at
least $10,000,000. This offering, if consummated, will be considered
a Qualified IPO. Assuming an offering price of
$ per Unit, the 8% Notes will
automatically convert into shares
of common stock at a conversion price equal to 70% of the portion of the price
of the Units sold in this offering that is allocated to the common
stock.
PCP
Notes
On each
of January 15, 2009 and June 24, 2009, we issued a senior promissory note to PCP
in the principal amount of $2,750,000 and $125,000, respectively, each referred
to herein as a PCP Note, and together, the PCP Notes. The PCP Notes
are unsecured obligations of ours with current maturity dates of the earlier of
(i) December 31, 2013, (ii) the completion of a Qualified Financing (as defined
below), and (iii) the completion of a Reverse Merger (as defined
below). The PCP Notes accrue interest at the rate of 10% per
annum. The aggregate amount of accrued and unpaid interest under the
PCP Notes as of December 31, 2009 was $205,811.
For
purposes of the PCP Notes, “Qualified Financing” means the closing of an equity
financing or series of related equity financings by us resulting in aggregate
gross cash proceeds (before brokers’ fees or other transaction related expenses)
of at least $10,000,000. For purposes of the PCP Notes, “Reverse
Merger” means a merger, share exchange or other transaction or series of related
transactions in which (a) we merge into or otherwise becomes a wholly owned
subsidiary of a company subject to the public company reporting requirements of
the Exchange Act and (b) the aggregate consideration payable to us or our
stockholders in such transaction(s) (the “Reverse Merger Consideration”) is
greater than or equal to $10,000,000. This offering, if consummated,
will be considered a Qualified Financing.
Paramount
Notes
From
December 1, 2006 through December 31, 2009, Paramount Biosciences, LLC had
loaned us an aggregate principal amount of $2,067,205, from December 1, 2006
through December 31, 2009, the Family Trusts had loaned us an aggregate
principal amount of $660,000, and from December 18, 2008 through December 31,
2009, Capretti had loaned us an aggregate principal amount of
$50,000. The loans from PBS, the Family Trusts and Capretti are
evidenced by the PBS Note, the Family Trusts Note and the Capretti Note,
respectively, which together are referred to herein as the Paramount
Notes. Pursuant to the PBS Note, the principal amount of all loans
made to us under the PBS Note, up to $1,000,000, immediately and automatically
converted into an 8% Note. As such, in February 2010, we issued
Paramount Biosciences, LLC an 8% Note in the aggregate principal amount of
$1,000.000. In connection with the issuance of the 8% Notes,
Paramount Biosciences, LLC also received 8% Noteholder Warrants. The Paramount
Notes are unsecured obligations of ours with a maturity date of September 30,
2010 and accrue interest at the rate of 8% per annum. As of December
31, 2009, $2,309,107, including accrued and unpaid interest, was outstanding
under the PBS Note, $793,761, including accrued and unpaid interest, was
outstanding under the Family Trusts Note, and $52,589, including accrued and
unpaid interest, was outstanding under the Capretti Note. All
outstanding principal of the Paramount Notes, and all accrued interest thereon,
will automatically convert into the securities issued in a Qualified Financing
on the same terms as the 10% Notes. This offering, if consummated,
will be considered a Qualified Financing. Assuming an offering price
of $ per Unit (the mid-point of the price
range set forth on the cover page of this prospectus), the Paramount Notes will
automatically convert into
Units.
Currently
Outstanding Warrants
All of
the warrants described below are currently outstanding and none have been
exercised.
8%
Noteholder Warrants
In
connection with the issuance of the 8% Notes, we issued five-year warrants to
the purchasers of the 8% Notes, referred to herein as the 8% Noteholder
Warrants. The 8% Noteholder Warrants entitle the holders thereof to
purchase a number of shares of common stock equal to 70% of the principal amount
of the 8% Notes divided by the price at which shares of our common stock are
sold in a Qualified IPO, at a per share exercise price equal
to the exercise price of the warrants issued in the Qualified IPO,
subject to adjustment as set forth in the warrant. If a Qualified IPO
does not occur on or before the second anniversary of the closing of the
offering of the 8% Noteholder Warrants, then each warrant will be exercisable
for that number of shares of common stock equal to 70% of the principal amount
of the note purchased by the original holder divided by $1.00, at a per share
exercise price of $1.00. In the event of a sale of our company
(whether by merger, consolidation, sale or transfer of more than 50% of our
capital stock or all or substantially all of our assets), the 8% Noteholder
Warrants will terminate 90 after such sale provided that the holders have the
right to exercise the 8% Noteholder Warrants during such 90-day
period. “Qualified
78
IPO” has
the same meaning as with respect to the 8% Notes. Assuming an
offering price of $ per Unit, the 8%
Noteholder Warrants will entitle the holders thereof to
purchase shares of common stock at an
exercise price equal to 110% of the portion of the price of the Units sold in
this offering that is allocated to the common stock.
PCP
Warrants
In
connection with the issuance of the PCP Notes, we issued to PCP five-year
warrants to purchase a number of shares of common stock equal to 40% of the
aggregate principal amount of the PCP Notes ($2,875,000), divided by the lowest
price paid in a Qualified Financing, each referred to herein as a PCP Warrant,
and together, the PCP Warrants. The per share exercise price of each
of the PCP Warrants is equal to 110% of the lowest price paid in a Qualified
Financing.
If we
complete a Reverse Merger, other than in connection with a Qualified Financing,
the PCP Warrants will be exercisable immediately prior to the Reverse Merger for
a number of shares of common stock and exercise price determined in accordance
with, and on the same terms and conditions, as provided for in the event of a
Qualified Financing, except that the lowest price paid will be deemed equal to
the quotient obtained by dividing the Reverse Merger Consideration (less the
amount of unpaid principal and accrued interest under the applicable PCP Note)
by the number of shares of common stock outstanding immediately prior to such
Reverse Merger, on a fully diluted basis (without giving effect to the
conversion of the PCP Notes or any other senior promissory notes or any
placement warrants issued by us).
The PCP
Warrants will become exercisable commencing on the consummation of a Qualified
Financing or a Reverse Merger. However, in the event that neither a
Qualified Financing nor a Reverse Merger is consummated by the two-year
anniversary of the issuance of each PCP Note, the applicable PCP Warrant will be
automatically exercisable into an aggregate number of shares of common stock
equal to 40% of the principal amount of the corresponding PCP Note divided by
$1.00, at a per share exercise price of $1.00. The PCP Warrants are
subject to redemption by us in certain circumstances and in the event of a sale
of our company (whether by merger, consolidation, sale or transfer our capital
stock or assets or otherwise) prior to, but not in connection with, a Qualified
Financing or Reverse Merger, the PCP Warrants will terminate without the
opportunity for exercise.
For
purposes of the PCP Warrants, “Qualified Financing,” “Reverse Merger,” and
“Reverse Merger Consideration” have the same meaning as with respect to the PCP
Notes.
Placement
Agent Warrant
Paramount
received, as partial compensation for its services in connection with the
offering of the 10% Notes, the Placement Agent Warrant, which is a warrant
exercisable for such number of shares of common stock equal to 10% of the amount
of the aggregate purchase price of the 10% Notes ($4,340,000), divided by the
lowest price paid in a Qualified Financing, referred to herein as the Placement
Agent Warrant. Because the Qualified Financing was not consummated by
December 14, 2009, the Placement Agent Warrant became automatically exercisable
into 434,000 shares of common stock, which is equal to 10% of the aggregate
purchase price of the 10% Notes ($4,340,000) divided by $1.00, at a per share
exercise price of $1.00. “Qualified Financing” has the same meaning
as with respect to the 10% Notes. A portion of the Placement Agent
Warrant is allocable to the selected dealer in the offering of the 10%
Notes.
Consultant
Warrant
In
September 2007, Robert Feldman, a former employee of Paramount, received as
compensation for certain services provided in connection with the in-licensing
of certain of our product candidates, the Consultant Warrant, which is a warrant
currently exercisable into 300,000 shares of common stock at a purchase price of
$0.95 per share, subject to adjustment. The Consultant Warrant
expires on September 27, 2012.
Registration
Rights
10%
Notes and 8% Notes
Holders
of Units, received upon conversion of our
outstanding 10% Notes upon completion of this offering, have rights, under the
terms of the purchase agreements between us and these holders, to require us to
file registration statements under the Securities Act, subject to limitations
and restrictions, or request that their Units be covered by a registration
statement that we are otherwise filing, subject to specified
exceptions.
Similarly,
holders of shares of our common
stock, received upon conversion of our outstanding 8% Notes upon completion of
this offering, have rights, under the terms of the purchase agreements between
us and these holders, to require us to file registration statements under the
Securities Act, subject to limitations and restrictions, or request that their
shares of common stock be covered by a registration statement that we are
otherwise filing, subject to specified exceptions.
We refer
to the Units or shares of common stock issuable upon conversion of our 10% Notes
or 8% Notes, as the case may be, as registrable securities. The purchase
agreements for our 10% Notes and 8% Notes do not provide for any liquidated
damages, penalties or other rights in the event we do not file a registration
statement. These rights will continue in effect following this
offering.
Demand
Registration Rights
At any
time after 180 days following the effective date of this registration statement,
subject to certain exceptions, (a) the holders of a majority of the registrable
securities issuable upon the conversion of our 10% Notes have the right to
demand that we file a registration statement covering the offering and sale of
at least 51% of the registrable securities issuable upon the conversion of our
10% Notes then outstanding and (b) the holders of a majority of the registrable
securities issuable upon the conversion of our 8% Notes have the right to demand
that we file a registration statement covering the offering and sale of at least
51% of the registrable securities issuable upon the conversion of our 8% Notes
then outstanding.
We have
the ability to delay the filing of such registration statement under specified
conditions, such as during the period starting with the date of filing of and
ending on the date 180 days following the effective date of this offering or if
our Board of Directors determines that it is advisable to delay such filing or
if we are in possession of material nonpublic information that would be in our
best interests not to disclose. Postponements at the discretion of our Board of
Directors cannot exceed 90 days from the date of such determination by our Board
of Directors. We are not obligated to file such registration statement on more
than one occasion upon the request of the holders of a majority of the
registrable securities issuable upon the conversion of our 10% Notes, and we are
not obligated to file such registration statement on more than one occasion upon
the request of the holders of a majority of the registrable securities issuable
upon the conversion of our 8% Notes.
Form
S-3 Registration Rights
If we are
eligible to file a registration statement on Form S-3, the holders of the
registrable securities issuable upon the conversion of our 10% Notes and the
holders of the registrable securities issuable upon the conversion of our 8%
Notes each have the right, on one or more occasions, to request registration on
Form S-3 of the sale of the registrable securities held by such holder provided
such securities are anticipated to have an aggregate sale price (before
deducting any underwriting discounts and commissions) of at least
$5,000,000.
We have
the ability to delay the filing of any such registration statement under the
same conditions as described above under “Demand Registration Rights,” and we
are not obligated to effect more than one registration of registrable securities
on Form S-3 in any twelve-month period for the holders of the registrable
securities issuable upon the conversion of our 10% Notes or more than one such
registration for the holders of the registrable securities issuable upon the
conversion of our 8% Notes.
Piggyback
Registration Rights
The
holders of the registrable securities described above have piggyback
registration rights. Under these provisions, if we register any securities for
public sale, including pursuant to any stockholder-initiated demand
registration, these holders will have the right to include their shares in the
registration statement, subject to customary exceptions. The underwriters of any
underwritten offering will have the right to limit the number of shares having
registration rights to be included in the registration statement, and piggyback
registration rights are also subject to the priority rights of stockholders
having demand registration rights in any demand registration.
Expenses
of Registration
We will
pay all registration expenses related to any demand, Form S-3 or piggyback
registration, other than underwriting discounts and commissions and any
professional fees or costs of accounting, financial or legal advisors to any of
the holders of registrable securities.
Indemnification
The
purchase agreements for our 10% Notes and 8% Notes contain customary
cross-indemnification provisions, under which we are obligated to indemnify the
selling stockholders in the event of material misstatements or omissions in the
registration statement attributable to us, and each selling stockholder is
obligated to indemnify us for material misstatements or omissions in the
registration statement due to information provided by such stockholder provided
that such information was not changed or altered by us.
Anti-Takeover
Effects of Delaware Law and Our Corporate Charter Documents
Delaware
Law
We are
subject to the provisions of Section 203 of the DGCL. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a three-year period
following the time that this stockholder becomes an interested stockholder,
unless the business combination is approved in a prescribed manner. A
“business combination” includes, among other things, a merger, asset or stock
sale or other transaction resulting in a financial benefit to the interested
stockholder. An “interested stockholder” is a person who, together with
affiliates and associates, owns, or did own within three years prior to the
determination of interested stockholder status, 15% or more of the corporation’s
voting stock. Under Section 203, a business combination between a corporation
and an interested stockholder is prohibited unless it satisfies one of the
following conditions:
|
·
|
before
the stockholder became interested, the Board of Directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested
stockholder;
|
|
·
|
upon
completion of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the voting
stock outstanding shares owned by persons who are directors and also
officers, and employee stock plans, in some instances;
or
|
|
·
|
at
or after the time the stockholder became interested, the business
combination was approved by the Board of Directors of the corporation and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock
which is not owned by the interested
stockholder.
|
Our
Corporate Charter Documents
Our
amended and restated certificate of incorporation and amended and restated
bylaws will include provisions that are intended to enhance the likelihood of
continuity and stability in our Board of Directors and in its
policies. These provisions might have the effect of delaying or
preventing a change in control of our company even if such transaction could be
beneficial to the interests of stockholders. These provisions include the
following:
|
·
|
prohibiting
our stockholders from fixing the number of our directors;
and
|
|
·
|
establishing
advance notice requirements for stockholder proposals that can be acted on
at stockholder meetings and nominations to our Board of
Directors.
|
Transfer
Agent and Registrar
Upon the
completion of this offering, the transfer agent and registrar for our Units,
common stock and warrants will be
.
Listing
We intend
to apply to have our Units, as well as our common stock and warrants underlying
the Units, listed on NYSE Amex under the
symbols , ,
and ,
respectively. The Units will begin trading on or promptly after the
date of this prospectus. The Units will automatically separate and
each of the common stock and warrants will trade separately on the 60th day
after the date of this prospectus, unless Maxim, the representative of the
underwriters, determines that an earlier date is acceptable based on its
assessment of the relative strengths of the securities markets and small
capitalization companies in general, and the trading pattern of, and demand for,
our securities in particular. If Maxim permits separate trading of
the common stock and warrants prior to the 60th day after the date of this
prospectus, we will issue a press release and file a Current Report on Form 8-K
with the SEC announcing when such separate trading will begin.
Prior to
this offering, there has been no public market for our common stock, and we
cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this offering
due to certain contractual and securities law restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could cause the prevailing market price to decline and limit
our ability to raise equity capital in the future.
Upon
completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no
exercise of the underwriters’ option to purchase additional shares and no
exercise of options or warrants to purchase common stock that were outstanding
as of the date of this prospectus. The shares of common stock being sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act.
The
remaining shares of common stock held by
existing stockholders are restricted securities as that term is defined in Rule
144 under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Section 4(1), or Rules 144 or 701 promulgated under the Securities Act,
which rules are summarized below.
The
following table shows approximately when the
shares of our common stock that are not
being sold in this offering, but which will be outstanding when this offering is
complete, will be eligible for sale in the public market:
|
Days
After Date of this Prospectus
|
Shares
Eligible for Sale
|
Comment
|
|
Upon
Effectiveness
|
|
Shares
sold in this offering
|
|
90
Days
|
|
Shares
saleable under Rules 144 and 701 that are not subject to the
lock-up
|
|
180
Days
|
|
Lock-up
released, subject to extension; shares saleable under Rules 144 and
701
|
Resale of
of the restricted shares that will become
available for sale in the public market starting 180 days after the effective
date will be limited by volume and other resale restrictions under Rule 144
because the holders are our affiliates.
Rule
144
The
availability of Rule 144 will vary depending on whether restricted shares are
held by an affiliate or a non-affiliate. Under Rule 144 as in effect on the date
of this prospectus, once we have been a reporting company subject to the
reporting requirements of Section 13 or Section 15(d) of the Exchange Act for 90
days, an affiliate who has beneficially owned restricted shares of our common
stock for at least six months would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of either of the
following:
|
·
|
1%
of the number of shares of common stock then outstanding, which will equal
shares immediately after this
offering; and
|
|
·
|
the
average weekly trading volume of our common stock during the four calendar
weeks preceding the filing of a notice on Form 144 with respect to the
sale.
|
However,
the six month holding period increases to one year in the event we have not been
a reporting company for at least 90 days. In addition, any sales by affiliates
under Rule 144 are also limited by manner of sale provisions and notice
requirements and the availability of current public information about
us.
The
volume limitation, manner of sale and notice provisions described above will not
apply to sales by non-affiliates. For purposes of Rule 144, a non-affiliate is
any person or entity who is not our affiliate at the time of sale and has not
been our affiliate during the preceding three months. Once we have been a
reporting company for 90 days, a non-affiliate who has beneficially owned
restricted shares of our common stock for six months may rely on Rule 144
provided that certain public information regarding us is available. The six
month holding period increases to one year in the event we have not been a
reporting company for at least 90 days. However, a non-affiliate who has
beneficially owned the restricted shares proposed to be sold for at least one
year will not be subject to any restrictions under Rule 144 regardless of how
long we have been a reporting company.
Rule
701
Under
Rule 701, common stock acquired upon the exercise of certain currently
outstanding options or pursuant to other rights granted under our stock plans
may be resold, to the extent not subject to lock-up agreements, (a) by persons
other than affiliates, beginning 90 days after the effective date of this
offering, subject only to the manner-of-sale provisions of Rule 144, and (b) by
affiliates, subject to the manner-of-sale, current public information and filing
requirements of Rule 144, in each case, without compliance with the one-year
holding period requirement of Rule 144. All Rule 701 shares will be, however,
subject to lock-up agreements and will only become eligible for sale upon the
expiration of the contractual lock-up agreements. Maxim may release all or any
portion of the securities subject to lock-up agreements.
Lock-Up
Agreements
Prior to
the completion of this offering, we and each of our officers, directors, and
greater than % stockholders will agree,
subject to certain exceptions, not to offer, issue, sell, contract to sell,
encumber, grant any option for the sale of or otherwise dispose of any shares of
our common stock or other securities convertible into or exercisable or
exchangeable for shares of our common stock for a period of 180 days after the
effective date of the registration statement of which this prospectus is a part
without the prior written consent of Maxim. This 180-day restricted period will
be automatically extended if: (1) during the last 17 days of the 180-day
restricted period we issue an earnings release or announce material news or a
material event; or (2) prior to the expiration of the 180-day restricted period,
we announce that we will release earnings results during the 16-day period
following the last day of the 180-day period, in which case the restrictions
described in the preceding paragraph will continue to apply until the expiration
of the 18-day period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
In
addition, the holders of our 10% Notes and our 8% Notes have agreed pursuant to
the purchase agreements for our 10% Notes and our 8% Notes not to sell the Units
or shares of our common stock they receive upon conversion of our 10% Notes or
8% Notes for a period of 180 days after the effective date of the registration
statement of which this prospectus is a part.
Registration
Rights
After the
completion of this offering, the holders of
shares of our common stock and holders of
Units will be entitled to the registration rights described in the section
titled “Description of Capital Stock — Registration Rights.” All such shares are
or will be covered by lock-up agreements. Following the expiration of the
lock-up period, registration of these shares under the Securities Act would
result in the shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration, except
for shares purchased by our affiliates.
Form
S-8 Registration Statements
Prior to
the expiration of the lock-up period, we intend to file one or more registration
statements on Form S-8 under the Securities Act to register the shares of our
common stock that are issuable pursuant to our 2007 Stock Incentive
Plan. See “Executive Compensation — Equity Compensation Plan
Information” for additional information. Subject to the lock-up
agreements described above and any applicable vesting restrictions, shares
registered under these registration statements will be available for resale in
the public market immediately upon the effectiveness of these registration
statements, except with respect to Rule 144 volume limitations that apply to our
affiliates.
Subject
to the terms and conditions of the underwriting agreement, the underwriters
named below, through their representative, Maxim Group LLC, referred to herein
as Maxim, have severally agreed to purchase from us on a firm commitment basis
the following respective number of Units at a public offering price, less the
underwriting discounts and commissions set forth on the cover page of this
prospectus:
|
Underwriters
|
Number
of Units
|
|
|
Maxim
Group LLC
|
|
The
underwriting agreement provides that the obligation of the underwriters to
purchase all of the Units being offered to
the public is subject to specific conditions, including the absence of any
material adverse change in our business or in the financial markets and the
receipt of certain legal opinions, certificates and letters from us, our counsel
and the independent auditors. Subject to the terms of the
underwriting agreement, the underwriters will purchase all of the
Units being offered to the public, other
than those covered by the over-allotment option described below, if any of these
Units are purchased.
Over-Allotment
Option
We have
granted to the underwriters an option, exercisable not later than 45 days after
the effective date of the registration statement, to purchase up to
additional Units at the public offering
price less the underwriting discounts and commissions set forth on the cover of
this prospectus. The underwriters may exercise this option only to
cover over-allotments made in connection with the sale of the Units offered by
this prospectus. The over-allotment option will only be used to cover
the net syndicate short position resulting from the initial
distribution. To the extent that the underwriters exercise this
option, each of the underwriters will become obligated, subject to conditions,
to purchase approximately the same percentage of these additional Units as the
number of Units to be purchased by it in the above table bears to the total
number of Units offered by this prospectus. We will be obligated,
pursuant to the option, to sell these additional Units to the underwriters to
the extent the option is exercised. If any additional Units are
purchased, the underwriters will offer the additional Units on the same terms as
those on which the other Units are being offered hereunder.
Commissions
and Expenses
The
underwriting discounts and commissions are 10% of the initial public offering
price. We have agreed to pay the underwriters the discounts and
commissions set forth below, assuming either no exercise or full exercise by the
underwriters of the underwriters’ over-allotment option. In addition, we have
agreed to pay to the underwriters a corporate finance fee equal to 1% of the
gross proceeds of this offering as a non-accountable expense
allowance.
We have
been advised by the representative of the underwriters that the underwriters
propose to offer the Units to the public at the public offering price set forth
on the cover of this prospectus and to dealers at a price that represents a
concession not in excess of $ per Unit
under the public offering price of $ per
Unit. The underwriters may allow, and these dealers may re-allow, a
concession of not more than $ per Unit to
other dealers. After the initial public offering, the representative
of the underwriters may change the offering price and other selling
terms.
The
following table summarizes the underwriting discounts and commissions we will
pay to the underwriters. The underwriting discounts and commissions
are equal to the public offering price per share less the amount per share the
underwriters pay us for the shares.
|
Fee
per Unit (1)
|
Total
Without Exercise of Over-Allotment
|
Total
With Exercise of Over-Allotment
|
|||
|
Public
offering price
|
$
|
$
|
$
|
||
|
Discount
|
$
|
$
|
$
|
||
|
Proceeds
before expenses
|
$
|
$
|
$
|
__________
|
(1)
|
The
fees do not include the over-allotment option granted to the underwriters,
the corporate finance fee in the amount of 1% of the gross proceeds
(excluding the over-allotment proceeds), or the warrants to purchase Units
equal to 8% of the number of Units sold in the offering issuable to the
underwriters at the closing.
|
We
estimate that the total expenses of the offering, including registration, filing
and listing fees, printing fees and legal and accounting expenses, but excluding
underwriting discounts and commissions, will be approximately $
, all of which are payable by
us.
Underwriters’
Warrants
We have
also agreed to issue to the underwriters a warrant to purchase a number of our
Units equal to an aggregate of 8% of the Units sold in this
offering. The warrant will have an exercise price equal to 110% of
the offering price of the Units sold in this offering and may be exercised on a
cashless basis. The warrant is exercisable commencing six months
after the effective date of the registration statement related to this offering,
and will be exercisable for four and a half years thereafter. The
warrant is not redeemable by us. The warrant also provides for one
demand registration of the shares of common stock underlying the warrant at our
expense, an additional demand at the warrant holder’s expense and unlimited
“piggyback” registration rights at our expense with respect to the underlying
shares of common stock during the five-year period commencing six months after
the closing date. The warrant and the
Units (including the shares of common stock
and warrants underlying the Units) have been deemed compensation by FINRA and
are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of
FINRA. The underwriters (or permitted assignees under the Rule) may
not sell, transfer, assign, pledge, or hypothecate the warrant or the securities
underlying the warrant, except to any underwriter and selected dealer
participating in the offering and their bona fide officers or partners, nor will
they engage in any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of the warrant or the
underlying securities for a period of 180 days from the date of this
prospectus. Additionally, the warrant may not be sold transferred,
assigned, pledged or hypothecated for a one-year period (including the foregoing
180 day period) following the effective date of the registration statement
except to any underwriter and selected dealer participating in the offering and
their bona fide officers or partners. The warrant will provide for
adjustment in the number and price of such warrant (and the shares of common
stock and warrants underlying such warrant) in the event of recapitalization,
merger or other structural transaction to prevent mechanical
dilution.
Lock-Up
Agreements
Prior to
the completion of this offering, we and each of our officers, directors, and
greater than % stockholders will agree,
subject to certain exceptions, not to offer, issue, sell, contract to sell,
encumber, grant any option for the sale of or otherwise dispose of any shares of
our common stock or other securities convertible into or exercisable or
exchangeable for shares of our common stock for a period of 180 days after the
effective date of the registration statement of which this prospectus is a part
without the prior written consent of Maxim. This 180-day restricted
period will be automatically extended if: (1) during the last 17 days of the
180-day restricted period we issue an earnings release or announce material news
or a material event; or (2) prior to the expiration of the 180-day restricted
period, we announce that we will release earnings results during the 16-day
period following the last day of the 180-day period, in which case the
restrictions described in the preceding paragraph will continue to apply until
the expiration of the 18-day period beginning on the issuance of the earnings
release or the announcement of the material news or material event.
Pricing
of this Offering
Prior to
this offering there has been no public market for any of our securities and we
cannot be certain that an active trading market will develop and continue after
this offering. The public offering price of the Units and the terms of the
warrants were negotiated between us and Maxim. This price should not be
considered an indication of the actual value of the Units. This price
may not correspond to the price at which our shares of common stock will trade
in the public market following this offering. Factors considered in
determining the prices and terms of the Units, including the common stock and
warrants underlying the Units, include:
|
·
|
the
history and prospects of companies in our
industry;
|
|
·
|
prior
offerings of those companies;
|
|
·
|
our
prospects for developing and commercializing our
products;
|
|
·
|
our
capital structure;
|
|
·
|
an
assessment of our management and their
experience;
|
|
·
|
general
conditions of the securities markets at the time of the offering;
and
|
|
·
|
other
factors as were deemed relevant.
|
However,
although these factors were considered, the determination of our offering price
is more arbitrary than the pricing of securities for an operating company in a
particular industry since the underwriters are unable to compare our financial
results and prospects with those of public companies operating in the same
industry.
Price
Stabilization, Short Positions and Penalty Bids
Until the
distribution of the Units offered by this prospectus is completed, rules of the
SEC may limit the ability of the underwriters to bid for and to purchase our
securities. As an exception to these rules, the underwriters may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions, and penalty bids or purchases for the purpose of pegging, fixing
or maintaining the price of the common stock, in accordance with Regulation M
under the Exchange Act.
|
·
|
Over-allotment
involves sales by the underwriters of shares in excess of the number of
shares the underwriters are obligated to purchase, which creates a
syndicate short position. The short position may be either a covered short
position or a naked short position. In a covered short position, the
number of shares over-allotted by the underwriters is not greater than the
number of shares that they may purchase in the over-allotment option. In a
naked short position, the number of shares involved is greater than the
number of shares in the over-allotment option. The underwriters may close
out any short position by either exercising their over-allotment option
and/or purchasing shares in the open
market.
|
|
·
|
Stabilizing
transactions permit bids to purchase the underlying security so long as
the stabilizing bids do not exceed a specified
maximum;
|
|
·
|
Syndicate
covering transactions involve purchases of securities in the open market
after the distribution has been completed in order to cover syndicate
short positions. In determining the source of securities to close out the
short position, the underwriters will consider, among other things, the
price of securities available for purchase in the open market as compared
to the price at which they may purchase securities through the
over-allotment option. If the underwriters sell more securities than could
be covered by the over-allotment option, creating a naked short position,
the position can only be closed out by buying securities in the open
market. A naked short position is more likely to be created if the
underwriters are concerned that there could be downward pressure on the
price of the securities in the open market after pricing that could
adversely affect investors who purchase in the
offering.
|
|
·
|
Penalty
bids permit the underwriters to reclaim a selling concession from a
syndicate member when the security originally sold by the syndicate member
is purchased in a stabilizing or syndicate covering transaction to cover
syndicate short positions.
|
These
stabilizing transactions, syndicate covering transactions and penalty bids may
have the effect of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of the common stock. As
a result, the price of the common stock may be higher than the price that might
otherwise exist in the open market. These transactions may be effected in the
over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.
Neither
we nor any of the underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of our securities. In addition, neither we nor any of the
underwriters make representation that the underwriters will engage in these
stabilizing transactions or that any transaction, once commenced, will not be
discontinued without notice.
Other
Terms
The
underwriters have informed us that they do not expect to confirm sales of Units
offered by this prospectus to accounts over which they exercise discretionary
authority without obtaining the specific approval of the account
holder.
We have
also agreed that if twelve (12) months or later after the successful completion
of the offering, Maxim conducts a solicitation for the exercise of outstanding
warrants at our written request, we will pay to Maxim a cash fee equal to 3% of
the total proceeds received from the exercise of any and all warrants (other
than any warrants held by Maxim or its affiliates) as a result of such
solicitation by Maxim, provided that Maxim is designated as the soliciting
broker on the exercise form of the warrant certificate evidencing the warrants
so exercised.
The
Underwriting Agreement will provide that we will permit Maxim to either (i)
designate one individual who meets the independence criteria of NYSE Amex to
serve on our Board of Directors for the three-year period following the closing
of this offering or (ii) in the event that the individual designated by Maxim is
not elected to our Board of Directors, have a representative of Maxim attend all
meetings of our Board of Directors as an observer during such three-year period.
Such director or observer, as the case may be, will attend meetings of our Board
of Directors, receive all notices and other correspondence and communications
sent by us to our directors, and such director will receive compensation equal
to the highest compensation of other non-employee directors, excluding the
Chairman of the Audit Committee.
In
addition, we have agreed to grant to Maxim, upon the consummation of this
offering, the right of first negotiation to co-manage any public underwriting or
private placement of our debt or equity securities or the debt or equity
securities of our subsidiaries and successors (excluding (i) shares issued under
any compensation or stock option plan approved by our stockholders, (ii) shares
issued by us in payment of the consideration for an acquisition or as part of
strategic partnerships and transactions and (iii) conventional banking
arrangements and commercial debt financing), which includes the right to
underwrite or place a minimum of 50% of the securities to be sold therein, for a
period of eighteen (18) months after completion of this offering. If Maxim fails
to accept in writing any such proposal for such public or private sale within
ten (10) days after receipt of a written notice from us containing such
proposal, then Maxim will have no claim or right with respect to any such sale
contained in any such notice. If, thereafter, such proposal is modified in any
material respect, we will adopt the same procedure as with respect to the
original proposed public or private sale, and Maxim shall have the right of
first negotiation with respect to such revised proposal.
Although
we are not under any contractual obligation to engage any of the underwriters to
provide any services for us after this offering, and have no present intent to
do so, any of the underwriters may, among other things, assist us in raising
additional capital, as needs may arise in the future. If any of the underwriters
provide services to us after this offering, we may pay such underwriter fair and
reasonable fees that would be determined at that time in an arm’s length
negotiation; provided that no agreement will be entered into with any of the
underwriters and no fees for such services will be paid to any of the
underwriters prior to the date which is 90 days after the effective date of the
registration statement, unless FINRA determines that such payment would not be
deemed underwriters compensation in connection with this offering.
Indemnification
We have
agreed to indemnify the underwriters against liabilities relating to the
offering arising under the Securities Act, liabilities arising from breaches of
some or all of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
Electronic
Distribution
In
connection with this offering, the underwriters may distribute prospectuses
electronically. No forms of prospectus other than printed prospectuses and
electronically distributed prospectuses that are printable in Adobe. PDF format
will be used in connection with this offering.
A
prospectus in electronic format may be made available on the internet sites or
through other online services maintained by one or more of the underwriters
participating in this offering, or by their affiliates. In those cases,
prospective investors may view offering terms online and, depending upon the
particular underwriter, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a specific number of
shares for sale to online brokerage account holders. Any such allocation for
online distributions will be made by the representatives on the same basis as
other allocations.
Other
than the prospectus in electronic format, the information on any underwriter’s
web site and any information contained in any other web site maintained by an
underwriter is not part of the prospectus or the registration statement of which
this prospectus forms a part, has not been approved and/or endorsed by us or any
underwriter in its capacity as underwriter and should not be relied upon by
investors.
Relationships
Certain
of the underwriters or their affiliates have provided from time to time and may
in the future provide investment banking, lending, financial advisory and other
related services to us and our affiliates for which they have received and may
continue to receive customary fees and commissions.
The
validity of the shares of our common stock offered hereby will be passed upon
for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New
York. In connection with the offering of the Units, Sichenzia Ross Friedman
Ference LLP, New York, New York advised the underwriters with respect to certain
United States securities law matters.
J.H. Cohn
LLP, our independent registered public accounting firm, has audited our balance
sheets as of December 31, 2009 and 2008, and the related statements of
operations, changes in stockholders’ deficiency and cash flows for the years
ended December 31, 2009 and 2008 and the period from October 5, 2006 (inception)
to December 31, 2009, as set forth in their report, which includes an
explanatory paragraph relating to our ability to continue as a going concern. We
have included our financial statements in this prospectus and in this
registration statement in reliance on J.H. Cohn LLP’s report given on their
authority as experts in accounting and auditing.
We have
filed with the SEC a registration statement on Form S-1, including exhibits and
schedules, under the Securities Act with respect to the securities to be sold in
this offering. This prospectus does not contain all the information contained in
the registration statement. For further information with respect to us and the
securities to be sold in this offering, we refer you to the registration
statement and the exhibits and schedules attached to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. When we
make such statements, we refer you to the copies of the contracts or documents
that are filed as exhibits to the registration statement because those
statements are qualified in all respects by reference to those
exhibits.
Upon the
closing of this offering, we will be subject to the informational requirements
of the Exchange Act and we intend to file annual, quarterly and current reports,
proxy statements and other information with the SEC. You can read our SEC
filings, including the registration statement, at the SEC’s website at
www.sec.gov. You may also read and copy any document we file with the SEC at its
public reference facility at 100 F Street, N.E., Washington, D.C. 20549, on
official business days during the hours of 10:00 am to 3:00 pm.
You may
also obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference facility.
| Page | |
|
Report of Independent Registered Public Accounting
Firm.....................................................................................................................................
|
F-2
|
|
December
31, 2009 and
2008....................................................................................................................................................................................
|
F-3
|
|
Years
ended December 31, 2009 and 2008 and the period from October 5, 2006
(Inception) to December 31,
2009.................................
|
F-4
|
|
Period
from October 5, 2006 (Inception) to December 31,
2009.......................................................................................................................
|
F-5
|
|
Years
ended December 31, 2009 and 2008 and the period from October 5, 2006
(Inception) to December 31,
2009................................
|
F-6
|
|
Notes to Financial
Statements.......................................................................................................................................................................................
|
F-7
- F-16
|
The Board
of Directors and Stockholders
IASO
Pharma Inc.
We have
audited the accompanying balance sheets of IASO Pharma Inc., formerly known as
Pacific Beach BioSciences, Inc., (A Development Stage Company) as of December
31, 2009 and 2008, and the related statements of operations, changes in
stockholders’ deficiency and cash flows for the years then ended and the period
from October 5, 2006 (Inception) to December 31, 2009. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of IASO Pharma Inc. as of December 31,
2009 and 2008, and its results of operations and cash flows for the years then
ended and the period from October 5, 2006 (Inception) to December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company incurred a net loss of $4,184,511 for the year ended
December 31, 2009 and, as of that date, had a deficit accumulated during the
development stage of $15,212,388. These matters, among others, raise
substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans concerning these matters are also
described in Note 1. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ J.H.
Cohn LLP
Roseland,
New Jersey
April 14,
2010
IASO
PHARMA INC.
(A
Development Stage Company)
|
December
31, 2009
|
December
31, 2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
|
$ | 10,728 | $ | 49,643 | ||||
|
Other
current assets
|
8,535 | 10,115 | ||||||
|
Total current
assets
|
19,263 | 59,758 | ||||||
|
Office
equipment, net of accumulated depreciation of $21,340 and
$12,989
|
20,416 | 28,767 | ||||||
|
Other
assets
|
50,500 | 8,693 | ||||||
|
Total
assets
|
$ | 90,179 | $ | 97,218 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 2,037,683 | $ | 3,456,662 | ||||
|
Borrowings
under line of credit agreement
|
150,000 | 50,000 | ||||||
|
Senior
convertible notes
|
4,340,000 | - | ||||||
|
Interest
payable – senior convertible notes
|
800,730 | - | ||||||
|
Notes
payable – related parties
|
2,777,205 | - | ||||||
|
Interest
payable – related parties
|
378,252 | - | ||||||
|
Interest
payable – Paramount Credit Partners, LLC
|
205,811 | - | ||||||
|
Deferred
revenue - sublicense
|
37,714 | - | ||||||
|
Total current
liabilities
|
10,727,395 | 3,506,662 | ||||||
|
Notes
payable - Paramount Credit Partners, LLC (net of discount of
$917,451)
|
1,957,549 | - | ||||||
|
Notes
payable – related parties
|
1,876,851 | |||||||
|
Senior
convertible notes
|
4,340,000 | |||||||
|
Interest
payable – senior convertible notes
|
368,365 | |||||||
|
Interest
payable – related parties
|
221,756 | |||||||
|
Deferred
revenue - sublicense
|
616,000 | |||||||
|
Total
liabilities
|
13,300,944 | 10,313,634 | ||||||
|
Commitments
|
||||||||
|
Stockholders’
deficiency:
|
||||||||
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, none
issued
|
- | - | ||||||
|
Common
stock, $.001 par value; 20,000,000 shares authorized; 4,479,729
shares issued and outstanding at December 31, 2009 and
2008
|
4,480 | 4,480 | ||||||
|
Additional
paid-in capital
|
1,997,143 | 806,981 | ||||||
|
Deficit
accumulated during the development stage
|
(15,212,388 | ) | (11,027,877 | ) | ||||
|
Total
stockholders’ deficiency
|
(13,210,765 | ) | (10,216,416 | ) | ||||
|
Total
liabilities and stockholders’ deficiency
|
$ | 90,179 | $ | 97,218 | ||||
See
Notes to Financial Statements
IASO
PHARMA INC.
(A
Development Stage Company)
|
Year
Ended December 31, 2009
|
Year
Ended December 31, 2008
|
Period
from October 5, 2006 (Inception) to December 31,
2009
|
||||||||||
|
Operating
revenue:
|
||||||||||||
|
Sublicense
|
$ | 6,286 | $ | - | $ | 6,286 | ||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
2,470,157 | $ | 2,715,377 | 9,336,545 | ||||||||
|
General
and administrative
|
630,794 | 1,367,866 | 3,529,725 | |||||||||
|
Total
operating expenses
|
3,100,951 | 4,083,243 | 12,866,270 | |||||||||
|
Loss
from operations
|
(3,094,665 | ) | (4,083,243 | ) | (12,859,984 | ) | ||||||
|
Interest
income
|
- | 21,850 | 27,859 | |||||||||
|
Interest
expense, including amortization of debt discount and deferred financing
costs
|
(1,089,846 | ) | (1,115,730 | ) | (2,380,263 | ) | ||||||
|
Net
loss
|
$ | (4,184,511 | ) | $ | (5,177,123 | ) | $ | (15,212,388 | ) | |||
|
Basic
and diluted net loss per common share
|
$ | (0.93 | ) | $ | (1.16 | ) | ||||||
|
Weighted
average common shares outstanding –
basic
and diluted
|
4,479,729 | 4,479,729 | ||||||||||
See
Notes to Financial Statements
IASO
PHARMA INC.
(A
Development Stage Company)
Period
from October 5, 2006 (Inception) to December 31, 2009
|
Deficit
|
||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||
|
Additional
|
Stock
|
During
the
|
||||||||||||||||||||||
|
Common
Stock
|
Paid-in
|
Subscription
|
Development
|
|||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Receivable
|
Stage
|
Total
|
|||||||||||||||||||
|
Net
loss
|
$ | (243,542 | ) | $ | (243,542 | ) | ||||||||||||||||||
|
Balance
at December 31, 2006
|
(243,542 | ) | (243,542 | ) | ||||||||||||||||||||
|
Issuance
of common stock to founders and employees at $.001 per share in March and
April 2007
|
4,479,729 | $ | 4,480 | $ | (52 | ) | 4,428 | |||||||||||||||||
|
Warrants
issued to placement agent in connection with senior convertible
notes
|
$ | 358,262 | 358,262 | |||||||||||||||||||||
|
Stock-based
compensation
|
188,313 | 188,313 | ||||||||||||||||||||||
|
Net
loss
|
(5,607,212 | ) | (5,607,212 | ) | ||||||||||||||||||||
|
Balance
at December 31, 2007
|
4,479,729 | 4,480 | 546,575 | (52 | ) | (5,850,754 | ) | (5,299,751 | ) | |||||||||||||||
|
Stock
subscription receipts
|
52 | 52 | ||||||||||||||||||||||
|
Stock-based
compensation
|
260,406 | 260,406 | ||||||||||||||||||||||
|
Net
loss
|
(5,177,123 | ) | (5,177,123 | ) | ||||||||||||||||||||
|
Balance
at December 31, 2008
|
4,479,729 | 4,480 | 806,981 | (11,027,877 | ) | (10,216,416 | ) | |||||||||||||||||
|
Stock-based
compensation
|
49,247 | 49,247 | ||||||||||||||||||||||
|
Warrants
issued in connection with 10% notes to PCP
|
1,140,915 | 1,140,915 | ||||||||||||||||||||||
|
Net
loss
|
(4,184,511 | ) | (4,184,511 | ) | ||||||||||||||||||||
|
Balance
at December 31, 2009
|
4,479,729 | $ | 4,480 | $ | 1,997,143 | $ | - | $ | (15,212,388 | ) | $ | (13,210,765 | ) | |||||||||||
See
Notes to Financial Statements
IASO
PHARMA INC.
(A
Development Stage Company)
|
Year
ended December 31, 2009
|
Year
ended December 31, 2008
|
Period
from October 5, 2006 (Inception) to December 31,
2009
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (4,184,511 | ) | $ | (5,177,123 | ) | $ | (15,212,388 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Stock-based
compensation
|
49,247 | 260,406 | 497,966 | |||||||||
|
Amortization
of deferred financing costs and debt discount
|
235,464 | 637,651 | 902,554 | |||||||||
|
Interest
payable – senior convertible notes
|
432,365 | 351,969 | 800,730 | |||||||||
|
Expenses
paid on behalf of the Company satisfied through the issuance of
notes
|
354 | 314 | 263,205 | |||||||||
|
Interest
payable – related party
|
156,496 | 125,370 | 378,252 | |||||||||
|
Interest
payable – Paramount Credit Partners, LLC
|
205,811 | 205,811 | ||||||||||
|
Depreciation
|
8,351 | 8,351 | 21,340 | |||||||||
|
Amortization
of deferred revenue
|
(6,286 | ) | - | (6,286 | ) | |||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Other
current assets
|
1,580 | 214,842 | (8,535 | ) | ||||||||
|
Other
assets
|
8,693 | 9,769 | - | |||||||||
|
Accounts
payable and accrued expenses
|
(1,418,979 | ) | 1,083,078 | 2,037,683 | ||||||||
|
Deferred
revenue – sublicense
|
660,000 | - | 660,000 | |||||||||
|
Net
cash used in operating activities
|
(3,851,415 | ) | (2,485,373 | ) | (9,459,668 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of office and computer equipment
|
- | - | (41,756 | ) | ||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from notes payable to Paramount Credit Partners, LLC
|
2,875,000 | 2,875,000 | ||||||||||
|
Proceeds
from notes payable to related party
|
1,000,000 | 70,000 | 4,114,000 | |||||||||
|
Proceeds
from senior convertible notes
|
- | - | 4,340,000 | |||||||||
|
(Payments)/Credits
for deferred financing costs
|
(62,500 | ) | 50,951 | (371,328 | ) | |||||||
|
Proceeds
from utilization of line of credit
|
100,000 | 50,000 | 150,000 | |||||||||
|
Repayment
of amounts loaned under related party notes
|
(100,000 | ) | - | (1,600,000 | ) | |||||||
|
Proceeds
from receipt of stock issuances
|
- | 52 | 4,480 | |||||||||
|
Net
cash provided by financing activities
|
3,812,500 | 171,003 | 9,512,152 | |||||||||
|
Net
(decrease) / increase in cash
|
(38,915 | ) | (2,314,370 | ) | 10,728 | |||||||
|
Cash,
beginning of period
|
49,643 | 2,364,013 | - | |||||||||
|
Cash,
end of period
|
$ | 10,728 | $ | 49,643 | $ | 10,728 | ||||||
|
Supplemental
schedule of non-cash financing activities:
|
||||||||||||
|
Warrants
issued to placement agent
|
$ | - | $ | - | $ | 358,262 | ||||||
|
Warrants
issued to investors
|
$ | 1,140,915 | $ | - | $ | 1,140,915 | ||||||
|
Stock
issued to founders and employees
|
$ | - | $ | - | $ | 52 | ||||||
|
Supplemental
disclosure of cash flow data – cash paid for interest
|
$ | 59,710 | $ | 740 | $ | 60,450 | ||||||
See
Notes to Financial Statements
Note
1 — Organization, Business and Basis of Presentation:
Organization
and business:
IASO
Pharma Inc., formerly known as Pacific Beach BioSciences, Inc. (“IASO” or the
“Company”), was incorporated in the State of Delaware on October 5,
2006. The Company changed its name from Pacific Beach BioSciences,
Inc. to IASO Pharma Inc. on April 12, 2010. IASO is a
biopharmaceutical company developing therapeutics for the treatment and
prevention of infectious diseases.
Basis
of presentation:
The
Company’s primary activities since incorporation have been organizational
activities, including recruiting personnel, establishing office facilities,
acquiring licenses for its pharmaceutical compound pipeline, performing business
and financial planning, performing research and development and raising funds
through the issuance of debt and common stock. The Company’s planned
principal operations have not yet commenced; accordingly, the Company is
considered to be in the development stage.
The
Company’s financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments through the normal course of business. For the year ended
December 31, 2009 and the period from October 5, 2006 (inception) to December
31, 2009, the Company incurred net losses of $4,184,511 and $15,212,388,
respectively. The Company has a stockholders’ deficiency as of
December 31, 2009 of $13,210,765. Management believes that the
Company will continue to incur losses for the foreseeable future and will need
additional equity or debt financing or will need to generate revenue from the
licensing of its products or by entering into strategic alliances to be able to
sustain its operations until it can achieve profitability and positive cash
flows, if ever. Management plans to seek additional debt and/or
equity financing for the Company, but cannot assure that such financing will be
available on acceptable terms, or at all. These matters raise
substantial doubt about the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Note
2 — Summary of Significant Accounting Policies:
Cash:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash. The Company maintains its cash in
bank deposit and other accounts, the balances of which, at times, may exceed
Federally insured limits.
Use
of estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Office
equipment:
Office
equipment is stated at cost and depreciated using the straight-line method over
the estimated useful life of five years.
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Stock
based compensation:
The
Company accounts for stock options granted to employees according to the
Financial Accounting Standards Board Accounting Standards Codification No. 718
(“ASC 718”), “Compensation – Stock Compensation”. Under ASC 718,
share-based compensation cost is measured at grant date, based on the estimated
fair value of the award, and is recognized as expense over the employee’s
requisite service period on a straight-line basis. The Company
accounts for stock options and warrants granted to non-employees on a fair value
basis in accordance with ASC 718 using the Black-Scholes option pricing
method. The initial non-cash charge to operations for non-employee
options and warrants with vesting are revalued at the end of each reporting
period based upon the change in the fair value of the options and recognized as
consulting expense over the related vesting period.
For the
purpose of valuing options and warrants granted to employees and non-employees
the Company uses the Black-Scholes option pricing model utilizing the
assumptions noted in the following table. To determine the risk-free
interest rate, the Company utilized the U.S. Treasury yield curve in effect at
the time of grant with a term consistent with the expected term of the Company’s
awards. The Company estimated the expected life of the options
granted based on anticipated exercises in the future periods assuming the
success of its business model as currently forecasted. For warrants
and non-employee options, the Company used the contractual term of the warrant
or option as the expected term. The expected dividend yield reflects
the Company’s current and expected future policy for dividends on its common
stock. The expected stock price volatility for the Company’s stock
options was calculated by examining historical volatilities for publicly traded
industry peers as the Company does not have any trading history for its common
stock. The Company will continue to analyze the expected stock price
volatility and expected term assumptions as more historical data for the
Company’s common stock becomes available. Given the limited service
period for its current employees and non-employees and the senior nature of the
roles of those employees, the Company currently estimates that it will
experience no forfeitures for those options currently outstanding.
|
2008
|
2007
|
|
|
Risk-free
interest rate
|
0.35%
- 2.5%
|
3.45%
- 2.5%
|
|
Expected
volatility
|
108%
- 246%
|
75%
- 99%
|
|
Expected
term of options and warrants
|
5
|
5
|
|
Expected
dividend yield
|
0%
|
0%
|
Research
and development:
Research
and development costs, including license fees, are expensed as
incurred.
Income
taxes:
Under
Accounting Standards Board Accounting Standards Codification No. 740 (“ASC
740”), “Income Taxes”, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under ASC 740, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established
when it is more likely than not that some or all of the deferred tax assets will
not be realized.
Loss
per common share:
Basic
earnings (loss) per common share excludes dilution and is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity. Since the Company has only incurred losses, basic and diluted
loss per share is the same. The amount of potentially dilutive
securities excluded from the calculation was 372,000 shares of common stock
being held in escrow, warrants and options at December 31, 2009 and
2008. Additionally, the amount of warrants that are potentially
dilutive and are excluded from the calculation related to the issuance of senior
convertible notes (see Note 9), based upon an exercise price of $1.00 (lowest
possible conversion price), at December 31, 2009 and 2008 is
434,000.
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Fair
value measurements:
The
carrying value of the senior convertible notes and related party notes
approximate fair value due to the short-term nature of these items and the
related interest rate approximates market rates. Since the senior
convertible and related party notes have been recorded at carrying value there
has been no change in the value between reporting periods.
Note
3 — Related Party Transactions:
Consulting
services:
Effective
June 2007, the Company began accruing monthly fees for consulting services at a
rate of $25,000 per month to Paramount BioSciences, LLC (“PBS”), an affiliate of
a significant investor in the Company. Consulting services expense
was $0, $200,000 and $375,000 for the years ended December 31, 2009 and 2008 and
the period from October 5, 2006 (inception) to December 31, 2009,
respectively. As of December 31, 2009, the Company had $375,000
outstanding under this arrangement which is included in accrued expenses as of
December 31, 2009. This agreement was terminated as of August 31,
2008.
Notes
payable:
On
December 1, 2006, the Company issued an 8% promissory note payable to
PBS. All amounts outstanding under this note, which was amended and
restated on September 30, 2009, mature and are payable on September 30, 2010, or
earlier if certain events occur. All amounts outstanding under this
note will automatically convert into the Company’s equity securities issued in
the Company’s next equity financing (or series of related equity financings)
prior to the maturity date involving the sale of securities in which the Company
receives at least $10,000,000 in aggregate gross cash proceeds (before brokers’
fees or other transaction related expenses, and excluding any such proceeds
resulting from any conversion of the Company’s then-existing convertible bridge
notes minus the amount of aggregate gross cash proceeds to the Company from the
sale of equity or debt securities of the Company after December 14, 2009 (a
“Qualified
F-9
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Financing”)),
at a conversion price equal to 70% of the lowest per unit price paid for such
securities in cash by investors in such Qualified Financing, and upon such other
terms, conditions and agreements as may be applicable in such Qualified
Financing. This note will also automatically convert into equity
securities of the Company immediately prior to a sale or merger of the Company,
as defined in the notes. In the event that this note becomes due and
payable (whether on the due date or earlier) prior to the consummation by the
Company of a Qualified Financing, or a sale or merger of the Company which
converts the note into equity securities of the Company, then in connection with
the repayment of the note, in addition to the payment of the unpaid principal
amount and all accrued but unpaid interest on the note, the Company will be
obligated to pay to the noteholder, as a repayment premium, an amount in cash
equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid
interest on the note. Notwithstanding the foregoing, all loans
(including principal and accrued interest thereon) made by PBS to the Company
under this note on or after September 30, 2009, up to $1,000,000 in the
aggregate, shall immediately and automatically be converted into the same equity
or derivative securities as are issued in any equity or derivative equity
financing consummated by the Company on or after September 30, 2009 that does
not otherwise constitute a Qualified Financing, on the same terms and conditions
that such equity securities are offered in such non-Qualified
Financing. On February 9, 2010, $1,000,000 in principal outstanding
under this note was converted into 2010 Notes pursuant to this
provision. This note was issued to PBS for expenses that PBS has paid
on behalf of the Company. As of December 31, 2009 and 2008, the
principal amount outstanding under this note is $2,067,205 and $1,166,851,
respectively.
On
December 1, 2006, the Company issued an 8% promissory note payable to a trust
established for the benefit of the family of the sole member of
PBS. All unpaid principal and accrued and unpaid interest outstanding
under this note, which was amended and restated on September 30, 2009, matures
and is payable on September 30, 2010, or earlier if certain events
occur. All amounts outstanding under this note will automatically
convert into the Company’s equity securities issued in the Company’s next equity
financing (or series of related equity financings) prior to the maturity date
involving the sale of securities in which the Company receives at least
$10,000,000 in a Qualified Financing, at a conversion price equal to 70% of the
lowest per unit price paid for such securities in cash by investors in such
Qualified Financing, and upon such other terms, conditions and agreements as may
be applicable in such Qualified Financing. This note will also
automatically convert into equity securities of the Company immediately prior to
a sale or merger of the Company, as defined in the notes. In the
event that this note becomes due and payable (whether on the due date or
earlier) prior to the consummation by the Company of a Qualified Financing, or a
sale or merger of the Company which converts the note into equity securities of
the Company, then in connection with the repayment of the note, in addition to
the payment of the unpaid principal amount and all accrued but unpaid interest
on the note, the Company will be obligated to pay to the noteholder, as a
repayment premium, an amount in cash equal to 42.8571% of the aggregate
principal amount plus all accrued and unpaid interest on the note. As
of December 31, 2009 and 2008, the principal amount outstanding under this note
is $660,000.
On
December 18, 2008, the Company issued an 8% promissory note payable to an entity
related to the sole member of PBS. All unpaid principal and accrued
and unpaid interest outstanding under this note, which was amended and restated
on September 30, 2009, matures and is payable on September 30, 2010, or earlier
if certain events occur. All amounts outstanding under this note will
automatically convert into the Company’s equity securities issued in the
Company’s next equity financing (or series of related equity financings) prior
to the maturity date involving the sale of securities in which the Company
receives at least $10,000,000 in a Qualified Financing, at a conversion price
equal to 70% of the lowest per unit price paid for such securities in cash by
investors in such Qualified Financing, and upon such other terms, conditions and
agreements as may be applicable in such Qualified Financing. This
note will also automatically convert into equity securities of the Company
immediately prior to a sale or merger of the Company, as defined in the
note. In the event that this note becomes due and payable (whether on
the due date or earlier) prior to the consummation by the Company of a Qualified
Financing, or a sale or merger of the Company which converts the note into
equity securities of the Company, then in connection with the repayment of the
note, in addition to the payment of the unpaid principal amount and all accrued
but unpaid interest on the note, the Company will be obligated to pay to the
noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the
aggregate principal amount plus all accrued and unpaid interest on the
note. As of December 31, 2009 and 2008, the principal amount
outstanding under this note is $50,000.
On
January 15, 2009 and June 24, 2009, the Company issued 10% promissory notes (the
“PCP Notes”) payable in the aggregate amount of $2,875,000 to Paramount Credit
Partners, LLC (“PCP”), an entity whose managing member is a significant
stockholder of the Company. Interest on this note is payable
quarterly, in arrears, and the principal matures on the earlier of (i) December
31, 2013, (ii) the completion of a Qualified Financing, and (iii) the completion
of a Reverse Merger (each, as defined below). In addition, PCP
received five-year warrants (“PCP Warrants”) to purchase, at an exercise price
of 110% of the lowest price paid for securities in a Qualified Financing, a
number of shares of the Company’s common stock equal to 40% of the principal
amount of the Notes purchased divided by the lowest price paid for securities in
a Qualified Financing prior to the two-year anniversary of the
notes. If the Qualified Financing does not occur on or before the
two-year anniversary of the notes, the PCP Warrants will be exercisable for a
number of shares of the Company’s common stock equal to 40% of the principal
amount of the Notes purchased divided by $1.00, at a per share exercise price of
$1.00. As of December 31, 2009, the principal amount outstanding
under these notes is $1,957,549. For purposes of the PCP Notes,
“Qualified Financing” means the closing of an equity financing or series of
related equity financings by the Company resulting in aggregate gross cash
proceeds (before brokers’ fees or other transaction related expenses) of at
least $10,000,000. For purposes of the PCP Notes, “Reverse Merger”
means a merger, share exchange or other transaction or series of related
transactions in which (a) the Company merges into or otherwise becomes a wholly
owned subsidiary of a company subject to the public company reporting
requirements of the Securities Exchange Act of 1934, as amended, and
(b) the aggregate consideration payable to the Company or its stockholders in
such transaction(s) (the “Reverse Merger Consideration”) is greater than or
equal to $10,000,000.
Paramount
BioCapital, Inc. (“PCI”) acted as placement agent for the private placement of
the Company’s senior convertible notes in the aggregate principal amount of
$4,340,000 during 2007. (See Note 8).
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Line
of Credit:
On
December 3, 2008, the Company, PBS and various other private pharmaceutical
companies with common ownership by the sole member of PBS entered into a loan
agreement with Bank of America, N.A. for a line of credit of
$2,000,000. PBS pledged collateral securing the Company’s and the
other borrowers’ obligations to Bank of America, N.A. under the loan
agreement. Interest on amounts borrowed under the line of credit
accrues and is payable on a monthly basis at an annual rate equal to the London
Interbank Offered Rate (LIBOR) plus 1%. On November 10, 2009, the
parties entered into Amendment No. 1 to the Loan Agreement, which extended the
initial one-year term for an additional year, such that it currently matures on
November 5, 2010, and reduced the aggregate amount available under the line of
credit to $1,000,000. Under the loan agreement, the Company’s
liability under the line of credit is several, not joint, with respect to the
payment of all obligations thereunder. As of December 31, 2009 and
2008, the amounts borrowed by the Company that were outstanding under this line
of credit were $150,000 and $50,000, respectively.
Sole
director:
As of
December 31, 2009, Jay Lobell, an employee of PBS, was the sole director of the
Company. On February 28, 2010, Matthew A Wikler joined the board of
directors of the Company.
Note
4 — Income Taxes:
There was
no net current or deferred income tax provision for the years ended December 31,
2009 and 2008.
The
Company’s deferred tax assets as of December 31, 2009 and 2008 consist of the
following:
|
2009
|
2008
|
|||||||
|
Net
operating loss carryforwards – Federal
|
$ | 4,382,000 | $ | 3,035,000 | ||||
|
Net
operating loss carryforwards - State
|
774,000 | 536,000 | ||||||
|
Totals
|
5,156,000 | 3,571,000 | ||||||
|
Less
valuation allowance
|
(5,156,000 | ) | (3,571,000 | ) | ||||
|
Deferred
tax assets
|
$ | - | $ | - | ||||
At
December 31, 2009, the Company had potentially utilizable Federal and state net
operating loss tax carryforwards of approximately $12,890,000, expiring through
2029.
The
utilization of the Company’s net operating losses may be subject to a
substantial limitation due to the “change of ownership provisions” under Section
382 of the Internal Revenue Code and similar state provisions. Such
limitation may result in the expiration of the net operating loss carryforwards
before their utilization.
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
net change in the total valuation allowance for the years ended December 31,
2009 and 2008 and for the period from October 5, 2006 (inception) to December
31, 2009 was $1,585,000, $1,927,000 and $5,156,000, respectively. The
tax benefit assumed the Federal statutory tax rate of 34% and a state tax rate
of 6% and has been fully offset by the aforementioned valuation
allowance.
|
2009
|
2008
|
|||||||
|
Statutory
Federal tax rate
|
(34.0 | )% | (34.0 | )% | ||||
|
State
income taxes (net of Federal)
|
(6.0 | )% | (6.0 | )% | ||||
|
Debt
discount amortization
|
5 | % | - | % | ||||
|
Effect
of valuation allowance
|
35 | % | 40 | % | ||||
|
Effective
tax rate
|
- | % | - | % | ||||
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Management
feels that the Company does not have any tax positions that will result in a
material impact on the Company’s financial statements because of the adoption of
ASC 740. However, management’s conclusion may be subject to
adjustment at a later date based on factors including additional implementation
guidance from the Financial Accounting Standards Board and ongoing analyses of
tax laws, regulations and related interpretations.
Note
5 — Commitments:
Employment
agreements:
An
employment agreement with Matthew Wikler, M.D., MBA, FIDSA became effective as
of February 28, 2010. Pursuant to that employment agreement, Dr.
Wikler re-joined the Company as President and Chief Executive Officer, for an
initial term of two years, which term will extend automatically for additional
one-year periods unless appropriate notice is given by one of the
parties. Pursuant to the employment agreement, Dr. Wikler will
receive an annual base salary of $300,000, a guaranteed annual bonus of $60,000
on each anniversary of the effective date of the employment agreement, and a
one-time bonus of $100,000 upon consummation of an initial public offering by
the Company. In addition, in full and final consideration and
settlement of any amount of compensation that may be claimed by or due to Dr.
Wikler with respect to his services to the Company during his earlier term of
employment with the Company, the Company paid to Dr. Wikler $25,000 within
thirty days after effectiveness of his employment agreement, and is obligated to
pay to Dr. Wikler an additional $75,000 upon the earlier of thirty days after
consummation of an initial public offering by the Company or December 31, 2010,
regardless of whether Dr. Wikler remains an employee of the Company upon the
earlier of such events. In addition, Dr. Wikler will be entitled to
receive certain market capitalization cash bonuses, as follows: (i)
$125,000, upon the market capitalization of the Company exceeding $125,000,000;
(ii) $300,000, upon the market capitalization of the Company exceeding
$300,000,000; (iii) $500,000, upon the market capitalization of the Company
exceeding $500,000,000; (iv) $750,000, upon the market capitalization of the
Company exceeding $750,000,000; and (v) $1,000,000, upon the market
capitalization of the Company exceeding $1,000,000,000. Each of the
market capitalization bonuses are subject to certain minimum trading days and
minimum volume. Dr. Wikler is also entitled to receive that number of
options so that his total ownership, as defined, of the Company, together with
shares of the Company’s common stock held by him, equals 7.5% of the outstanding
common stock of the Company. These options will vest in full on
February 28, 2011. In addition, Dr. Wikler is entitled to receive
additional options sufficient to maintain his ownership interest at 7.5% of the
outstanding common stock of the Company, on a fully diluted basis for
“in-the-money” derivative securities, until such time as the Company has raised
at least $15,000,000 through equity or debt securities. These options
will also vest in full on February 28, 2011. The Company has agreed
to make certain severance payments to Dr. Wikler in the event his employment
with the Company is terminated by the Company without cause, if he resigns for
good reason, or if his employment is terminated in connection with a change of
control, equal to six months of continued base salary and health benefits, and
that portion of such year’s guaranteed bonus, pro-rated through the date of
termination. PBS has guaranteed the payment to Dr. Wikler of an
amount equal to three months of continued base salary and health benefits, plus
that portion of such year’s guaranteed bonus, pro-rated through the date of
termination, which may be owed by the Company to Dr. Wikler pursuant to this
severance obligation. PBS’ guarantee terminates upon the Company’s
initial public offering.
On
January 19, 2007, the Company entered into an employment agreement with James
Rock, pursuant to which Mr. Rock serves as the Company’s Director, New Product
Development. The term of employment commenced on January 19, 2007,
and is on an “at will” basis. Mr. Rock receives an annual base salary
of $135,000, and is eligible to receive an annual discretionary bonus up to 15%
of his base salary. In 2010, Mr. Rock received a bonus of
$25,000. Pursuant to an addendum dated August 18, 2008 to the
employment agreement, dated January 19, 2007, the Company has agreed to make
certain severance payments to Mr. Rock in the event his employment with the
Company is terminated by the Company without cause, as defined in the employment
agreement, as addended, equal to up to three months of continued base salary and
health benefits. PBS has guaranteed in full the payment of this
severance obligation to Mr. Rock, until such time as the Company has raised
$20,000,000 in aggregate gross proceeds through the issuance of equity or debt
securities.
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
On May
17, 2007, the Company entered into an employment agreement with Mark Lotz,
pursuant to which Mr. Lotz serves as the Company’s Vice President, Regulatory
Affairs. The term of employment commenced on May 28, 2007, and is on
an “at will” basis. Mr. Lotz receives an annual base salary of
$220,000, and is eligible to receive an annual discretionary bonus up to 20% of
his base salary. If Mr. Lotz’s employment is terminated by the
Company other than as a result of Mr. Lotz’s death or disability and for reasons
unrelated to cause, then the Company agreed to continue to pay Mr. Lotz his base
salary and benefits for a period of four months following the termination of his
employment and pay any expense reimbursements amounts owed Mr. Lotz through the
termination of his employment. In addition, all options that have
vested as of the date of Mr. Lotz’s termination will remain exercisable for a
period of ninety days.
Note
6 — Stockholders’ Deficiency:
Common
Stock:
During
March and April 2007, the Company issued 4,479,729 shares of common stock to its
founders for $4,480, or $.001 per share, of which the Company received $4,428 in
2007 and $52 in 2008.
Common
stock options and warrants:
In 2007,
the Company established a stock incentive plan (the “Plan”) under which
incentive stock and/or options may be granted to officers, directors,
consultants and key employees of the Company for the purchase of up to
20,000,000 shares of common stock. The options have a maximum term of
ten years, vest over a period to be determined by the Company’s Board of
Directors and have an exercise price at or above fair market value on the date
of grant.
There
were no options or warrants issued for the period from October 5, 2006 to
December 31, 2006 or in 2009.
During
2007, the Company granted 72,000 options under the Plan to an employee with an
exercise price of $0.95 per share. The options granted during 2007
vest equally over a three-year period and have a ten year term. The
Company recorded $14,539 and $14,539 of compensation expense during 2009 and
2008, respectively.
During
2008, the Company granted 44,000 options under the Plan to employees with an
exercise price of $0.95 per share. The options granted during 2008
vests equally over a three-year period and have a ten year term. The
Company recorded $6,729 of compensation expense during 2008. Such
options subsequently were forfeited in 2008.
A summary
of the Company’s stock options activity under the Plan and related information
is as follows:
|
2009
|
2008
|
|||||||||||||||
|
Shares
|
Weighted
Average Exercise Price
|
Shares
|
Weighted
Average Exercise Price
|
|||||||||||||
|
Outstanding
at beginning of year
|
72,000 | $ | 0.95 | 72,000 | $ | 0.95 | ||||||||||
|
Granted
|
44,000 | $ | 0.95 | |||||||||||||
|
Forfeited
|
(44,000 | ) | $ | 0.95 | ||||||||||||
|
Outstanding
at end of year
|
72,000 | $ | 0.95 | 72,000 | $ | 0.95 | ||||||||||
|
Options
exercisable at end of year
|
54,000 | $ | 0.95 | 24,000 | $ | 0.95 | ||||||||||
|
Weighted-average
fair value of options granted during the year
|
$ | 1.48 | ||||||||||||||
The
weighted average remaining contractual life of stock options outstanding at
December 31, 2009 is 7.75 years.
As of
December 31, 2009, the total compensation expense related to non-vested options
not yet recognized totaled $14,539. The weighted-average vesting
period over which the total compensation expense related to non-vested options
not yet recognized at December 31, 2009 was approximately 0.7
years.
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
On
September 27, 2007, the Company granted 300,000 warrants outside of the Plan in
connection with a consulting agreement with one-third of the options vesting
immediately and the remainder vesting evenly from the issuance date through June
1, 2009. These warrants are fully vested and expire on September 27,
2012. Each warrant was issued with an exercise price of $0.95 and a
five year term. During the years ended December 31, 2009 and 2008,
the Company recorded $34,708 and $245,867, respectively, of consulting expense
to research and development expenses, in connection with the above mentioned
warrants.
Note
7 — License Agreements:
In June
of 2007, the Company entered into an exclusive, multinational license agreement
with Dong Wha for PB-101. Specifically, the Company in-licensed
several quinolone compounds (including PB-101) for the treatment of various
bacterial infections, and the corresponding United States and foreign patents
and applications for all therapeutic uses. Under the terms of the
license agreement, the Company is permitted to develop and commercialize PB-101
in all of the countries of the world other than Australia, New Zealand, India,
Japan, Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam
and Hong Kong. As consideration in part for the aforementioned rights
to PB-101, the Company paid to Dong Wha an initial license fee of $1,500,000 and
was required to pay Dong Wha a subsequent license fee of $1,500,000 by March
2008. A total of $3,000,000 was recorded in research and development
expense during 2007 in connection with this agreement. An amendment,
executed in April 2008, extended the deadline for the payment of the subsequent
license fee and increased the amount of the subsequent license fee by $250,000
from $1,500,000 to $1,750,000, and required the Company to make a milestone
payment of $500,000 by September 12, 2008. A total of $750,000 in
license fees and milestone payments was recorded and expensed to research and
development expense during 2008 in connection with this
agreement. The Company did not incur any license fee or milestone
payments under this agreement during 2009. In addition, the Company
is required to make substantial payments to Dong Wha upon the achievement of
certain clinical, regulatory-based and net sales-based milestones, up to
$53,000,000 in the aggregate. In the event that PB-101 is
commercialized, the Company is obligated to pay to Dong Wha annual royalties
equal to a percentage of net sales. In the event that the Company
sublicenses PB-101 to a third party, the Company is obligated to pay to Dong Wha
a portion of the royalties, sublicensing fees or other lump sum payments it
receives from the sublicensee. In addition, pursuant to the license
agreement, the Company is obligated to purchase 100% of its requirements for
clinical supply of the licensed products and 75% of its requirements for
commercial supply of the licensed products from Dong Wha, in each case at a cost
not to exceed Dong Wha’s cost of goods sold, plus 25%. Pursuant to
the terms of the license agreement, the Company was required to initiate a Phase
2 clinical trial for an oral formulation of PB-101 within nine months of
execution of the license agreement. In accordance with the license
agreement, the Company purchased certain “extension periods” from Dong Wha,
which extended the deadline before which the Company needed to initiate the
Phase 2 clinical trial, in return for certain cash payments. The
Company has purchased extension periods for the extension of such deadline until
March 2010. For the years ended December 31, 2009 and 2008, the
Company paid $400,000 and $50,000, respectively, in extension payments under the
terms of this agreement, which were expensed to research and development expense
in those periods. We initiated a Phase 2 clinical trial in the United
States for the CAP indication in March 2010. PBS has guaranteed the
full and prompt payment to Dong Wha of all amounts due under the license
agreement, until such time as the Company has net tangible assets of at least
$10,000,000.
In June
of 2007, the Company entered into an exclusive, worldwide license agreement with
UCB Celltech (“UCB”) for a platform of aniline derivative compounds including
PB-200a. Specifically, the Company in-licensed a series of compounds
for the treatment of various fungal conditions, and the corresponding United
States and foreign patents and applications for all therapeutic
uses. As consideration in part for the aforementioned rights, the
Company paid to UCB an initial license fee of $100,000, which was expensed to
research and development expense during 2007. In addition, the
Company is required to make substantial payments to UCB upon the achievement of
certain clinical and regulatory-based milestones, up to $12,000,000 in the
aggregate. In the event that PB-200a or another covered compound is
commercialized, the Company and its sublicensees are obligated to pay to UCB
annual royalties equal to a percentage of net sales in the single-digit
range. In June 2008 and each successive year, the Company paid to UCB
an annual license maintenance fee of $100,000, which is creditable against
royalties otherwise due to the licensor. During the years ended
December 31, 2008 and 2007, the Company expensed $100,000 in license fees under
the terms of this agreement. In November 2009, the Company granted a
non-exclusive worldwide sublicense to a third-party sublicensee and in return
such
F-14
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
sublicensee
paid IASO an upfront sublicense fee of $480,000. In addition, the
sublicensee paid the Company a milestone fee of $180,000 related to the
initiation of a Phase II trial related to this product. The
sublicensee is also required to make additional payments, up to $540,000 in the
aggregate, to the Company upon the achievement of certain clinical and
regulatory-based milestones. Under the terms of the original license
agreement, $132,000 became due to UCB in connection with the sublicense
agreement with the sublicensee. The Company has recorded deferred
revenue for the cash received under the sublicense agreement in 2009 that is
being recognized as revenue over the term of the sublicense agreement at
approximately $38,000 per annum.
In July
of 2007, the Company entered into an exclusive sublicense agreement for North
America and Europe with Santee Biosciences, Inc. (“Santee”) for use of PB-201, a
formulation technology (“PB-201”), in the development of azole-based antifungal
drug formulations and the corresponding United States and foreign patents and
applications. Santee is a related party of the Company, in that
significant stockholders of the Company, including Mr. Lobell, the Company’s
sole director as of December 31, 2009, are also significant stockholders and/or
directors of Santee. As consideration in part for the aforementioned
rights, the Company paid to Santee an upfront license fee of
$50,000. In addition, the Company is required to make substantial
payments, up to an additional $10 million in total, to Santee upon the
achievement of certain clinical and regulatory-based milestones. In
the event that any drug the Company formulates using the PB-201 technology is
commercialized, the Company and its sublicensees are obligated to pay to Santee
annual royalties equal to a percentage of net sales in the single-digit
range. In the event that the Company sublicenses PB-201 to a third
party, the Company is obligated to pay Santee a portion of the royalties it
receives from the sublicensee.
Note
8 — Private Placements:
Senior
convertible notes:
During
2007, the Company issued 8% senior convertible notes in connection with a
private placement in the aggregate principal amount of $4,340,000 (the
“Notes”). The Notes were originally scheduled to mature on December
14, 2008, but the Company exercised its option to extend the maturity date to
December 14, 2009, at an increased interest rate of 10%. The Company
subsequently solicited the consent of the Noteholders to an additional extension
of the maturity date of the Notes to September 30, 2010. After giving
effect to such consent, the Notes, plus all accrued interest thereon, will
automatically convert into the same securities issued in the Company’s next
Qualified Financing (as defined below), at a conversion price equal to 70% of
the lowest per unit price paid for such securities in cash by investors in such
Qualified Financing, and upon such other terms, conditions and agreements as may
be applicable in such Qualified Financing. The Notes will also
automatically convert into equity securities of the Company immediately prior to
a sale or merger of the Company, as defined in the Notes. In the
event that the Notes become due and payable (whether on the due date or earlier)
prior to the consummation by the Company of a Qualified Financing, or a sale or
merger of the Company which converts the Notes into equity securities of the
Company, then in connection with the repayment of the Notes, in addition to the
payment of the unpaid principal amount and all accrued but unpaid interest on
the Notes, the Company will be obligated to pay to the Noteholders, as a
repayment premium, an amount in cash equal to 42.8571% of the aggregate
principal amount plus all accrued and unpaid interest on the
Notes. For purposes of the Notes, “Qualified Financing” means the
sale of the Company’s equity securities in an equity financing or series of
related equity financings in which the Company receives (minus the amount of
aggregate gross cash proceeds to the Company from our arm’s length sale of
equity or debt securities, or incurrence of new loans, after December 14, 2009)
aggregate gross proceeds of at least $10,000,000 (before brokers’ fees or other
transaction related expenses, and excluding any such proceeds resulting from any
conversion of the Notes).
In
connection with the offering of the Notes, PCI and the Company entered into a
placement agency agreement dated September 18, 2007, pursuant to which the
Company paid PCI cash commissions of $198,800 (of which $38,500 was further
allocated to third party agents) for their services. The Company also
has agreed to pay to PCI a commission on sales by the Company of securities
during the 18-month period subsequent to December 14, 2007 to the purchasers of
the Notes who were introduced to the Company by PCI. The Company also
granted PCI the right of first refusal to act as exclusive finder, placement
agent or other similar agent in relation to any securities offerings on its
behalf during the 18-month period following December 14, 2007. This
agreement has since expired. PCI is a related party to the Company
since it is an affiliate of a significant investor in the Company.
IASO
PHARMA INC.
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
In
addition, PCI received warrants (the “Placement Warrants”) to purchase, at an
exercise price of 110% of the lowest price paid for securities in a Qualified
Financing, a number of shares of the Company’s common stock equal to 10% of the
principal amount of the Notes purchased, less any amount used to repay the
related party notes, or amounts due to PBS or their affiliates or employees as
finder’s fees, payments under the services agreement or other similar payments,
divided by the lowest price paid for securities in a Qualified Financing prior
to December 14, 2009. If the Qualified Financing did not occur on or
before December 14, 2009, the Placement Warrants will be exercisable for a
number of shares of the Company’s common stock equal to 10% of the principal
amount of the Notes purchased, less any amount used to repay the related party
notes, or amounts due to PBS or their affiliates or employees as finder’s fees,
payments under the services agreement or other similar payments, divided by
$1.00, at a per share exercise price of $1.00 and are exercisable for seven
years. Since the Qualified Financing did not occur by such date, the
Placement Warrants are now exercisable into 434,000 shares of the Company’s
common stock, at a per share exercise price of $1.00. The Company
estimated the value of the warrants using the Black-Scholes option pricing model
at approximately $358,000 and recorded them as deferred financing costs, which
were amortized to interest expense over the term of the Notes.
Note
9 — Subsequent Events:
In
February and March 2010, the Company issued 8% senior convertible notes in
connection with a private placement in the aggregate principal amount of
$4,343,000 (the “2010 Notes”). The 2010 Notes mature on February 9,
2012. Upon the closing of a Qualified IPO (as defined below), the
2010 Notes plus any accrued but unpaid interest thereon will convert
automatically into shares of the Company’s common stock at 70% of the price at
which shares of common stock are sold in the Qualified IPO (the “IPO Price”),
upon the terms and conditions on which such securities are issued in the
Qualified IPO. The Company valued the beneficial conversion feature
of the 2010 Notes at $1,861,000, which will be recorded as interest expense only
if a qualified IPO is completed. For purposes hereof, “Qualified IPO”
means the consummation of an initial public offering by the Company of units
consisting of shares of common stock and warrants to purchase common stock
resulting in aggregate gross cash proceeds (before commissions or other
expenses) to the Company of at least $10,000,000. Each 2010
Noteholder also holds a warrant to purchase a number of shares of the Company’s
common stock equal to 70% of the principal amount of the 2010 Notes purchased by
it divided by the IPO Price at a per share exercise price equal to the
exercise price of the warrants issued in the Qualified IPO,
subject to adjustment. Each of these warrants will expire and no
longer be exercisable on February 9, 2015. Notwithstanding the
foregoing, if a Qualified IPO does not occur on or before February 9, 2012, then
each warrant will be exercisable for that number of shares of the Company’s
common stock equal to 70% of the principal amount of the 2010 Note purchased by
the original holder divided by $1.00, at a per share exercise price of
$1.00. In the event of a sale of the Company (whether my merger,
consolidation, sale or transfer of the Company’s capital stock or assets or
otherwise) prior to, but not in connection with, a Qualified IPO, each of these
warrants will terminate 90 days following such sale and the warrants shall
continue to be exercisable pursuant to its terms during such 90-day
period.
Lindsay
A. Rosenwald, M.D., a significant stockholder of the Company and a related
party, purchased $500,000 in aggregate principal amount of 2010 Notes and
related warrants in this offering. In addition, a 2010 Note and
related warrant in the aggregate principal amount of $1,000,000 were issued to
PBS for the cancellation of certain debt, discussed above. (See Note
3).
In
connection with the offering of the 2010 Notes and related warrants, Maxim Group
LLC (“Maxim”) and the Company entered into a placement agency agreement dated
October 13, 2009, as amended on February 8, 2010, pursuant to which the Company
paid Maxim cash commissions of $351,730 for its services.
The
Company also granted Maxim the right of first negotiation to co-manage any
public underwriting or private placement of debt or equity securities, subject
to customary exclusions, of the Company or any subsidiary or successor of the
Company, receiving the right to underwrite or place a minimum of 50% of the
securities to be sold therein, until eighteen months after completion of the
offering of the 2010 Notes and related warrants.
Units
IASO
PHARMA INC.
PROSPECTUS
Maxim
Group LLC
, 2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth the various expenses (other than selling commissions
and other fees to be paid to the underwriters) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the SEC registration fee and the FINRA
filing fee, all amounts shown are estimates.
|
SEC
registration fee
|
$ | 1,426 | ||
|
FINRA
filing fee
|
* | |||
|
NYSE
Amex listing fee and expenses
|
* | |||
|
Printing
and engraving expenses
|
* | |||
|
Legal
fees and expenses
|
* | |||
|
Accounting
fees and expenses
|
* | |||
|
Transfer
Agent and Registrar fees and expenses
|
* | |||
|
Miscellaneous
|
* | |||
|
Total
|
$ | * |
__________________
|
*
|
To
be provided by amendment.
|
Item
14. Indemnification of Directors and Officers.
The
amended and restated certificate of incorporation of the Registrant to be
effective upon the completion of the offering described in the prospectus filed
herewith will provide that the Registrant will indemnify, to the extent
permitted by the DGCL, any person whom it may indemnify thereunder, including
directors, officers, employees and agents of the Registrant. In addition, the
Registrant’s amended and restated certificate of incorporation will eliminate,
to the extent permitted by the DGCL, personal liability of directors to the
Registrant and its stockholders for monetary damages for breach of fiduciary
duty.
The
Registrant’s authority to indemnify its directors and officers is governed by
the provisions of Section 145 of the DGCL, as follows:
(a) A
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person’s conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person’s conduct was unlawful.
(b) A
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys’
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to
II-1
the best
interests of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the
extent that a present or former director or officer of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this section, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection therewith.
(d) Any
indemnification under subsections (a) and (b) of this section (unless ordered by
a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because the
person has met the applicable standard of conduct set forth in subsections (a)
and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses
(including attorneys’ fees) incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys’ fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The
indemnification and advancement of expenses provided by, or granted pursuant to,
the other subsections of this section shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person’s official capacity and
as to action in another capacity while holding such office. A right to
indemnification or to advancement of expenses arising under a provision of the
certificate of incorporation or a bylaw shall not be eliminated or impaired by
an amendment to such provision after the occurrence of the act or omission that
is the subject of the civil, criminal, administrative or investigative action,
suit or proceeding for which indemnification or advancement of expenses is
sought, unless the provision in effect at the time of such act or omission
explicitly authorizes such elimination or impairment after such action or
omission has occurred.
(g) A
corporation shall have power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person’s status as
such, whether or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For
purposes of this section, references to “the corporation” shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
(i) For
purposes of this section, references to “other enterprises” shall include
employee benefit plans; references to “fines” shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to “serving at the request of the corporation” shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by such director, officer, employee, or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner “not opposed to the best interests of the
corporation” as referred to in this section.
(j) The
indemnification and advancement of expenses provided by, or granted pursuant to,
this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
(k) The Court
of Chancery is hereby vested with exclusive jurisdiction to hear and determine
all actions for advancement of expenses or indemnification brought under this
section or under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. The Court of Chancery may summarily determine a
corporation’s obligation to advance expenses (including attorneys’
fees).
Pursuant
to the Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement, the Registrant will agree to indemnify the Underwriters and the
Underwriters will agree to indemnify the Registrant and its directors, officers
and controlling persons against certain civil liabilities that may be incurred
in connection with the offering, including certain liabilities under the
Securities Act.
The
Registrant will enter into indemnification agreements with each of its directors
after the completion of the offering, whereby it will agree to indemnify each
director and officer from and against any and all judgments, fines, penalties,
excise taxes and amounts paid in settlement or incurred by such director or
officer for or as a result of action taken or not taken while such director was
acting in his capacity as a director or executive officer of the
Registrant.
Item
15. Recent Sales of Unregistered Securities.
During
the past three years, the following securities were sold by the Registrant
without registration under the Securities Act of 1933, as amended (the
“Securities Act”). All certificates representing the securities described herein
and currently outstanding have been appropriately legended. The securities
described below were deemed exempt from registration under the Securities Act in
reliance upon Section 4(2), Regulation D or Regulation S of the Securities Act.
There were no underwriters employed in connection with any of the transactions
set forth in this Item 15. All of these securities, to the extent not included
in this registration statement, are deemed restricted securities for purposes of
the Securities Act. The terms of these securities are discussed in greater
detail in the section of the prospectus entitled “Description of Capital
Stock.”
|
1.
|
On
December 1, 2006, we issued the PBS Note. Pursuant to the PBS Note, we
borrowed an aggregate principal amount of $2,067,205 from December 1, 2006
through December 31, 2009.
|
|
2.
|
On
December 1, 2006, we issued the Family Trusts Note. Pursuant to the Family
Trusts Note, we borrowed an aggregate principal amount of $660,000 from
December 1, 2006 through December 31,
2009.
|
|
3.
|
During
March and April 2007, we issued 4,479,729 shares of common stock to our
founders for $4,480, or $.001 per share, including 309,382 shares to
Matthew A. Wikler, MD, our President and Chief Executive Officer, 41,251
shares to James Rock, our Director of New Product Development, 1,000,000
shares to Lindsay A. Rosenwald, MD, 1,000,000 shares to the Family Trusts,
and 2,129,096 shares to certain employees and affiliates of Paramount
BioSciences, LLC.
|
|
4.
|
In
September of 2007, we issued to Robert Feldman, a former employee of
Paramount, as compensation for certain services provided in connection
with the in-licensing of certain of our product candidates, the Consultant
Warrant, which is currently exercisable for 300,000 shares of common stock
at a per share exercise price of
$0.95.
|
|
5.
|
In
December of 2007, we issued the 10% Notes, in the aggregate principal
amount of $4,340,000, to 23 accredited
investors.
|
|
6.
|
In
December of 2007, we issued to Paramount, in partial compensation for its
services in connection with the offering of the 10% Notes, the Placement
Agent Warrant, which is currently exercisable for 434,000 shares of common
stock at a per share exercise price of
$1.00.
|
|
7.
|
On
December 18, 2008, we issued the Capretti Note. Pursuant to the Capretti
Note, we borrowed an aggregate principal amount of $50,000 from December
18, 2008 through December 31, 2009.
|
|
8.
|
On
each of January 15, 2009 and June 24, 2009, respectively, we issued the
PCP Notes, in the aggregate principal amount of $2,875,000, and the PCP
Warrants, to PCP.
|
|
9.
|
In
February and March 2010, we issued the 8% Notes, in the aggregate
principal amount of $4,343,000, and the 8% Noteholder Warrants, to 46
accredited investors.
|
Item
16. Exhibits and Financial Statements.
(a) Exhibits:
|
Number
|
Description
of Exhibit
|
|
1.1
|
Form
of Underwriting Agreement.*
|
|
3.1
|
Certificate
of Incorporation.
|
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation.
|
|
3.3
|
By-laws.
|
|
3.4
|
Form
of Amended and Restated Certificate of Incorporation, to be effective upon
the completion of the offering.*
|
|
3.5
|
Form
of Amended and Restated By-laws, to be effective upon the completion of
the offering.*
|
|
4.1
|
Specimen
common stock certificate.*
|
|
4.2
|
Specimen
Unit certificate.*
|
|
4.3
|
Specimen
warrant certificate.*
|
|
4.4
|
Form
of warrant agreement.*
|
|
4.5
|
Form
of Unit purchase warrant.*
|
|
4.6
|
Form
of Note Purchase Agreement for 10% Notes.
|
|
4.7
|
Form
of 10% Note.
|
|
4.8
|
Note
and Warrant Purchase Agreement, dated as of January 15, 2009, between the
Registrant and Paramount Credit Partners, LLC.
|
|
4.9
|
10%
Senior Promissory Note, dated January 15, 2009, issued to Paramount Credit
Partners, LLC.
|
|
4.10
|
Common
Stock Warrant, dated January 15, 2009, issued to Paramount Credit
Partners, LLC.
|
|
4.11
|
Note
and Warrant Purchase Agreement, dated as of June 24, 2009, between the
Registrant and Paramount Credit Partners, LLC.
|
|
4.12
|
10%
Senior Promissory Note, dated June 24, 2009, issued to Paramount Credit
Partners, LLC.
|
|
4.13
|
Common
Stock Warrant, dated June 24, 2009, issued to Paramount Credit Partners,
LLC.
|
|
4.14
|
Amended
and Restated Future Advance Promissory Note, dated September 30, 2009,
issued to Paramount Biosciences, LLC.
|
|
4.15
|
Amended
and Restated Future Advance Promissory Note, dated September 30, 2009,
issued to The Lindsay A. Rosenwald 2000 Family Trusts Dated December 15,
2000.
|
|
4.16
|
Amended
and Restated Future Advance Promissory Note, dated September 30, 2009,
issued to Capretti
Grandi,
LLC.
|
|
4.17
|
Form
of Note and Warrant Purchase Agreement for 8% Notes.
|
|
4.18
|
Form
of 8% Note.
|
|
4.19
|
Form
of 8% Warrant.
|
|
4.20
|
Placement
Agent Warrant.
|
|
4.21
|
Consultant
Warrant.
|
|
5.1
|
Opinion
of Olshan Grundman Frome Rosenzweig & Wolosky LLP.*
|
|
10.1
|
License
Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co.
Ltd. and the Registrant.*‡
|
|
10.2
|
Amendment
No. 1, effective as of April 22, 2008, to License Agreement, dated as of
June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and the
Registrant.*‡
|
|
10.3
|
License
Agreement, dated as of June 12, 2007, between UCB Celltech and the
Registrant.*‡
|
|
10.4
|
Non-Exclusive
Patent License Agreement, effective as of November 4, 2009, by and between
the Registrant and a Third-Party.*‡
|
|
10.5
|
Exclusive
Sublicense Agreement, effective as of July 10, 2007, by and between Santee
Biosciences, Inc. and the Registrant.*‡
|
|
10.6
|
2007
Stock Incentive Plan. *
|
|
10.7
|
Employment
Agreement, effective as of February 28, 2010, by and between the
Registrant and Matthew A. Wikler, MD, MBA, FIDSA.
|
|
10.8
|
Employment
Agreement, dated as of January 19, 2007, by and between the Registrant and
James Rock.
|
|
10.9
|
Amendment,
dated August 18, 2008, to Employment Agreement, dated as of January 19,
2007, by and between the Registrant and James Rock.
|
|
10.10
|
Employment
Agreement, dated May 17, 2007, by and between the Registrant and Mark
Lotz.
|
|
10.11
|
Form
of Indemnification Agreement between the Company and each of its directors
and executive officers.*
|
|
10.12
|
Loan
Agreement, dated as of December 3, 2008, among Bank of America, N.A., the
Registrant, Paramount Biosciences, LLC, Ventrus Biosciences, Inc., Balboa
Biosciences, Inc., Asphelia Pharmaceuticals, Inc., Coronado Biosciences,
Inc. and Mt. Cook Pharma, Inc.
|
|
10.13
|
Amendment
No. 1, dated as of November 10, 2009, between Bank of America, N.A., the
Registrant, Paramount Biosciences, LLC, Ventrus Biosciences, Inc., Balboa
Biosciences, Inc., Asphelia Pharmaceuticals, Inc., Coronado Biosciences,
Inc. and Mt. Cook Pharma, Inc.
|
|
23.1
|
Consent
of J.H. Cohn LLP.
|
|
23.2
|
Consent
of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included in Exhibit
5.1).*
|
|
24.1
|
Powers
of Attorney (included on the signature page of this Registration
Statement).
|
__________________
|
*
|
To
be filed by amendment.
|
|
‡
|
Confidential
treatment will be requested for portions of this document. The omitted
portions of this document will be filed separately with the
SEC.
|
Item
17. Undertakings.
(a) The
undersigned registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(b) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The
undersigned registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California on the 15th day
of April, 2010.
|
IASO
PHARMA
INC.
|
|||
|
By:
|
/s/
Matthew A. Wikler
|
||
|
Name:
|
Matthew
A. Wikler
|
||
|
Title:
|
President
and Chief Executive Officer
|
||
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Matthew A. Wikler as his true and lawful
attorney-in-fact, acting alone, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments
to this registration statement, and any related registration statement filed
pursuant to Rule 462(b) of the Act and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact or
his substitute, acting along, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/
Matthew A. Wikler
|
President,
Chief Executive Officer and Director
(Principal
Executive, Financial and Accounting
|
April
15, 2010
|
|
Matthew
A. Wikler
|
||
| Officer) | ||
|
/s/
J. Jay Lobell
|
Director
|
April
15, 2010
|
|
J.
Jay Lobell
|
EXHIBIT
INDEX
|
Number
|
Description
of Exhibit
|
|
1.1
|
Form
of Underwriting Agreement.*
|
|
3.1
|
Certificate
of Incorporation.
|
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation.
|
|
3.3
|
By-laws.
|
|
3.4
|
Form
of Amended and Restated Certificate of Incorporation, to be effective upon
the completion of the offering.*
|
|
3.5
|
Form
of Amended and Restated By-laws, to be effective upon the completion of
the offering.*
|
|
4.1
|
Specimen
common stock certificate.*
|
|
4.2
|
Specimen
Unit certificate.*
|
|
4.3
|
Specimen
warrant certificate.*
|
|
4.4
|
Form
of warrant agreement.*
|
|
4.5
|
Form
of Unit purchase warrant.*
|
|
4.6
|
Form
of Note Purchase Agreement for 10% Notes.
|
|
4.7
|
Form
of 10% Note.
|
|
4.8
|
Note
and Warrant Purchase Agreement, dated as of January 15, 2009, between the
Registrant and Paramount Credit Partners, LLC.
|
|
4.9
|
10%
Senior Promissory Note, dated January 15, 2009, issued to Paramount Credit
Partners, LLC.
|
|
4.10
|
Common
Stock Warrant, dated January 15, 2009, issued to Paramount Credit
Partners, LLC.
|
|
4.11
|
Note
and Warrant Purchase Agreement, dated as of June 24, 2009, between the
Registrant and Paramount Credit Partners, LLC.
|
|
4.12
|
10%
Senior Promissory Note, dated June 24, 2009, issued to Paramount Credit
Partners, LLC.
|
|
4.13
|
Common
Stock Warrant, dated June 24, 2009, issued to Paramount Credit Partners,
LLC.
|
|
4.14
|
Amended
and Restated Future Advance Promissory Note, dated September 30, 2009,
issued to Paramount Biosciences, LLC.
|
|
4.15
|
Amended
and Restated Future Advance Promissory Note, dated September 30, 2009,
issued to The Lindsay A. Rosenwald 2000 Family Trusts Dated December 15,
2000.
|
|
4.16
|
Amended
and Restated Future Advance Promissory Note, dated September 30, 2009,
issued to Capretti
Grandi,
LLC.
|
|
4.17
|
Form
of Note and Warrant Purchase Agreement for 8% Notes.
|
|
4.18
|
Form
of 8% Note.
|
|
4.19
|
Form
of 8% Warrant.
|
|
4.20
|
Placement
Agent Warrant.
|
|
4.21
|
Consultant
Warrant.
|
|
5.1
|
Opinion
of Olshan Grundman Frome Rosenzweig & Wolosky LLP.*
|
|
10.1
|
License
Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co.
Ltd. and the Registrant.*‡
|
|
10.2
|
Amendment
No. 1, effective as of April 22, 2008, to License Agreement, dated as of
June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and the
Registrant.*‡
|
|
10.3
|
License
Agreement, dated as of June 12, 2007, between UCB Celltech and the
Registrant.*‡
|
|
10.4
|
Non-Exclusive
Patent License Agreement, effective as of November 4, 2009, by and between
the Registrant and a Third-Party.*‡
|
|
10.5
|
Exclusive
Sublicense Agreement, effective as of July 10, 2007, by and between Santee
Biosciences, Inc. and the Registrant.*‡
|
|
10.6
|
2007
Stock Incentive Plan. *
|
|
10.7
|
Employment
Agreement, effective as of February 28, 2010, by and between the
Registrant and Matthew A. Wikler, MD, MBA, FIDSA.
|
|
10.8
|
Employment
Agreement, dated as of January 19, 2007, by and between the Registrant and
James Rock.
|
|
10.9
|
Amendment,
dated August 18, 2008, to Employment Agreement, dated as of January 19,
2007, by and between the Registrant and James Rock.
|
|
10.10
|
Employment
Agreement, dated May 17, 2007, by and between the Registrant and Mark
Lotz.
|
|
10.11
|
Form
of Indemnification Agreement between the Company and each of its directors
and executive officers.*
|
|
10.12
|
Loan
Agreement, dated as of December 3, 2008, among Bank of America, N.A., the
Registrant, Paramount Biosciences, LLC, Ventrus Biosciences, Inc., Balboa
Biosciences, Inc., Asphelia Pharmaceuticals, Inc., Coronado Biosciences,
Inc. and Mt. Cook Pharma, Inc.
|
|
10.13
|
Amendment
No. 1, dated as of November 10, 2009, between Bank of America, N.A., the
Registrant, Paramount Biosciences, LLC, Ventrus Biosciences, Inc., Balboa
Biosciences, Inc., Asphelia Pharmaceuticals, Inc., Coronado Biosciences,
Inc. and Mt. Cook Pharma, Inc.
|
|
23.1
|
Consent
of J.H. Cohn LLP.
|
|
23.2
|
Consent
of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included in Exhibit
5.1).*
|
|
24.1
|
Powers
of Attorney (included on the signature page of this Registration
Statement).
|
__________________
|
*
|
To
be filed by amendment.
|
|
‡
|
Confidential
treatment will be requested for portions of this document. The omitted
portions of this document will be filed separately with the
SEC.
|
II-9