Attached files
| file | filename |
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| EX-4.6 - SEELOS THERAPEUTICS, INC. | v196270_ex4-6.htm |
| EX-23.1 - SEELOS THERAPEUTICS, INC. | v196270_ex23-1.htm |
| EX-10.31 - SEELOS THERAPEUTICS, INC. | v196270_ex10-31.htm |
| EX-10.29 - SEELOS THERAPEUTICS, INC. | v196270_ex10-29.htm |
As
filed with the Securities and Exchange Commission on September 13,
2010
Registration
No. 333-169132
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment
No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Apricus
Biosciences, Inc.
(Exact
name of registrant as specified in its charter)
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Nevada
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2834
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87-0449967
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(State
or other jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
No.)
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6330
Nancy Ridge Drive, Suite 103
San
Diego, California 92121
(858)
222-8041
(Address, including zip code and
telephone number, including area code, of registrant’s principal executive
offices)
Bassam
B. Damaj, Ph.D.
President
and Chief Executive Officer
6330
Nancy Ridge Drive, Suite 103
San
Diego, California 92121
(858)
222-8041
(Name, address, including zip code
and telephone number, including area code, of agent for
service)
Copies
to:
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Ryan
Murr, Esq.
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Kyle
Guse, Esq.
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Goodwin
Procter LLP
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McDermott
Will & Emery LLP
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Three
Embarcadero Center, 24th
Floor
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275
Middlefield Road
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San Francisco,
California 94111-4003
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Menlo
Park, California 94025
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(415) 733-6000
(phone)
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(650)
815-7400 (phone)
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(415)
677-9041 (facsimile)
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(650)
815-7401 (facsimile)
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Approximate date of commencement of
proposed sale to public: as soon as
practicable after this Registration Statement is declared
effective.
If any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the
following box. R
If this Form is
filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box
and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. £
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering.
£
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering.
£
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer £
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Accelerated
filer £
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Non-accelerated
filer £
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Smaller reporting company R
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(Do not check if a smaller
reporting company)
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CALCULATION OF REGISTRATION FEE
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||||||||
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Title of Each Class of Securities to be Registered
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Proposed maximum aggregate
offering price (1)(2)
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Amount of registration
fee (4)
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||||||
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Units
Consisting of Common Stock and Warrants
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$ | 10,000,000 | $ | 713 | ||||
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Common
Stock Underlying Units (3)
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- | - | ||||||
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Warrants
Underlying Units (3)
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- | - | ||||||
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Common
Stock Underlying Warrants
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$ | 4,166,667 | $ | 297 | ||||
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Total
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$ | 14,166,667 | $ | 1,010 | ||||
(1) Estimated
solely for the purpose of calculating the registration fee pursuant to Rule
457(o) under the Securities Act of 1933, as amended (the “Securities
Act”).
(2) Pursuant
to Rule 416(a) of the Securities Act, this registration statement shall be
deemed to cover additional securities that may be offered or issued to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
(3) No
fee required pursuant to Rule 457 under the Securities Act.
(4) Fee
of $463.45 previously paid.
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 Securities and
Exchange Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
Subject
to Completion, Dated September 13, 2010
PROSPECTUS
Up
to 1,650,000 Units, each consisting of
Common
Stock and Warrants
We are
offering up to 1,650,000 units, each unit consisting of three shares
of common stock and one warrant. Each warrant entitles the holder to
purchase one share of our common stock. Each unit will separate
immediately upon issuance. The warrants are exercisable at an initial
exercise price of 42% of the offering price per unit for a five-year term. We
are not required to sell any specific dollar amount or number of units, but will
use our best efforts to sell all of the units being offered. This offering
expires on the earlier of (i) the date upon which all of the units being offered
have been sold, or (ii) 30 days from the date of this
prospectus.
All
costs associated with this registration will be borne by us. Our common
stock is listed on the NASDAQ Capital Market under the symbol
“APRI.” On September 9, 2010, the closing price of our common stock
as reported on the NASDAQ Capital Market was $2.02. We do not intend to
list the warrants for trading on any market or exchange.
Investing
in our common stock involves risks. See “Risk Factors” on
page 8.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per Unit
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Total
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|||||||
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Offering
price per unit
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$ | $ | ||||||
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Placement
agent’s fees
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$ | $ | ||||||
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Offering
proceeds, before expenses, to Apricus Biosciences,
Inc.
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$ | $ | ||||||
Dawson
James Securities, Inc. is the placement agent for this offering. Dawson James is
not purchasing or selling any units, nor are they required to arrange for the
purchase and sale of any specific number or dollar amount of units, other than
to use their “best efforts” to arrange for the sale of units by us. We intend to
close this offering within 30 days from the date of this prospectus. We do not
intend to have multiple closings. We have not arranged to place the funds in an
escrow, trust or similar account.
We
expect to deliver the shares of common stock to investors on or about
,
2010.
DAWSON
JAMES SECURITIES, INC.
The
date of this prospectus is September 13, 2010.
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F-1
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You should rely only on the
information contained in this document and any free writing prospectus prepared by or on
behalf of us or to which we have referred you. We have not, and the placement agent
has not, authorized anyone to provide you with additional or different information.
This document may only be used where it is legal to sell these securities. The
information in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale of shares of our common
stock.
This
summary highlights certain information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all of the information you
should consider before investing in our common stock. You should read this
entire prospectus carefully, especially the information set forth under the
headings “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and the
related notes appearing at the end of this prospectus, before making an
investment decision.
Our
Company
We are
a pharmaceutical research and development company focused on the design and
development of products and technologies in multiple therapeutic areas,
including oncology, sexual dysfunction, autoimmune diseases and
pain/inflammation. Our wholly-owned subsidiary, Bio-Quant, Inc., was
acquired in December 2009 and is the largest pre-clinical research organization,
or CRO, in San Diego. Bio-Quant generated approximately $6.0 million in
revenues during the last 12 months and has more than 300 pharmaceutical and
biotechnology clients. In addition to providing revenue, the acquisition
of Bio-Quant has brought formulation and pre-clinical research expertise to
further develop our patented drug delivery technology, NexACT®. Since the
acquisition of Bio-Quant, we have been able to add ten additional product
candidate assets to our pipeline during the last nine months and are actively
seeking multiple potential development and commercialization
partners.
On
September 10, 2010, we changed our name from NexMed, Inc. to Apricus
Biosciences, Inc. The change was made in light of a number of positive changes
over the past year. More specifically, we have expanded our product pipeline and
re-energized the development of the NexACT technology as a drug delivery
platform. We have also begun active licensing efforts for proprietary
programs, as well as third party programs enhanced with the NexACT technology.
Additionally, we added a non-GLP (good laboratory practice) CRO business with
our acquisition of Bio-Quant, Inc. in December 2009, which has been used to help
advance these new applications for NexACT. As a result of these changes, we
rebranded the Company as part of a broader effort to alert potential development
partners and the investment community that we have evolved and now have a
broader business model.
NexACT
Technology
The
NexACT drug delivery technology is designed to enhance the delivery of an active
drug to the patient. Successful application of the NexACT technology could
improve therapeutic outcomes and reduce systemic side effects that often
accompany existing oral and injectable medications. Prior to the acquisition of
Bio-Quant, we invested approximately $185 million on the development of the
NexACT technology using a variety of compatible drug compounds and delivery
systems. We believe that with Bio-Quant’s expertise, we will increase our
research and development efficiency resulting in multiple future product
development assets.
Through
the acquisition of Bio-Quant we have expanded our research and development
capabilities with NexACT into
the areas of oncology, inflammation, immunology and metabolic diseases. As
a result, we are conducting additional studies to extend the validation of the
NexACT technology including the oral or subcutaneous delivery of classes of
drugs for these indications.
NexACT
enables multi-route administration of active drugs across numerous therapeutic
classes. The NexACT technology has been tested in human clinical trials as
a means of transdermal delivery of drugs (through the skin) and has been shown
in pre-clinical animal studies to serve as an effective vehicle for the delivery
of a wide range of drugs and drug classes, including small molecules, peptides,
proteins and antibodies, via the following routes of
administration:
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-
Transdermal (topical)
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Rectal
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Oral
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Buccal (absorbed in the mouth)
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Subcutaneous
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NexACT is
based on proprietary permeation enhancers that are biodegradable and
biocompatible, and that mimic the composition of human skin. NexACT
enables the rapid absorption of high concentrations of drug directly at the
target site or systemically into the blood stream. NexACT has been tested
in human clinical trials in over 5,000 patients involving three different
investigational drugs: Vitaros®, Femprox® and MycoVaTM.
In these clinical trials, NexACT demonstrated a very favorable safety profile,
with minimal serious adverse effects that were attributed to the drug
candidates.
Product
Candidate Pipeline
We
currently have a total of 13 research and development programs in the areas of
oncology, autoimmune/anti-inflammatory/pain, sexual dysfunction, anti-infectives
and cosmeceuticals and metabolic diseases. Each of these programs and
their stage of development is listed below. None of the drug candidates
being studied in these programs have been approved for marketing and we
currently have no ongoing human clinical trials. See “Use of
Proceeds.”
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Therapeutic Area
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Drug Candidate
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Indication
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Delivery
Method
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Development Stage
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Sexual
Dysfunction
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Vitaros
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Erectile
Dysfunction
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Topical
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Approval
decision pending (Canada)
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Dermatology
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MycoVaTM
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Onychomycosis
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Topical
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Phase
III
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Sexual
Dysfunction
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Femprox
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Female
Sexual Arousal Disorder
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Topical
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Phase
II
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Oncology
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PrevOncoTM
(lansoprazole)
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HCC
(Liver Cancer)
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Oral
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Investigational
new drug application (“IND”) accepted (Phase 2/3)
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Cardiovascular
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RayVaTM
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Raynaud’s
Syndrome
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Topical
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IND
to be filed (Phase 2/3)
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Oncology
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Paclitaxel
(Taxol®)
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Squamous
Carcinoma Mouth Cancers
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Topical
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Pre-clinical
animal studies
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Oncology
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Filgrastim
(Neupogen®)
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Post-chemotherapy
Recovery of Neutrophil Counts
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Topical
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Pre-clinical
animal studies
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Oncology
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Rituxan® | Non-Hodgkin’s Lymphoma |
Subcutaneous
and
Topical
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Pre-clinical
animal studies
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Oncology
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Fluorouracil
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Actinic
Keratosis
(skin
lesions)
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Topical
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Pre-clinical
animal studies
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Dermatology
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PsoriaVaTM
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Psoriasis
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Topical
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Pre-clinical
animal studies
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Anti-Inflammatory
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Lidocaine
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Pain
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Topical
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Pre-clinical
animal studies
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Dermatology
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DDAIP
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Anti-Aging
(Cosmetic)
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Topical
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Pre-clinical
animal studies
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| Metabolic Diseases | Insulin | Diabetes | Subcutaneous | Pre-clinical animal studies |
Bio-Quant
CRO Business
Bio-Quant
performs both in vitro
and in vivo
pharmacology, pharmacokinetics and toxicology studies to support pre-IND
enabling packages. Bio-Quant performs studies for its clients in the early
stages of drug development and discovery. Bio-Quant’s clients range from
larger global pharmaceutical companies to large and small biotechnology
companies.
Approximately
80% of Bio-Quant’s revenue has been generated from pre-clinical contract
services. The CRO industry in general continues to be dependent on the
research and development efforts of pharmaceutical and biotechnology companies
as major customers, and we believe this dependence will continue. The
current uncertain economic conditions are believed to have caused customers to
re-evaluate priorities resulting in increases in contracts for the more
promising projects, scaling back and/or cancelling other good laboratory
practice standard projects towards clinical trials. Many companies in the
biopharmaceutical industry are reducing costs and, often, their workforce.
Bio-Quant may benefit from increased outsourcing on the part of its customers,
or it may be harmed by a reduction in spending if the biopharmaceutical industry
scales back on pre-clinical projects. Bio-Quant views the current
conditions as an opportunity to attract well qualified candidates to strengthen
and improve its operations. Another trend in the industry is the decline
in prescription drug sales caused by cost conscious patients opting for less
expensive generic drugs or none at all. This presents both an opportunity
and a challenge to Bio-Quant, as its customers will need to find less costly or
more efficient research options often through the establishment of strategic
alliances or partnerships. Bio-Quant believes it is well positioned for
this development.
With
access to our NexACT technology, we intend to differentiate the Bio-Quant
business from its competitors because it now can offer a proprietary drug
delivery technology as a service to current and potential clients who need
innovative alternatives and solutions to their drug development
problems.
Bio-Quant
has two laboratories and housing facilities along with an experienced scientific
staff of 19 employees.
Strategy
Our broad
strategy is to generate revenues from the growth of our CRO business while
seeking to monetize the NexACT technology
through out-licensing agreements with pharmaceutical and biotechnology companies
worldwide. At the same time, we are actively pursuing partnering
opportunities for our clinical-stage NexACT based treatments as discussed
below. The
successful licensing or sale of one or more of these products would generate
additional revenues for funding our growth strategy. Each of these
strategic elements is described below.
Develop and
Monetize Pipeline. We are seeking to derive value from our current
pipeline of clinical and pre-clinical candidates through out-licensing, sales
and commercial partnerships. In doing so, we are seeking to find
development partners who will bear substantially all of the future costs
associated with the development of these programs in exchange for granting the
partners the rights to commercialize the drugs, if approved. Each
agreement with these development partners may include a combination of
upfront payments, license and/or milestone fees and future royalty
payments. In an effort to make our programs more attractive to licensing
partners, we are also working with the U.S. Food and Drug Administration, or the
FDA, on filing INDs, which would allow us to commence human clinical
trials. Earlier this year, we filed an IND for PrevOnco for a Phase 2
trial. Based on feedback from the FDA, we expect to revise this IND to allow
PrevOnco to be used in a Phase 3 study as a second-line treatment for certain
cancers. Later this year, we intend to file an IND for RayVa to be studied
as a treatment for Raynaud’s Syndrome in a Phase 2/3 clinical trial and for
PsoriaVa to be studied as a topical treatment for mild to moderate psoriasis
patients in a Phase 2/3 clinical trial, and potentially in bio-equivalent study
to the currently marketed Taclonex.
We intend
to continue our efforts developing treatments based on the application of NexACT
technology to drugs: (1) previously approved by the FDA, (2) with proven
efficacy and safety profiles, (3) with patents expiring in the near term or
expired and (4) with proven market track records and potential. Further,
with the pre-clinical and formulation expertise derived from the acquisition of
Bio-Quant, we have begun to develop new formulations based on the application of
NexACT technology to drug compounds in the areas of oncology, pain/inflammation,
autoimmune diseases, and metabolic diseases.
NexACT as
Licensing Platform. In addition to seeking to monetize our existing
pipeline, we are seeking to derive value from our NexACT technology platform as
a means of enhancing the delivery of other companies’ drugs and drug
candidates. NexACT can be used to deliver drugs through different methods
of administration and can be used as a means to enhance the bioavailability of
drugs. To help accelerate the licensing of our NexACT technology, we are
using our Bio-Quant business to conduct pre-clinical proof-of-concept studies on
other companies’ compounds to provide data on how NexACT may be of value to
these clients. Moreover, we believe that we can enhance our business
development efforts by offering potential partners clearly defined regulatory
paths for our products under development. Towards that end, we will
continue to work closely with our regulatory and clinical consultants, and meet
with the FDA in order to obtain Special Protocol Assessments, or SPAs, for our
planned clinical studies. When the FDA grants an SPA for a study, the FDA
generally cannot change the clinical endpoints at a later date.
Grow CRO
Business. We believe that we can grow our CRO business at Bio-Quant
both through organic growth of the existing business and through the acquisition
of small complementary CROs. We believe this strategy will allow Bio-Quant
to expand its operations by broadening its service capabilities and expanding
into new markets.
Company
Information
We are
a Nevada corporation and have been in existence since 1987. We have
operated in the pharmaceutical industry since 1995, focusing on research and
development in the area of drug delivery. On September 10, 2010, we
changed our corporate name from NexMed, Inc. to Apricus Biosciences,
Inc. Our principal executive offices are at 6330 Nancy Ridge Drive, Suite
103, San Diego, California 92121 and our telephone number is (858)
222-8041.
This
prospectus contains trademarks of others, including Taxol®,
Neupogen®,
Lantus®
and Rituxan®.
Taxol is a registered trademark of Bristol-Myers Squibb Company, Neupogen is a
registered trademark of Amgen, Lantus is a registered trademark of Sanofi
Aventis and Rituxan is a registered trademark of Biogen Idec; we claim no rights
to these drugs or these trademarks. NexACT, Vitaros and Femprox are
registered trademarks of the Company .
THE
OFFERING
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Securities
offered
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Up
to 1,650,000 units. Each unit will consist of three
shares of common stock and one warrant. Each warrant entitles its
holder to purchase one share of our common stock. Each unit will
immediately separate upon issuance.
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Offering
price
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An
assumed price of $6.06 per unit, which is the closing price of our common
stock on September 9, 2010. This assumed offering price per unit is used
throughout this prospectus each time the price per unit is
stated.
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Description
of warrants
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The
warrants will be exercisable at any time until the fifth anniversary of
the closing date at an exercise price of 42% of the offering price per
unit.
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Common
stock outstanding before this offering
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12,626,541
shares.
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Common
stock to be outstanding after this offering
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17,576,541 shares,
assuming 4,950,000 shares are issued in this offering, which does not
include 1,650,000 shares of common stock issuable upon exercise of the
warrants included in the offered units.
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Use
of proceeds
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We
plan to use the net proceeds of this offering to further develop our
product candidates and for general working capital purposes. For a
more complete description of our intended use of proceeds from this
offering, see “Use of Proceeds.”
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Risk
factors
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You
should read the “Risk Factors” section of, and all of the other
information set forth in, this prospectus for a discussion of factors to
consider carefully before deciding to invest in our
securities.
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NASDAQ
Capital Market symbol
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“APRI”
(previously “NEXM”)
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The
number of shares of our common stock to be outstanding after the closing of this
offering is based on 12,626,541 shares of our common stock outstanding as of
June 30, 2010 and excludes:
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·
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156,771 shares
of common stock issuable upon exercise of stock options outstanding and
having a weighted-average exercise price of $16.07 per
share;
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·
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262,103
shares of common stock issuable upon the vesting of restricted stock
awards;
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·
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627,986 shares
of common stock reserved for future issuance under our equity compensation
plans; and
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·
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717,095 shares
of common stock issuable upon the exercise of warrants and convertible
notes outstanding (see “Risk Factors – We may issue additional shares of
our capital stock that could dilute the value of your shares of common
stock”).
|
Unless
otherwise indicated, the information in this prospectus reflects a 15-for-1
reverse split of our common stock, which was effected on June 21,
2010.
Before you decide to invest in our
common stock, you should carefully consider the risks described below, together with
the other information contained in this prospectus, including the financial
statements and the related notes that appear at the end of this prospectus. We
believe the risks described below are the risks that are material to us as of the date of
this prospectus. If any of the following risks occur, our business, financial
condition, results of operations and future growth prospects would likely be materially
and adversely affected. In these circumstances, the market price of our common stock
could decline, and you may lose all or part of your investment.
Risks
Related To The Company
We
continue to require external financing to fund our operations, which may not be
available.
We expect
our current cash reserves to provide us with sufficient cash to fund our
operations through the first quarter of 2011. While our CRO subsidiary,
Bio-Quant, is expected to continue to generate revenues that partially offset
our operating expenses, we do not believe that Bio-Quant will generate positive
cashflow needed to fund our ongoing operations, including the development of our
current products under development and the annual costs to remain a public
company, including legal, audit and listing fees. Given our current
limited cash resources and lack of profitability, we will not be able to
commence human clinical trials for any of our product candidates under
development unless we raise additional capital, enter into partnering agreements
and/or significantly grow Bio-Quant’s CRO business. If we are unable to
accomplish these objectives, we would be unable to advance certain programs and
may be forced to curtail our operations.
We
will continue to incur operating losses.
We have
not marketed or generated sales revenues in the U.S. from our product candidates
under development, we have never been profitable and have incurred an
accumulated deficit of approximately $185 million from our inception through
June 30, 2010. Our ability to generate revenues and to achieve profitability and
positive cash flow will depend on the successful licensing or commercialization
of our product candidates currently under development and the ability to grow
Bio-Quant’s pre-clinical service business to a level sufficient to generate
positive operating income to cover the costs of our operations, including
maintaining our public listing. In the quarter ended June 30, 2010,
Bio-Quant’s revenues declined as management resources shifted to development
efforts for our product candidates. Although we have added additional
personnel to the Bio-Quant business in an effort to bolster revenues, it is
uncertain whether these efforts will be successful and the Bio-Quant revenues
may not continue at historical levels or grow at the levels that we have
projected.
Our
ability to become profitable will depend, among other things, on our (1)
development of our proposed product candidates, (2) obtaining of regulatory
approvals of our proposed product candidates, (3) success in licensing,
manufacturing, distributing and marketing our proposed product candidates, if
approved, and (4) increasing the profitability of Bio-Quant through acquisitions
and organic growth of its current operations. If we are unable to
accomplish these objectives, we may be unable to achieve profitability and would
need to raise additional capital to sustain our operations.
Our
independent registered public accounting firm has doubt as to our ability to
continue as a going concern.
As a
result of our losses to date, expected losses in the future, limited capital
resources and accumulated deficit, our independent registered public accounting
firm has concluded that there is substantial doubt as to our ability to continue
as a going concern, and accordingly, our independent registered public
accounting firm has modified their report on our December 31, 2009 consolidated
financial statements included in this prospectus in the form of an explanatory
paragraph describing the events that have given rise to this uncertainty. These
factors may make it more difficult for us to obtain additional funding to meet
our obligations. Our continuation is dependent upon our ability to generate or
obtain sufficient cash to meet our obligations on a timely basis and ultimately
to attain profitable operations. We anticipate that we will continue to incur
significant losses at least until successful commercialization of one or more of
our product candidates, and we may never operate profitably in the
future.
If
we fail to attract and keep senior management and key scientific personnel, we
may be unable to successfully operate our business.
Our
success depends in part on our continued ability to attract, retain and motivate
highly qualified management and scientific personnel and on their ability to
develop and maintain important relationships with healthcare providers,
clinicians and scientists. We are highly dependent upon our senior
management and scientific staff, particularly Bassam Damaj, Ph.D., our Chief
Executive Officer. Although we have employment agreements with most of our
executives, including Dr. Damaj, these agreements are generally terminable
at will at any time, and, therefore, we may not be able to retain their services
as expected. The loss of services of one or more members of our senior
management and scientific staff could delay or prevent us from obtaining new
clients and successfully operating our business. Competition for qualified
personnel in the biotechnology and pharmaceuticals field is intense,
particularly in the San Diego, California area, where our offices are
located. We may need to hire additional personnel as we expand our
commercial activities. We may not be able to attract and retain qualified
personnel on acceptable terms.
Our
ability to maintain, expand or renew existing business with our clients and to
get business from new clients, particularly in the drug development sector, also
depends on our ability to subcontract and retain scientific staff with the
skills necessary to keep pace with continuing changes in drug development
technologies.
We
currently have no sales force or marketing organization and will need, but may
not be able to, attract marketing partners or afford qualified or experienced
marketing and sales personnel for our product candidates under
development.
We are
waiting for an approval decision in Canada on our drug candidate, Vitaros.
Even if Vitaros is approved for marketing, we have no marketing partner or
licensee and no sales and marketing capabilities. In order to market
Vitaros or any other product candidate that may be approved, we will need to
build a sales and marketing infrastructure and/or attract marketing partners
that will need to spend significant funds to inform potential customers,
including third-party distributors, of the distinctive characteristics and
benefits of our product candidates. Our operating results and long term success
will depend, among other things, on our ability to establish (1) successful
arrangements with domestic and international distributors and marketing partners
and (2) an effective internal marketing organization. Consummation of
partnering arrangements is subject to the negotiation of complex contractual
relationships, and we may not be able to negotiate such agreements on a timely
basis, if at all, or on terms acceptable to us. If we enter into third
party arrangements, our revenues from Vitaros sales would be lower as we would
share the revenues with our development partners. If we are unable to
launch the drug, we may realize little or no revenue from sales in Canada or
other markets where it may be approved.
Pre-clinical
and clinical trials are inherently unpredictable. If we or our partners do
not successfully conduct these trials, we or our partners may be unable to
market our product candidates.
Through
pre-clinical studies and clinical trials, our product candidates must be
demonstrated to be safe and effective for their indicated uses. Results from
pre-clinical studies and early clinical trials may not be indicative of, or
allow for prediction of results in later-stage testing. Many of the
pre-clinical studies that we have conducted are in animals with “models” of
human disease states. Although these tests are widely used as screening
mechanisms for drug candidates before being advanced to human clinical studies,
results in animal studies are less reliable predictors of safety and efficacy
than results of human clinical studies. Future clinical trials may not
demonstrate the safety and effectiveness of our product candidates or may not
result in regulatory approval to market our product candidates. Commercial
sales of our product candidates cannot begin until final regulatory approval is
received. The failure of the FDA or other regulators to approve our
product candidates for commercial sales will have a material adverse effect on
our prospects.
Patents
and intellectual property rights are important to us but could be
challenged.
Proprietary
protection for our pharmaceutical products and products under development is of
material importance to our business in the U.S. and most other countries. We
have sought and will continue to seek proprietary protection for our product
candidates to attempt to prevent others from commercializing equivalent products
in substantially less time and at substantially lower expense. Our success may
depend on our ability to (1) obtain effective patent protection within the U.S.
and internationally for our proprietary technologies and products, (2) defend
patents we own, (3) preserve our trade secrets, and (4) operate without
infringing upon the proprietary rights of others. In addition, we have
agreed to indemnify our partners for certain liabilities with respect to the
defense, protection and/or validity of our patents and would also be required to
incur costs or forego revenue if it is necessary for our partners to acquire
third party patent licenses in order for them to exercise the licenses acquired
from us.
We
currently hold ten U.S. patents out of a series of patent applications that we
have filed in connection with our NexACT technology and our NexACT-based
products under development. To further strengthen our global patent position on
our proprietary products under development, and to expand the patent protection
to other markets, we have filed under the Patent Cooperation Treaty
corresponding international applications for our issued U.S. patents and pending
U.S. patent applications. We previously held two patents covering the
first generation of the NexACT technology enhancer, which expired in 2008 and
2009. While we believe there are significant disadvantages to using the
permeation enhancers covered by these expired patents, third parties may
nevertheless develop competitive products using the enhancer technology now that
it is no longer patent protected.
While we
have obtained patents and have several patent applications pending, the extent
of effective patent protection in the U.S. and other countries is highly
uncertain and involves complex legal and factual questions. No consistent
policy addresses the breadth of claims allowed in or the degree of protection
afforded under patents of medical and pharmaceutical companies. Patents we
currently own or may obtain might not be sufficiently broad enough to protect us
against competitors with similar technology. Any of our patents could be
invalidated or circumvented.
While we
believe that we have valid patent claims, the holders of competing patents could
determine to commence a lawsuit against us and even prevail in any such
lawsuit. We have also sold certain patents in transactions where we have
licensed out rights to our drug candidates. In these transactions, we have
agreed to indemnify the purchaser from third party patent claims, which could
expose us to potentially significant damages for patents that we no longer
own. Any litigation could result in substantial cost to and diversion of
effort by us, which may harm our business. In addition, our efforts to protect
or defend our proprietary rights may not be successful or, even if successful,
may result in substantial cost to us.
We
and our licensees depend upon third party manufacturers for chemical
manufacturing supplies.
We and
our licensees are dependent on third party chemical manufacturers for the active
drugs in our NexACT-based products under development, and for the supply of our
NexACT enhancers that are essential in the formulation and production of our
topical products. These products must be supplied on a timely basis and at
satisfactory quality levels. If our validated third party chemical
manufacturers fail to produce quality products on time and in sufficient
quantities, our results would suffer, as we or our licensees would encounter
costs and delays in revalidating new third party suppliers.
We
face severe competition.
We are
engaged in a highly competitive industry. We and our licensees can expect
competition from numerous companies, including large international enterprises,
and others entering the market for products similar to ours. Most of these
companies have greater research and development, manufacturing, marketing,
financial, technological, personnel and managerial resources. Acquisitions of
competing companies by large pharmaceutical or healthcare companies could
further enhance such competitors’ financial, marketing and other resources.
Competitors may complete clinical trials, obtain regulatory approvals and
commence commercial sales of their products before we could enjoy a significant
competitive advantage. Products developed by our competitors may be more
effective than our product candidates.
The
Bio-Quant CRO business primarily competes against in-house departments of
pharmaceutical, biotechnology and medical device companies, academic
institutions and other contract research organizations. Competitors in
Bio-Quant’s industry range from small, limited-service providers to full
service, global contract research organizations. Many of Bio-Quant’s
competitors have an established global presence, including Quintiles
Transnational Corp., Covance, Inc., Parexel International Corporation,
Pharmaceutical Product Development, Inc., Icon Clinical Research, and Kendle
International, Inc. In addition, many of Bio-Quant’s competitors have
substantially greater financial and other resources than Bio-Quant does and
offer a broader range of services in more geographical areas than Bio-Quant
does. Significant factors in determining whether Bio-Quant will be able to
compete successfully include: its consultative capabilities; its reputation for
on-time quality performance; its expertise and experience in specific drug
discovery, research and development areas; the scope of its service offerings;
its strength in various geographic markets; the price of its services; and its
size.
If
Bio-Quant’s services are not competitive based on these or other factors and
Bio-Quant is unable to develop an adequate level of new business, its business,
backlog position, financial condition and results of operations will be
materially and adversely affected. In addition, Bio-Quant may compete for
fewer clients arising out of consolidation within the pharmaceutical industry
and the growing tendency of drug companies to outsource to a smaller number of
preferred contract research organizations that have far greater resources and
capabilities.
Bio-Quant’s
services may from time to time experience periods of increased price competition
that could have a material adverse effect on its profitability and
revenues. Additionally, the CRO industry is not highly capital-intensive,
and the financial costs of entry into the industry are relatively low.
Therefore, as a general matter, the industry has few barriers to entry.
Newer, smaller entities with specialty focuses, such as those aligned to a
specific disease or therapeutic area, may compete aggressively against Bio-Quant
for clients.
We
may be subject to potential product liability and other claims, creating risks
and expense.
We are
also exposed to potential product liability risks inherent in the development,
testing, manufacturing, marketing and sale of human therapeutic products.
Product liability insurance for the pharmaceutical industry is extremely
expensive, difficult to obtain and may not be available on acceptable terms, if
at all. We currently have liability insurance to cover claims related to our
product candidates that may arise from clinical trials, with coverage of $1
million for any one claim and coverage of $3 million in total, but we do not
maintain product liability insurance for marketed products as our product
candidates have yet to be approved for commercialization. We may need to
acquire such insurance coverage prior to the commercial introduction of our
product candidates. If we obtain such coverage, we have no guarantee that the
coverage limits of such insurance policies will be adequate. A successful claim
against us if we are uninsured, or which is in excess of our insurance coverage,
if any, could have a material adverse effect upon us and on our financial
condition.
Industry
Risks
Instability
and volatility in the financial markets and the global economic recession are
likely to have a negative impact on our ability to raise necessary funds and on
our business, financial condition, results of operations and cash
flows.
During
the past several years, there has been substantial volatility and a decline in
financial markets due in part to the lethargic global economic
environment. In addition, there has been substantial uncertainty in the
capital markets and access to financing is uncertain. These conditions are
likely to have an adverse effect on our industry, licensing partners, and
business, including our financial condition, results of operations and cash
flows.
To the
extent that we do not generate sufficient cash from operations, we may need to
raise capital through equity sales and/or incur indebtedness, if available, to
finance operations. However, recent turmoil in the capital markets and the
potential impact on the liquidity of major financial institutions may have an
adverse effect on our ability to fund our business strategy through sales of
capital stock or through borrowings, under either existing or newly created
instruments in the public or private markets on terms that we believe to be
reasonable, if at all.
Changes
in trends in the pharmaceutical and biotechnology industries, including
difficult market conditions, could adversely affect our operating
results.
Industry
trends and economic and political factors that affect pharmaceutical,
biotechnology and medical device companies also affect our business. For
example, the practice of many companies in these industries has been to hire
companies like us to conduct discovery, research and development
activities. If these companies suspend these activities or otherwise
reduce their expenditures on outsourced discovery, research and development in
light of current difficult conditions in credit markets and the economy in
general, or for any other reason, our operations, financial condition and growth
rate could be materially and adversely affected. In the past, mergers,
product withdrawal and liability lawsuits, and other factors in the
pharmaceutical industry have also slowed decision-making by pharmaceutical
companies and delayed drug development projects. Continuation or increases
in these trends could have an adverse effect on our business. In addition,
numerous governments have undertaken efforts to control growing healthcare costs
through legislation, regulation and voluntary agreements with medical care
providers and pharmaceutical companies. If future cost-containment efforts
limit the profits that can be derived on new drugs, our clients might reduce
their drug discovery and development spending, which could reduce our revenue
and have a material adverse effect on our results of operations.
The
biotechnology, pharmaceutical and medical device industries generally and drug
discovery and development more specifically are subject to increasingly rapid
technological changes. Our competitors, clients and others might develop
technologies, services or products that are more effective or commercially
attractive than our current or future technologies, services or products, or
that render our technologies, services or products less competitive or
obsolete. If competitors introduce superior technologies, services or
products and we cannot make enhancements to our technologies, services or
products to remain competitive, our competitive position, and in turn our
business, revenue and financial condition, would be materially and adversely
affected.
We
and our licensees are subject to numerous and complex government regulations
which could result in delay and expense.
Governmental
authorities in the U.S. and other countries heavily regulate the testing,
manufacture, labeling, distribution, advertising and marketing of our proposed
product candidates. None of our proprietary products under development has been
approved for marketing in the U.S. Before any products we develop are marketed,
FDA and comparable foreign agency approval must be obtained through an extensive
clinical study and approval process.
The
studies involved in the approval process are conducted in three phases. In
Phase 1 studies, researchers assess safety or the most common acute adverse
effects of a drug and examine the size of doses that patients can take safely
without a high incidence of side effects. Generally, 20 to 100 healthy
volunteers or patients are studied in the Phase 1 study for a period of several
months. In Phase 2 studies, researchers determine the drug’s efficacy with
short-term safety by administering the drug to subjects who have the condition
the drug is intended to treat, assess whether the drug favorably affects the
condition, and begin to identify the correct dosage level. Up to several hundred
subjects may be studied in the Phase 2 study for approximately 6 to 12 months,
depending on the type of product tested. In Phase 3 studies, researchers further
assess efficacy and safety of the drug. Several hundred to thousands of patients
may be studied during the Phase 3 studies for a period from 12 months to several
years. Upon completion of Phase 3 studies, a New Drug Application is submitted
to the FDA or foreign governmental regulatory authority for review and
approval.
The
failure to obtain requisite governmental approvals for our product candidates
under development in a timely manner or at all would delay or preclude us and
our licensees from marketing our product candidates or limit the commercial use
of our product candidates, which could adversely affect our business, financial
condition and results of operations.
Any
failure on our part to comply with applicable regulations could result in the
termination of on-going research, discovery and development activities or the
disqualification of data for submission to regulatory authorities.
As a result of any such failure, we could be contractually required to
perform repeat services at no further cost to our clients, but at a substantial
cost to us. The issuance of a notice from regulatory authorities based
upon a finding of a material violation by us of applicable requirements could
result in contractual liability to our clients and/or the termination of ongoing
studies which could materially and adversely affect our results of
operations. Furthermore, our reputation and prospects for future work
could be materially and adversely diminished.
Because
we intend that our product candidates will be sold and marketed outside the
U.S., we and/or our licensees will be subject to foreign regulatory requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursements. These requirements vary widely from country to country. The
failure to meet each foreign country’s requirements could delay the introduction
of our proposed product candidates in the respective foreign country and limit
our revenues from sales of our proposed product candidates in foreign
markets.
Successful
commercialization of our product candidates may depend on the availability of
reimbursement to the consumer from third-party healthcare payors, such as
government and private insurance plans. Even if one or more products is
successfully brought to market, reimbursement to consumers may not be available
or sufficient to allow the realization of an appropriate return on our
investment in product development or to sell our product candidates on a
competitive basis. In addition, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to governmental
controls. In the U.S., federal and state agencies have proposed similar
governmental control and the U.S. Congress has recently adopted regulatory
reforms that affect companies engaged in the healthcare industry. Pricing
constraints on our product candidates in foreign markets and possibly in the
U.S. could adversely affect our business and limit our
revenues.
We
face uncertainty related to healthcare reform, pricing and reimbursement which
could reduce our revenue.
The U.S.
Congress recently adopted legislation regarding health insurance, which has been
signed into law. As a result of this new legislation, substantial changes could
be made to the current system for paying for healthcare in the United States,
including changes made in order to extend medical benefits to those who
currently lack insurance coverage. Extending coverage to a large population
could substantially change the structure of the health insurance system and the
methodology for reimbursing medical services, drugs and devices. These
structural changes could entail modifications to the existing system of private
payors and government programs, such as Medicare, Medicaid and State Children’s
Health Insurance Program, creation of a government-sponsored healthcare
insurance source, or some combination of both, as well as other changes.
Restructuring the coverage of medical care in the United States could impact the
reimbursement for prescribed drugs, biopharmaceuticals, medical devices, or our
product candidates. If reimbursement for our approved product candidates, if
any, is substantially less than we expect in the future, or rebate obligations
associated with them are substantially increased, our business could be
materially and adversely impacted.
Sales of
our product candidates, if approved for commercialization, will depend in part
on the availability of coverage and reimbursement from third-party payors such
as government insurance programs, including Medicare and Medicaid, private
health insurers, health maintenance organizations and other health care related
organizations. If any of our product candidates are approved for
commercialization, pricing and reimbursement may be uncertain. Both the federal
and state governments in the United States and foreign governments continue to
propose and pass new legislation affecting coverage and reimbursement policies,
which are designed to contain or reduce the cost of health care. Further federal
and state proposals and healthcare reforms are likely which could limit the
prices that can be charged for the product candidates that we develop and may
further limit our commercial opportunity. There may be future changes that
result in reductions in current coverage and reimbursement levels for our
products, if commercialized, and we cannot predict the scope of any future
changes or the impact that those changes would have on our
operations.
Adoption
of our product candidates, if approved, by the medical community may be limited
if third-party payors will not offer coverage. Cost control initiatives may
decrease coverage and payment levels for drugs, which in turn would negatively
affect the price that we will be able to charge. We are unable to predict all
changes to the coverage or reimbursement methodologies that will be applied by
private or government payors to any drug candidate we have in development. Any
denial of private or government payor coverage or inadequate reimbursement for
procedures performed using our drug candidates, if commercialized, could harm
our business and reduce our revenue.
Risks
Related To Owning Our Common Stock
Our
stock has previously been subject to delisting proceedings on NASDAQ and could
be subject to such proceedings in the future.
Currently,
our common stock trades on the NASDAQ Capital Market. We have previously
received notifications from NASDAQ informing us of certain listing deficiencies,
including failure to satisfy the minimum bid price and the minimum stockholders’
equity. Although we have since cured these deficiencies, it is possible
that we could fall out of compliance again in the future. If we fail to
maintain compliance with any listing requirements, we could be delisted and our
stock would be considered a penny stock under regulations of the Securities and
Exchange Commission and would therefore be subject to rules that impose
additional sales practice requirements on broker-dealers who sell our
securities. The additional burdens imposed upon broker-dealers by these
requirements could discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market liquidity of the common
stock and your ability to sell our securities in the secondary market. In
addition, if we fail to maintain our listing on NASDAQ or any other United
States securities exchange, quotation system, market or over-the-counter
bulletin board, we will be subject to cash penalties under certain investor
agreements to which we are a party until a listing is obtained.
We
do not expect to pay dividends on our common stock in the foreseeable
future.
Although
our stockholders may receive dividends if, as and when declared by our board of
directors, we do not intend to declare dividends on our common stock in the
foreseeable future. Therefore, you should not purchase our common stock if you
need immediate or future income by way of dividends from your
investment.
We
may issue additional shares of our capital stock that could dilute the value of
your shares of common stock.
We are
authorized to issue 85,000,000 shares of our capital stock, consisting of
75,000,000 shares of our common stock and 10,000,000 shares of our preferred
stock of which 1,000,000 are designated as Series A Junior Participating
Preferred Stock, 800 are designated as Series B 8% Cumulative Convertible
Preferred Stock and 600 are designated as Series C 6% Cumulative Convertible
Preferred Stock. In light of our possible future need for additional financing,
we may issue additional shares of common stock at below current market prices or
additional convertible securities that could dilute the earnings per share and
book value of your shares of our common stock. These issuances would
dilute existing stockholders and could depress the value of our common
stock.
In
addition to provisions providing for proportionate adjustments in the event of
stock splits, stock dividends, reverse stock splits and similar events, certain
outstanding convertible instruments currently representing the right to acquire
466,200 shares of common stock provide (with certain exceptions) for an
adjustment of the exercise or conversion price if we issue shares of common
stock at prices lower than the then exercise or conversion price or the then
prevailing market price. This means that if we need to raise equity financing at
a time when the market price for our common stock is lower than the exercise or
conversion price, or if we need to provide a new equity investor with a discount
from the then prevailing market price, then the exercise price will be reduced
and the dilution to stockholders increased. In the case of this offering,
if we sell up to 1,650,000 units at an assumed offering price of $6.06 per
unit and with an assumed warrant exercise price of $2.55, this would result in
approximately 203,000 additional shares of common stock outstanding on a
fully-diluted basis.
We
are vulnerable to volatile stock market conditions.
The
market prices for securities of biopharmaceutical and biotechnology companies,
including ours, have been highly volatile. The market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. In addition, future
announcements, such as the results of testing and clinical trials, the status of
our relationships with third-party collaborators, technological innovations or
new therapeutic products, governmental regulation, developments in patent or
other proprietary rights, litigation or public concern as to the safety of
products developed by us or others and general market conditions, concerning us,
our competitors or other biopharmaceutical companies, may have a significant
effect on the market price of our common stock.
Risks
Related to This Offering
We
will have immediate and broad discretion over the use of the net proceeds from
this offering.
There is
no minimum offering amount required as a condition to closing this offering and
therefore net proceeds from this offering will be immediately available to us to
use at our discretion. We intend to use the net proceeds to further develop our
product candidates and for working capital and general corporate purposes. Our
judgment may not result in positive returns on your investment and you will not
have an opportunity to evaluate the economic, financial, or other information
upon which we base our decisions.
You
will experience immediate and substantial dilution as a result of this offering
and may experience additional dilution in the future.
You
will incur immediate and substantial dilution as a result of this offering.
After giving effect to the sale by us of up to 1,650,000 units offered in this
offering at an assumed offering price of $6.06 per unit, and after deducting the
placement agent fees and estimated offering expenses payable by us, investors in
this offering can expect an immediate dilution of $1.28 per share, or 63%, at
the assumed public offering price, assuming no exercise of the warrants. In
addition, in the past, we issued options and warrants to acquire shares of
common stock. To the extent these options are ultimately exercised, you will
sustain future dilution. We may also acquire or license other technologies or
finance strategic alliances by issuing equity, which may result in additional
dilution to our stockholders.
There
is no public market for the warrants to purchase common stock in this
offering.
There is
no established public trading market for the warrants being offered in this
offering, and we do not expect a market to develop. In addition, we do not
intend to apply for listing the warrants on any securities exchange. Without an
active market, the liquidity of the warrants will be limited.
If the
registration statement covering the shares issuable upon exercise of the
warrants contained in the units is no longer effective, the unit warrants may
only be exercised on a “cashless” basis and will be issued with restrictive
legends unless such shares are eligible for sale under Rule 144 of the
Securities Act.
The
offering may not be fully subscribed, and, even if the offering is fully
subscribed, we will need additional capital in the future. If additional capital
is not available, we may not be able to continue to operate our business
pursuant to our business plan or we may have to discontinue our operations
entirely.
The
placement agent in this offering will offer the units on a “best-efforts” basis,
meaning that we may raise substantially less than the total maximum offering
amount. No refund will be made available to investors if less than all of the
units are sold. Based on our proposed use of proceeds, we will likely need
significant additional financing, which we may seek to raise through, among
other things, public and private equity offerings and debt financing. Any equity
financings will be dilutive to existing stockholders, and any debt financings
will likely involve covenants restricting our business activities. Additional
financing may not be available on acceptable terms, or at all.
This
prospectus contains forward-looking statements. Forward-looking statements
relate to future events or our future financial performance. We generally
identify forward-looking statements by terminology such as “may,” “will,”
“would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,”
“target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,”
“assume,” “intend,” “potential,” “continue” or other similar words or the
negative of these terms. These statements are only predictions. We have based
these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect
our business, financial condition and results of operations. The outcome of the
events described in these forward-looking statements is subject to risks,
uncertainties and other factors described in “Risk Factors” and elsewhere in
this prospectus. Accordingly, you should not place undue reliance upon these
forward-looking statements. We cannot assure you that the events and
circumstances reflected in the forward-looking statements will be achieved or
occur, the timing of events and circumstances and actual results could differ
materially from those projected in the forward looking statements.
Forward-looking statements contained in this prospectus include, but are not
limited to, statements about:
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our
expectations related to the use of proceeds from this
offering;
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the
progress of, timing of and amount of expenses associated with our
research, development and commercialization
activities;
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the
timing, conduct and success of our clinical studies for our product
candidates in development;
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our
ability to obtain U.S. and foreign regulatory approval for our
product candidates in development and the ability of our product
candidates in development to meet existing or future regulatory
standards;
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our
expectations regarding federal, state and foreign regulatory
requirements;
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the
therapeutic benefits and effectiveness of our product candidates in
development;
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the
accuracy of our estimates of the size and characteristics of the markets
that may be addressed by our product candidates in
development;
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our
ability to manufacture sufficient amounts of our product candidates in
development for clinical studies and products for commercialization
activities;
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our
intention to seek to establish strategic collaborations or partnerships
for the development or sale of our product
candidates;
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our
expectations as to future financial performance, revenues, expense levels
and liquidity sources;
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the
timing of potential commercialization of our product
candidates;
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our
ability to compete with other companies that are or may be developing or
selling products that are competitive with our product candidates in
development;
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anticipated
trends and challenges in our potential
markets;
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our
ability to attract and retain key
personnel; and
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other
factors discussed elsewhere in this
prospectus.
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The
forward-looking statements made in this prospectus relate only to events as of
the date on which the statements are made. We have included important factors in
the cautionary statements included in this prospectus, particularly in the
section entitled “Risk Factors” that we believe could cause actual results or
events to differ materially from the forward-looking statements that we make.
Our forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or investments we may make.
Except as required by law, we do not assume any intent to update any
forward-looking statements after the date on which the statement is made,
whether as a result of new information, future events or circumstances or
otherwise.
We
estimate that we will receive up to approximately $8,950,000 in net proceeds
from the sale of units in this offering, based on an assumed offering price of
$6.06 per unit, and after deducting estimated placement agent fees and estimated
offering expenses payable by us. We will use the net proceeds from this offering
to further develop our product candidates and for working capital and other
general corporate purposes, as more fully described below. Because there
is no minimum offering amount required as a condition to consummating this
offering, we may sell less than all of the securities offered hereby, which will
reduce the amount of proceeds.
By way of
example:
|
|
·
|
in
the event 25% of the securities offered hereby are sold, we estimate that
we will receive net proceeds of approximately $2,237,000, and we will
allocate such proceeds to general working capital of the
Company;
|
|
|
·
|
in
the event 50% of the securities offered hereby are sold, we estimate that
we will receive net proceeds of approximately $4,475,000, and we will use
the additional $2,237,000 in net proceeds for the
following:
|
|
|
○
|
Seeking
approval of DDAIP as a GRAS ingredient (generally recognized as safe,
or GRAS, is an FDA designation that a chemical or substance added to
food is considered safe by experts, and so is exempted from the usual
Federal Food, Drug, and Cosmetic Act food additive tolerance
requirements); and
|
|
|
○
|
Initiating
Taxol and Neupogen human proof-of-concept clinical
trials;
|
|
|
·
|
in
the event 75% of the securities offered hereby are sold, we estimate that
we will receive net proceeds of approximately $6,712,000, and we will use
the additional $2,237,000 in net proceeds for the
following:
|
|
|
○
|
Initiating
Rituxan human proof-of-concept clinical trials;
and
|
|
|
○
|
Initiating
clinical logistics in preparation of PrevOnco’s phase 3 clinical
trials;
|
|
|
·
|
in
the event all of the securities offered hereby are sold, we estimate that
we will receive net proceeds of approximately $8,950,000, and we will use
the additional $2,237,000 in net proceeds for the
following:
|
|
|
○
|
the
further development of our pre-clinical programs, including PsoriaVa™ and
our formulations for the delivery of Insulin, Fluorouracil, and
Lidocaine;
|
|
|
○
|
Pre-clinical
validation for DDAIP for uses other than pharmaceutical, such as
preservative and cosmeceutical uses;
and
|
|
|
○
|
RayVa
human clinical trials.
|
Pending
any uses described above, we plan to invest the net proceeds in investment
grade, short-term, interest-bearing securities.
If a
warrant holder elects to exercise a warrant (assuming that such exercise is not
on a “cashless” basis) then we may also receive proceeds from the exercise of
warrants. We cannot predict when or if the warrants will be exercised. It is
possible that the warrants may expire and may never be
exercised.
Our
common stock has been listed on The NASDAQ Capital Market and, starting on
September 14, 2010, trades under the symbol “APRI.” Previously, our common stock
traded under the symbol “NEXM.” The following table sets forth, for
the periods indicated, the high and low sales prices of our common stock
(rounded to the nearest penny) as reported by The NASDAQ Capital
Market:
|
High
|
Low
|
|||||||
|
First
Quarter 2008
|
$ | 26.25 | $ | 16.80 | ||||
|
Second
Quarter 2008
|
$ | 22.05 | $ | 15.15 | ||||
|
Third
Quarter 2008
|
$ | 23.70 | $ | 1.59 | ||||
|
Fourth
Quarter 2008
|
$ | 5.25 | $ | 0.68 | ||||
|
First
Quarter 2009
|
$ | 4.20 | $ | 1.20 | ||||
|
Second
Quarter 2009
|
$ | 8.10 | $ | 1.80 | ||||
|
Third
Quarter 2009
|
$ | 6.82 | $ | 2.25 | ||||
|
Fourth
Quarter 2009
|
$ | 7.63 | $ | 1.80 | ||||
|
First
Quarter 2010
|
$ | 12.58 | $ | 3.94 | ||||
|
Second
Quarter 2010
|
$ | 9.30 | $ | 2.10 | ||||
On
September 9, 2010, the closing price as reported on The NASDAQ Capital Market of
our common stock was $2.02 per share. As of June 30, 2010, we had
approximately 12,300 record and beneficial holders of our common
stock.
We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain any future earnings to finance the growth and development of
our business. Therefore, we do not anticipate declaring or paying any cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of dividends, if any, will be at the discretion of our
board of directors and will depend on then existing conditions, including our
financial condition, operating results, contractual restrictions, capital
requirements, business prospects and other factors our board of directors may
deem relevant.
Our
net tangible book value as of June 30, 2010 was $4,058,774, or $0.32 per share
of common stock. Net tangible book value per share represents the amount of our
total tangible assets, less our total liabilities, divided by the number of
shares of common stock outstanding as of June 30, 2010. Net tangible
book value dilution per unit to new investors represents the difference between
the amount per unit paid by purchasers in this offering and the net tangible
book value per share of common stock immediately after completion of this
offering, assuming that no value is attributed to the warrants.
After
giving effect to our sale of up to 1,650,000 units in this offering at an
assumed offering price of $6.06 per unit, assuming 4,950,000 shares are
issued in this offering and after deducting the placement agent fees and
estimated offering expenses, our pro forma net tangible book value as of June
30, 2010 would have been $13.0 million, or $0.74 per share. This represents an
immediate increase in net tangible book value of $0.42 per share to existing
stockholders and an immediate dilution in net tangible book value of $1.28
per share to purchasers in this offering, as illustrated in the following
table:
|
Assumed
offering price per share
|
$ | 2.02 | ||||||
|
Net
tangible book value per share as of June 30, 2010
|
$ | 0.32 | ||||||
|
Increase
per share attributable to investors participating in this
offering
|
$ | 0.42 | ||||||
|
Pro
forma net tangible book value per share after this
offering
|
$ | 0.74 | ||||||
|
Dilution
per share to investors participating in this offering
|
$ | 1.28 |
The
number of shares of our common stock to be outstanding after the closing of this
offering is based on 12,626,541 shares of our common stock outstanding as of
June 30, 2010 and excludes:
|
|
·
|
156,771
shares of common stock issuable upon exercise of stock options outstanding
and having a weighted-average exercise price of $16.07 per
share;
|
|
|
·
|
262,103
shares of common stock issuable upon the vesting of restricted stock
awards;
|
|
|
·
|
627,986
shares of common stock reserved for future issuance under our equity
compensation plans; and
|
|
|
·
|
717,095
shares of common stock issuable upon the exercise of warrants and
convertible notes outstanding (see “Risk Factors – We may issue additional
shares of our capital stock that could dilute the value of your shares of
common stock”).
|
Unless
otherwise indicated, the information in this prospectus reflects a 15-for-1
reverse split of our common stock, which was effective on June 21,
2010.
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and
analysis should be read together with our financial statements and the related notes
appearing elsewhere in this prospectus. This discussion contains forward-looking
statements reflecting our current expectations that involve risks and
uncertainties. See “Special Note Regarding Forward-Looking Statements” for a discussion of the
uncertainties, risks and assumptions associated with these statements. Actual
results and the timing of events could differ materially from those discussed in
our forward-looking statements as a result of many factors, including those set forth
under “Risk Factors” and elsewhere in this prospectus.
General
We are
a pharmaceutical research and development company focused on the design and
development of products and technologies in multiple therapeutic areas,
including oncology, sexual dysfunction, autoimmune diseases and
pain/inflammation. Our wholly-owned subsidiary, Bio-Quant, Inc., was acquired in
December 2009 and is the largest pre-clinical research organization (“CRO”) in
San Diego. Bio-Quant generated approximately $6.0 million in revenues during the
last twelve months and has more than 300 pharmaceutical and biotechnology
clients. In addition to providing revenue, the acquisition of Bio-Quant has
brought formulation and pre-clinical research expertise to further develop our
patented drug delivery technology, NexACT. Since the acquisition of Bio-Quant,
we have been able to add ten additional product candidate assets to our pipeline
during the last nine months and are actively seeking multiple potential
development and commercialization partners.
Restructuring
Activities
In
September 2005, we licensed NM100060 (MycoVa) to Novartis International
Pharmaceutical Ltd. for further development. Under the
license agreement, Novartis acquired the exclusive worldwide rights to
NM100060 and would assume all further development, regulatory, manufacturing and
commercialization responsibilities as well as costs. However, in July
2008, Novartis completed testing of NM100060 in a Phase 3 clinical trial and
decided not to seek FDA approval through the filing of a new drug application
(“NDA”).
The
decision by Novartis to not file the NDA had a negative impact on our liquidity
and financial condition. As a result, in December 2008, we began to
implement a restructuring program with the goal of reducing costs and
outsourcing basic research and development. This restructuring program
continued into 2009 as we announced the mutual decision we reached with
Novartis to terminate the licensing agreement.
During
2009, under this restructuring program, we actively pursued strategic
opportunities that would leverage our NexACT platform and generate partnership
revenues to fund our development efforts. Additionally, during 2009, we
were actively trying to sell or lease our facility in East Windsor, NJ which
would further reduce our monthly operating expenses.
In
December, 2009, we entered into an agreement to lease our facility in East
Windsor, NJ for a period of 10 years at $34,450 per month with annual 2.5%
escalations. Further, the tenant has an option to purchase the building for an
initial purchase price of $4.4 million as discussed in Note 5 of the Notes to
the Consolidated Financial Statements.
On
December 14, 2009, we acquired Bio-Quant, Inc., the largest specialty biotech
CRO based in San Diego, California and one of the industry’s most experienced
CROs for non-GLP (good laboratory practice) in vitro and in vivo contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in in vitro and in vivo pharmacology,
pharmacokinetics and toxicology to support pre-investigational new drug
application (“IND”) enabling packages for its clients. A detailed
description of the terms of the acquisition are described in Note 3 of the Notes
to the Consolidated Financial Statements.
We are
now focusing our efforts on new and patented pharmaceutical products based on
NexACT and on growing the CRO business through both organic growth within
Bio-Quant’s current business operations and through the acquisition of small
cash flow positive entities who have complimentary capabilities to those of
Bio-Quant but are not operating at full capacity due to insufficient business
development efforts. We believe this strategy will allow Bio-Quant to
expand its operations by broadening its service capabilities and expanding into
new markets.
Our
broader goal is to generate revenues from the growth of Bio-Quant’s CRO business
while aggressively seeking to monetize the NexACT technology through
out-licensing agreements with pharmaceutical and biotechnology companies
worldwide. At the same time, we are actively pursuing key partnership
opportunities for both our NexACT technology and pipeline
products. The successful licensing or sale of one or more of these
products would be expected to generate additional revenues for funding our
long-term growth strategy.
Liquidity,
Capital Resources and Financial Condition.
We have
experienced net losses and negative cash flows from operations each year since
our inception. Through June 30, 2010, we had an accumulated deficit
of $185,247,966. Our operations have principally been financed
through private placements of equity securities and debt
financing. Funds raised in past periods should not be considered an
indication of our ability to raise additional funds in any future
periods.
We
effected a reverse stock split on June 21, 2010, pursuant to which each fifteen
shares of the Company’s common stock then issued and outstanding was
automatically converted into one share of the Company’s common stock; no change
was made to the per-share par value of the common stock. The authorized common
stock was also proportionately reverse split by a factor of fifteen-for-one. All
share and per share amounts in the accompanying discussion and analysis have
been adjusted to reflect the reverse stock split as if it had occurred at the
beginning of the earliest period presented.
In
January 2010, we raised gross proceeds of $2.3 million in an offering of
unsecured promissory notes (the “Notes”). The Notes accrued interest
at a rate of 10% per annum and were due and payable in full six months from the
date of issuance. The principal and accrued interest due under the Notes was
payable, at our election, in either cash or shares of common stock (the
“Shares”). The weighted average conversion price of the Shares
issuable under the Notes was $5.55 per Share, with the conversion prices ranging
from $5.40 to $6.00 per Share. On March 17, 2010, we repaid all
outstanding principal and accrued interest under the Notes through the issuance
of an aggregate of 415,504 Shares.
In March
2010, we raised gross proceeds of $1.4 million in connection with the
re-financing of our convertible mortgage notes as discussed in Note 18 of the
Notes to the Consolidated Financial Statements.
In
April 2010, we entered into a sales agreement with Brinson Patrick Securities
Corporation (the “Sales Manager”) to issue and sell through the Sales Manager,
as agent, up to $10,000,000 of our common stock from time to time pursuant to
our effective shelf registration statement on Form S-3 (File No.
333-165960). Through June 30, 2010, we sold an aggregate of 518,264
shares of common stock under the Sales Agreement at a weighted average sales
price of approximately $6.73 per share, resulting in offering proceeds of
approximately $3.3 million, net of sales commissions. As of June 30,
2010, we had approximately 12.8 million shares of common stock issued and
outstanding and an additional 2 million shares of common stock reserved for
issuance, out of the 18 million authorized shares of common stock. On
September 10, 2010, our stockholders approved an amendment to increase the
authorized shares of our common stock to 75 million.
Our
subsidiary Bio-Quant will not generate sufficient cash to fund the
development of our current products under development and/or the annual costs to
remain a public company, including legal, audit and listing fees. We
intend to seek development partners to advance our product candidates under
development because we will also need significant funding to pursue our overall
product development plans. In general, products we plan to develop will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant investment prior to their
commercialization. Even if we are successful in obtaining partners who can
assume the funding for further development of our product candidates, we may
still encounter additional obstacles such as our research and development
activities may not be successful, our product candidates may not prove to be
safe and effective, clinical development work may not be completed in a timely
manner or at all, and the anticipated products may not be commercially viable or
successfully marketed. There is no assurance that we can grow
Bio-Quant’s current business operations or successfully identify and acquire
small cash flow positive entities as described above. Should we not
be able to find development partners or successfully increase Bio-Quant’s
positive cash flow, we would require external financing to fund our
operations.
Our
current cash reserves of approximately $3.25 million, as of the date of this
prospectus, should provide us with sufficient cash to fund our operations
through the first quarter of 2011. This projection is based on our
current administrative overhead, including public company expenses of
approximately $160,000 per month, together with our planned expenditures in
connection with continued research and development expenses related to the
NexACT drug delivery technology. Additionally the Bio-Quant CRO
business has been growing at a much slower pace than anticipated as Dr. Damaj,
our CEO, has recently focused his efforts on the future development of the
NexACT drug delivery technology rather than the growth of the Bio-Quant CRO
business. We expect Bio-Quant to be self-sustaining and cash flow
positive in 2011 as we re-start our efforts to grow the business organically
beyond the work being done to support the expansion of our NexACT
technology. In connection with our continuous effort to grow the CRO
business we have hired two senior executives: a vice president of business
development and a vice president of research and development to strengthen the
Bio-Quant CRO management team. In addition, the Bio-Quant CRO
business will require funding from our current cash reserves as the Bio-Quant
CRO continues to divert its existing resources and capacity to support the
expansion of our NexACT technology into the areas of oncology, inflammation,
immunology and metabolic diseases, in addition to new delivery routes of our
NexACT technology. During the six-month period ended June 30, 2010,
approximately 14% of the studies performed by Bio-Quant were in support of the
expansion of our NexACT technology.
As a
result of our losses to date, expected losses in the future, limited capital
resources and the maturity of $4 million of debt in 2012, our independent
registered public accounting firm has concluded that there is substantial doubt
as to our ability to continue as a going concern for a reasonable period of
time, and have modified their report in the form of an explanatory paragraph
describing the events that have given rise to this uncertainty. These factors
may make it more difficult for us to obtain additional funding to meet our
obligations. Our continuation is based on our ability to generate or
obtain sufficient cash to meet our obligations on a timely basis and ultimately
to attain profitable operations. We anticipate that we will
continue to incur significant losses at least until successful commercialization
of one or more of our product candidates. There can be no assurance
that we, on a consolidated basis, or our Bio-Quant subsidiary, on a standalone
basis, can operate profitably in the future.
At June
30, 2010, we had cash and cash equivalents of approximately $4.8 million as
compared to $480,000 at December 31, 2009. During the first
half of 2010, we received net proceeds of approximately $3.6 million as a result
of the issuance of convertible Notes as discussed in Note 7 of the Notes to the
Unaudited Consolidated Financial Statements. We also received net
proceeds of approximately $3.3 million from the sale of common stock as
discussed in Note 11 of the Notes to the Unaudited Consolidated Financial
Statements. The receipt of this cash during the first half of 2010
was offset by our cash used. Our net cash outflow during the first
half of 2010 was approximately $2.6 million, which includes approximately
$437,000 in proceeds received during the first half of the year from the sale of
our New Jersey net operating losses in 2009. During the first half of
the year, our Bio-Quant CRO had a net cash outflow of approximately
$157,000. Our administrative overhead, including public company
expenses, is approximately $160,000 per month. Additionally, we spent
approximately $143,000 for our 2009 annual audit fee, $261,000 in legal fees for
various transactions including the Notes issued and common stock sold as
discussed in Notes 7 and 11 of the Notes to the Unaudited Consolidated Financial
Statements, the special meeting of our stockholders held in March 2010, and also
fees related to the acquisition of Bio-Quant in 2009. We also spent
approximately $904,000 for the development of our NexACT technology and related
pipeline products. During the first half of the year, we spent
approximately $137,000 in severance and accrued vacation paid as part of our
restructuring program implemented in December 2008, $93,000 in costs related to
managing our building in East Windsor, NJ before the tenant took occupancy in
February 2010, $143,000 in legal fees related to new patent applications for our
NexACT technology and $202,000 for legal fees in connection with a patent
lawsuit in which we are the plaintiff suing for patent infringement on our
herpes treatment medical device.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. Note 2 in the Notes to the Consolidated Financial
Statements, includes a summary of the significant accounting policies and
methods used in the preparation of our Consolidated Financial
Statements. The preparation of these financial statements requires
our management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Our accounting policies affect our
more significant judgments and estimates used in the preparation of our
financial statements. Actual results could differ from these
estimates. The following is a brief description of the more
significant accounting policies and related estimate methods that we
follow:
Income Taxes: In preparing
our financial statements, we make estimates of our current tax exposure and
temporary differences resulting from timing differences for reporting items for
book and tax purposes. We recognize deferred taxes by the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for differences between
the financial statement and tax bases of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date. In addition, valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
realized.
Critical Estimate: In
consideration of our accumulated losses and lack of historical ability to
generate taxable income to utilize our deferred tax assets, we have estimated
that we will not be able to realize any benefit from our temporary differences
and have recorded a full valuation allowance. If we become profitable
in the future at levels which cause management to conclude that it is more
likely than not that we will realize all or a portion of the net operating loss
carry-forward, we would immediately record the estimated net realized value of
the deferred tax asset at that time and would then provide for income taxes at a
rate equal to our combined federal and state effective rates, which would be
approximately 40% under current tax laws. Subsequent revisions to the
estimated net realizable value of the deferred tax asset could cause our
provision for income taxes to vary significantly from period to
period.
Long-lived assets: We review
for the impairment of long-lived assets whenever events or circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition are less than its carrying amount. If such
assets are considered impaired, the amount of the impairment loss recognized is
measured as the amount by which the carrying value of the asset exceeds the fair
value of the asset, fair value being determined based upon discounted cash flows
or appraised values, depending on the nature of the asset.
Critical Estimate: We have
initiated efforts to sell the facility housing our corporate office, research
and development laboratories and manufacturing plant located in East Windsor,
New Jersey. We have performed a review for impairment of our facility
based on discussions with our real estate agent regarding the likely selling
price of our facility and the commercial real estate market in
general. Accordingly, in 2008 we took a write-down of approximately
$884,000 to the carrying value of the facility to approximate the current market
value. Overestimating the potential selling price of our facility in
a planned sale may lead to overstating the carrying value of the manufacturing
facility by not identifying an impairment loss.
Revenue recognition: Revenues
from Bio-Quant’s performance of pre-clinical services are recognized according
to the proportional performance method whereby revenue is recognized as
performance has occurred, based on the relative outputs of the performance that
has occurred up to that point in time under the respective agreement, typically
the delivery of report data to our clients which documents the results of our
pre-clinical testing services.
Revenues
from product sales are recognized upon delivery of products to customers, less
allowances for returns and discounts. Royalty revenue is
recognized upon the sale of the related products as reported to us by our
distribution partner, provided the royalty amounts are fixed or determinable and
the amounts are considered collectible. Revenues earned under license
and research and development contracts are recognized in accordance with the
cost-to-cost method outlined in Staff Accounting Bulletin No. 101, as amended,
whereby the extent of progress toward completion is measured on the cost-to-cost
basis; however, revenue recognized at any point will not exceed the cash
received. If the current estimates of total contract revenue and
contract cost indicate a loss, a provision for the entire loss on the contract
would be made. All costs related to these agreements are expensed as
incurred and classified within “Research and development” expenses in the
Consolidated Statements of Operations and Comprehensive Loss. Research and
development expenses include costs directly attributable to the conduct of our
research and development, including salaries, payroll taxes, employee benefits,
materials, supplies, depreciation on and maintenance of research equipment,
costs related to research and development fee agreements, the cost of services
provided by outside contractors, including services related to our clinical
trials, clinical trial expenses, the full cost of manufacturing drugs for use in
research, pre-clinical and clinical development, and the allocable portion of
facility costs.
Also,
licensing agreements typically include several elements of revenue, such as
up-front payments, milestones, royalties upon sales of product, and the delivery
of product and/or research services to the licensor. We follow the accounting
guidance of SEC Staff Accounting Bulletin No. 104 (which superseded SEC Staff
Accounting Bulletin No. 101), and ASC 605 (which became effective for contracts
entered into after June 2003). Non-refundable license fees received upon
execution of license agreements where we have continuing involvement are
deferred and recognized as revenue over the estimated performance period of the
agreement. This requires management to estimate the expected term of the
agreement or, if applicable, the estimated life of its licensed
patents.
In
addition, ASC 605 requires a company to evaluate its arrangements under which it
will perform multiple revenue-generating activities. For example, a license
agreement with a pharmaceutical company may involve a license, research and
development activities and/or contract manufacturing. Management is required to
determine if the separate components of the agreement have value on a standalone
basis and qualify as separate units of accounting, whereby consideration is
allocated based upon their relative “fair values” or, if not, the consideration
should be allocated based upon the “residual method.” Accordingly, up-front and
development stage milestone payments are and will be deferred and recognized as
revenue over the performance period of such license agreement.
Critical Estimate: In
calculating the relative outputs of the performance that have occurred under the
proportional performance method for our pre-clinical testing services, we must
determine whether we have delivered sufficient value to recognize a portion of
the contract services revenue and to estimate what percentage of the total costs
has been incurred at any given point in time. In calculating the progress made
toward completion of a research contract or licensing agreement, we must compare
costs incurred to date to the total estimated cost of the project and/or
estimate the performance period. We estimate the cost and/or
performance period of any given project based on our past experience in product
development as well as the past experience of our research staff in their areas
of expertise. Underestimating the proportion of final data generated
for pre-clinical testing services or the total cost and/or performance period of
a research contract or licensing agreement may cause us to accelerate the
revenue recognized under such contract. Conversely, overestimating
the proportion of final data for pre-clinical testing services or the cost of a
research contract may cause us to delay revenue recognized.
Stock based
compensation: In preparing our financial statements, we must
calculate the value of stock options issued to employees, non-employee
contractors and warrants issued to investors. The fair value of each
option and warrant is estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes option-pricing model is a
generally accepted method of estimating the value of stock options and
warrants.
Critical
Estimate: The Black-Scholes option pricing model requires us
to estimate the Company’s dividend yield rate, expected volatility and risk free
interest rate over the life of the option. Inaccurately estimating
any one of these factors may cause the value of the option to be under or over
estimated. See Note 2 of the Notes to the Consolidated Financial
Statements for the current estimates used in the Black-Scholes pricing
model. We adopted the provisions of SFAS 123R commencing January 1,
2006.
Comparison
of Results of Operations Between the Six Months Ended June 30, 2010 and
2009.
Revenue. We
recorded $2,916,679 in revenue during the first half of 2010, as compared to
$2,569,283 in revenue during the first half of 2009. The 2009
revenue is primarily attributable to the sale of the U.S. rights of Vitaros to
Warner as discussed in Note 14 of the Notes to Unaudited Consolidated Financial
Statements. The 2010 revenue is almost entirely attributable to the
sales of CRO services by our Bio-Quant CRO. We expect to continue to
see this level of revenue generated from our Bio-Quant CRO in the remainder of
2010.
Research and Development
Expenses. Our research and development expenses for the first
half of 2010 and 2009 were $903,959 and $1,318,819,
respectively. While we began to reduce our research and development
expenses in 2009, we have now begun to increase our research and development
expenses again as a result of the acquisition of Bio-Quant in December
2009. We expect to see an increase in research and development
spending in 2010 as a result of the acquisition of Bio-Quant and the expansion
of our NexACT technology
into the areas of oncology, inflammation, immunology and metabolic diseases in
addition to new delivery routes of our NexACT technology.
General and Administrative
Expenses. Our general and administrative expenses were
$4,879,936 during the first half of 2010 as compared to $1,785,796 during the
same period in 2009. The increase is due to approximately $1.1
million of stock compensation expense recorded during the second quarter of 2010
as restricted share grants contingent upon stockholder approval of an increase
in the number of authorized shares in the NexMed, Inc. 2006 Stock Incentive Plan
were awarded in May 2010 upon approval of such shares as discussed in Note 3 of
the Notes to the Unaudited Consolidated Financial
Statements. Additionally, there was an increase in expenses in 2010
related to the Bio-Quant CRO business which was acquired in December
2009.
Interest Expense,
Net. We had net interest expense of $8,589,704 during the
first half of 2010, as compared to $206,054 during the same period in
2009. The increased interest expense is the result of non-cash
interest expense recognized on the beneficial conversion feature of the
convertible mortgage notes and notes payable as discussed in Notes 7 and 8 of
the Notes to the Unaudited Consolidated Financial Statements. Non
cash interest expense was $8,530,999 and $51,762 for the six months ended June
30, 2010 and 2009, respectively.
Net Loss. The net
loss was $13,516,104 or $24.60 per share in the first half of 2010 as compared
to net loss of $741,386 or $1.95 per share during the same period in
2009. The increase in net loss is primarily attributable to the
increased general and administrative expenses and non-cash interest charges as
discussed above. Additionally, in 2009, there was a one-time
transaction for the sale of U.S. rights of Vitaros to Warner, which increased
revenue as discussed in Note 14 of the Notes to the Unaudited Consolidated
Financial Statements.
Comparison
of Results of Operations between the Years Ended December 31, 2009 and
2008
The
revenues and expenses of Bio-Quant included in the consolidated financial
statements represent 17 days of activity in 2009; from the date of the closing
of the acquisition through December 31, 2009. As such, the activity
is not significant to review in the comparison of the results of operations
below. Please see Note 3 of the Notes to the Consolidated Financial
Statements to see a pro-forma presentation as if the acquisition had taken place
in 2008.
Revenues. We recorded
revenues of $2,973,708 during 2009 as compared to $5,957,491 during
2008. The higher 2008 revenue is primarily attributable to the
milestone payments received in 2008 from Novartis under the licensing agreement
for NM100060. As discussed in Note 4 of the Notes to the Consolidated Financial
Statements, we received $1.5 million from Novartis in March 2008 and another
$3.5 million in October 2008. These milestones were recognized as
revenue during 2008. We recognized no revenue from Novartis in
2009.
Research and Development Expenses.
Our research and development expenses decreased from $5,410,513 in 2008
to $1,883,458 in 2009. Research and development expenses
significantly decreased in 2009 due to reduced spending in 2009 on our
development programs as part of our restructuring program. During
2009 we reduced our research and development staff and
infrastructure.
General and Administrative
Expenses. Our general and administrative expenses decreased
from $5,720,832 in 2008 to $4,196,359 in 2009. The decrease is
primarily due to a reduction in staff costs as a result of our restructuring
program implemented in December 2008 along with a reduction in legal fees
related to our patents as we expended over $100,000 during 2008 for one-time
national filings of patent applications related to Vitaros.
Interest Expense. We
recognized $28,696,006 and $1,006,794 in interest expense in 2009 and 2008,
respectively. The increased interest expense is the result of imputed
interest expense recognized as a result of beneficial conversions of the
convertible mortgage note as discussed in Note 8 of the Notes to the
Consolidated Financial Statements. Non cash interest expense was
$28,352,598 and $693,316 for the years ended December 31, 2009 and 2008,
respectively.
Net Loss. The net
loss was $32,042,562 or $5.43 per share and $5,171,198 or $0.93 per share in
2009 and 2008, respectively. The significant increase in net loss is
the result of imputed interest expense recognized as a result of beneficial
conversions of the convertible mortgage note as discussed in Note 8 of the Notes
to the Consolidated Financial Statements.
Overview
We are
a pharmaceutical research and development company focused on the design and
development of products and technologies in multiple therapeutic areas,
including oncology, sexual dysfunction, autoimmune diseases and
pain/inflammation. Our wholly-owned subsidiary, Bio-Quant, Inc., was
acquired in December 2009 and is the largest pre-clinical research organization
(“CRO”) in San Diego. Bio-Quant generated approximately $6.0 million
in revenues during the last twelve months and has more than 300 pharmaceutical
and biotechnology clients. In addition to providing revenue, the
acquisition of Bio-Quant has brought formulation and pre-clinical research
expertise to further develop our patented drug delivery technology,
NexACT®. Since the acquisition of Bio-Quant, we have been able to
add ten additional product candidate assets to our pipeline during the last
nine months and are actively seeking multiple potential development and
commercialization partners.
On
September 10, 2010, we changed our name from NexMed, Inc. to Apricus
Biosciences, Inc. The change was made in light of a number of positive changes
over the past year. More specifically, we have expanded our product pipeline and
re-energized the development of the NexACT technology as a drug delivery
platform. We have also begun active licensing efforts for proprietary
programs, as well as third party programs enhanced with the NexACT technology.
Additionally, we added a non-GLP CRO business with our acquisition of Bio-Quant,
Inc. in December 2009, which has been used to help advance these new
applications for NexACT. As a result of these changes, we rebranded the Company
as part of a broader effort to alert potential development partners and the
investment community that we have evolved and now have a broader business
model.
NexACT
Technology
The
NexACT drug delivery technology is designed to enhance the delivery of an active
drug to the patient. Successful application of the NexACT technology could
improve therapeutic outcomes and reduce systemic side effects that often
accompany existing oral and injectable medications. Prior to the acquisition of
Bio-Quant, we invested approximately $185 million on the development of the
NexACT technology using a variety of compatible drug compounds and delivery
systems. We believe that with Bio-Quant’s expertise, we will increase
our research and development efficiency resulting in multiple future product
development assets.
Through
the acquisition of Bio-Quant we have expanded our research and development
capabilities with NexACT into
the areas of oncology, inflammation, immunology, and metabolic
diseases. As a result, we are conducting additional studies to extend
the validation of the NexACT technology including the oral or subcutaneous
delivery of classes of drugs for these indications.
NexACT
enables multi-route administration of active drugs across numerous therapeutic
classes. The NexACT technology has been tested in human clinical
trials as a means of transdermal delivery of drugs (through the skin) and has
been shown in pre-clinical animal studies to serve as an effective vehicle for
the delivery of a wide range of drugs and drug classes, including small
molecules, peptides, proteins and antibodies, via the following routes of
administration:
|
-
Transdermal (topical)
-
Oral
-
Subcutaneous
|
-
Rectal
-
Buccal (absorbed in the
mouth)
|
NexACT is
based on proprietary permeation enhancers that are biodegradable and
biocompatible, and that mimic the composition of human skin. NexACT
enables the rapid absorption of high concentrations of drug directly at the
target site or systemically into the blood stream. NexACT has been
tested in human clinical trials in over 5,000 patients involving three different
investigational drugs: Vitaros®, Femprox® and MycoVaTM. In
these clinical trials, NexACT demonstrated a very favorable safety profile, with
minimal serious adverse effects that were attributed to the drug
candidates.
Product
Candidate Pipeline
We
currently have a total of 13 research and development programs in the areas of
oncology, autoimmune/anti-inflammatory/pain, sexual dysfunction; anti-infectives
and cosmeceuticals and metabolic diseases. Each of these programs and
their stage of development is listed below. None of the drug
candidates being studied in these programs have been approved for marketing and
we currently have no ongoing human clinical trials. See “Use of
Proceeds.”
|
Therapeutic Area
|
Drug Candidate
|
Indication
|
Delivery
Method
|
Development Stage
|
||||
|
Sexual
Dysfunction
|
Vitaros
|
Erectile
Dysfunction
|
Topical
|
Approval
decision pending (Canada)
|
||||
|
Dermatology
|
MycoVaTM
|
Onychomycosis
|
Topical
|
Phase
III
|
||||
|
Sexual
Dysfunction
|
Femprox
|
Female
Sexual Arousal Disorder
|
Topical
|
Phase
II
|
||||
|
Oncology
|
PrevOncoTM
(lansoprazole)
|
HCC
(Liver Cancer)
|
Oral
|
Investigational
new drug application (“IND”) accepted (Phase 2/3)
|
||||
|
Cardiovascular
|
RayVaTM
|
Raynaud’s
Syndrome
|
Topical
|
IND
to be filed (Phase 2/3)
|
||||
|
Oncology
|
Paclitaxel
(Taxol®)
|
Squamous
Carcinoma Mouth Cancers
|
Topical
|
Pre-clinical
animal studies
|
||||
|
Oncology
|
Filgrastim
(Neupogen®)
|
Post-chemotherapy
Recovery of Neutrophil Counts
|
Topical
|
Pre-clinical
animal studies
|
||||
|
Oncology
|
Rituxan® | Non-Hodgkin’s Lymphoma |
Subcutaneous
and Topical
|
Pre-clinical
animal studies
|
||||
|
Oncology
|
Fluorouracil
|
Actinic
Keratosis
(skin
lesions)
|
Topical
|
Pre-clinical
animal studies
|
||||
|
Dermatology
|
PsoriaVaTM
|
Psoriasis
|
Topical
|
Pre-clinical
animal studies
|
||||
|
Anti-Inflammatory
|
Lidocaine
|
Pain
|
Topical
|
Pre-clinical
animal studies
|
||||
|
Dermatology
|
DDAIP
|
Anti-Aging
(Cosmetic)
|
Topical
|
Pre-clinical
animal studies
|
||||
| Metabolic Diseases | Insulin | Diabetes | Subcutaneous | Pre-clinical animal studies |
Bio-Quant
CRO Business
Bio-Quant
performs both in vitro
and in vivo
pharmacology, pharmacokinetics and toxicology studies to support pre-IND
enabling packages. Bio-Quant performs studies for its clients in the early
stages of drug development and discovery. Bio-Quant’s clients range
from larger global pharmaceutical companies to large and small biotechnology
companies.
Approximately
80% of Bio-Quant’s revenue has been generated from pre-clinical contract
services. The CRO industry in general continues to be dependent on
the research and development efforts of pharmaceutical and biotechnology
companies as major customers, and we believe this dependence will
continue. The current uncertain economic conditions are believed to
have caused customers to re-evaluate priorities resulting in increases in
contracts for the more promising projects, scaling back and/or cancelling other
good laboratory practice standard projects towards clinical
trials. Many companies in the biopharmaceutical industry are reducing
costs and, often, their workforce. Bio-Quant may benefit from
increased outsourcing on the part of its customers, or it may be harmed by a
reduction in spending if the biopharmaceutical industry scales back on
pre-clinical projects. Bio-Quant views the current conditions as an
opportunity to attract well qualified candidates to strengthen and improve its
operations. Another trend in the industry is the decline in
prescription drug sales caused by cost conscious patients opting for less
expensive generic drugs or none at all. This presents both an
opportunity and a challenge to Bio-Quant, as its customers will need to find
less costly or more efficient research options often through the establishment
of strategic alliances or partnerships. Bio-Quant believes it is well
positioned for this development.
With
access to our NexACT technology, we intend to differentiate the Bio-Quant
business from its competitors because it now can offer a proprietary drug
delivery technology as a service to current and potential clients who need
innovative alternatives and solutions to their drug development
problems.
Bio-Quant
has two laboratories and housing facilities along with an experienced scientific
staff of 19 employees.
Development
History
In 2005
and 2007 we entered into licensing agreements with Novartis International
Pharmaceutical Ltd. (“Novartis”) and Warner Chilcott Company, Inc. (“Warner”),
respectively, pursuant to which we granted to Novartis and Warner rights to
develop and commercialize products we developed using the NexACT
technology. Please see the NexACT Drug Delivery Technology section
below for a detailed discussion about NM100060, our proprietary topical nail
solution for the treatment of onychomycosis (nail fungal infection), which we
licensed to Novartis in 2005 and Vitaros, a topical alprostadil-based cream
treatment intended for patients with erectile dysfunction, which we licensed to
Warner in 2007. Also see Note 4 of the Notes to the Consolidated
Financial Statements for a description of the licensing agreements and their
current status.
On
December 14, 2009, we acquired Bio-Quant, Inc., the largest specialty
biotechnology CRO based in San Diego, California and one of the industry’s most
experienced CROs for non-good laboratory practice standards in in vitro and in vivo contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in in vitro and in vivo pharmacology,
pharmacokinetics (“PK”) and toxicology to support pre-IND enabling
packages.
Bio-Quant’s
revenue to date has been derived from pre-clinical contract services, sales of
diagnostic kits and housing services. To date, approximately 80% of
Bio-Quant’s revenue has been generated from pre-clinical contract
services. The CRO industry in general continues to be dependent on
the research and development efforts of pharmaceutical and biotechnology
companies as major customers, and we believe this dependence will
continue. The current uncertain economic conditions have caused
customers to re-evaluate priorities resulting in increases in contracts for the
more promising projects, while scaling back and/or cancelling other
projects.
As a
result of our acquisition of Bio-Quant, we now have two operating segments:
designing and developing pharmaceutical products (“the NexACT drug
delivery technology business”) and providing pre-clinical CRO services (“the
Bio-Quant CRO business”). The sales of diagnostic kits by Bio-Quant
does not constitute a reporting segment as the assets and revenues are not
material in relation to our operations as a whole.
Growth
Strategy
Our broad
strategy is to generate revenues from the growth of our CRO business while
seeking to monetize the NexACT technology
through out-licensing agreements with pharmaceutical and biotechnology companies
worldwide. At the same time, we are actively pursuing partnering
opportunities for our clinical-stage NexACT based treatments as discussed
below. The
successful licensing or sale of one or more of these products would generate
additional revenues for funding our growth strategy. Each of these
strategic elements is described below.
Develop and
Monetize Pipeline. We are seeking to derive value from our
current pipeline of clinical and pre-clinical candidates through out-licensing,
sales and commercial partnerships. In doing so, we are seeking to
find development partners who will bear substantially all of the future costs
associated with the development of these programs in exchange for granting the
partners the rights to commercialize the drugs, if approved. Each
agreement with those development partners may include a combination of
upfront payments, license and/or milestone fees and future royalty
payments. In an effort to make our programs more attractive to
licensing partners, we are also working with the U.S. Food and Drug
Administration, or the FDA, on filing INDs, which would allow us to commence
human clinical trials. Earlier this year, we filed an IND for
PrevOnco for a Phase 2 trial. Based on feedback from the FDA, we expect to
revise this IND to allow PrevOnco to be used in a Phase 3 study as a second-line
treatment for certain cancers. Later this year, we intend to file an
IND for RayVa to be studied as a treatment for Raynaud’s Syndrome in a Phase 2/3
clinical trial and for PsoriaVa to be studied as a topical treatment for mild to
moderate psoriasis patients in a Phase 2/3 clinical trial, and potentially in
bio-equivalent study to the currently marketed Taclonex.
We intend
to continue our efforts developing treatments based on the application of NexACT
technology to drugs: (1) previously approved by the FDA, (2) with proven
efficacy and safety profiles, (3) with patents expiring in the near term or
expired and (4) with proven market track records and
potential. Further, with the pre-clinical and formulation expertise
derived from the acquisition of Bio-Quant, we have begun to develop new
formulations based on the application of NexACT technology to drug compounds in
the areas of oncology, pain/inflammation, autoimmune diseases, and metabolic
diseases.
NexACT as
Licensing Platform. In addition to seeking to monetize our
existing pipeline, we are seeking to derive value from our NexACT technology
platform as a means of enhancing the delivery of other companies’ drugs and drug
candidates. NexACT can be used to deliver drugs through different
methods of administration and can be used as a means to enhance the
bioavailability of drugs. To help accelerate the licensing of our
NexACT technology, we are using our Bio-Quant business to conduct pre-clinical
proof-of-concept studies on other companies’ compounds to provide data on how
NexACT may be of value to these clients. Moreover, we believe that we
can enhance our business development efforts by offering potential partners
clearly defined regulatory paths for our products under
development. Towards that end, we will continue to work closely with
our regulatory and clinical consultants, and meet with the FDA in order to
obtain Special Protocol Assessments, or SPAs, for our planned clinical
studies. When the FDA grants an SPA for a study, the FDA generally
cannot change the clinical endpoints at a later date.
Grow CRO
Business. We believe that we can grow our CRO business at
Bio-Quant both through organic growth of the existing business and through the
acquisition of small complementary CROs. We believe this strategy
will allow Bio-Quant to expand its operations by broadening its service
capabilities and expanding into new markets.
NexACT
Technology Platform
The
NexACT technology (esters of fatty alcohols and amino acids / esters of fatty
acids and amino alcohols) enables the rapid absorption of high concentrations of
an active pharmaceutical ingredient directly at the target site, which is
designed to enhance the delivery of an active drug to the
patient. Successful application of the NexACT technology would
improve therapeutic outcomes and reduce systemic side effects that often
accompany existing oral and injectable medications.
Through
the acquisition of Bio-Quant we have expanded our research and development
capabilities with NexACT into the areas of oncology, inflammation, immunology
and metabolic diseases. In addition, we are conducting additional
studies to extend the validation of the NexACT technology into the oral,
subcutaneous, ocular and rectal delivery of classes of drugs for these and other
indications.
Drug
Candidate Pipeline
We
currently have a total of 13 programs that are in various stages of
development, 12 of which utilize the NexACT technology. Three of
these programs have completed human clinical trials: Vitaros, Femprox and
MycoVa. Two of these programs have accepted IND filings, but have not
yet commenced human clinical trials: PrevOnco and
RayVa. The remaining eight programs have generated pre-clinical
data from animal studies that suggests the potential for significant
improvements over the existing safety and/or efficacy of the underlying product
that is already on the market. A summary of these programs is
provided below.
Pre-clinical
Programs
Oral
Administration of Paclitaxel (Taxol). On January 12, 2010, we announced
results from a pre-clinical study that supported the ability of the NexACT
technology to deliver an oral formulation of Taxol® (paclitaxel) and to enhance
the drug’s bioavailability by approximately ten-fold through this oral
administration. Taxol, a first line chemotherapy drug used to treat breast, lung
and ovarian cancers, is currently administered through an intravenous infusion
that can take up to 24 hours to complete. Subject to raising
additional capital, we intend to proceed with a human proof of concept clinical
trial with our proprietary DDAIP-Taxol formulation for squamous carcinoma mouth
cancers.
Subcutaneous
Administration of Insulin and Taxol. On March 17, 2010, we
announced results from a pre-clinical study which successfully demonstrated the
ability of the NexACT technology to deliver insulin and other large molecule
drugs such as Taxol subcutaneously, in a depot-like fashion (or slow release)
over a 24-hour period from a single injection. Specifically, rodents that
received insulin injections incorporating the NexACT technology showed
bio-equivalency to Lantus® in
controlling glucose levels in the blood. Further studies in rodents
showed that NexACT was able to deliver Taxol subcutaneously in levels similar to
those previously observed in NexACT-based oral Taxol formulation without
apparent toxicity. Lantus, a product of Sanofi Aventis, is a commonly
prescribed insulin injection for treating diabetes. Additionally, we
are continuing to further develop a topical NexACT formulation of Taxol in
anticipation of potential human clinical trials.
Filgrastim
(Neupogen®). Filgrastim is a human granulocyte
colony-stimulating factor (“G-CSF”)‚ produced by recombinant DNA technology.
NEUPOGEN® is a registered trademark of Amgen
Inc. NEUPOGEN® has been shown to be safe and effective in
accelerating the recovery of white blood cell counts following a variety of
chemotherapy regimens and following bone marrow transplantation. We
intend to use our NexACT technology to formulate a topical formulation of
Filgrastim for easier administration and thus better patient
compliance.
Rituxan. Rituximab
is the first FDA-approved therapeutic antibody for the treatment of cancer in
the United States. It interferes with the development of cancer
cells, slowing their growth and spread in the body. Currently
delivered via intravenous infusion, rituximab is the active drug in Rituxan®, a
CD20-directed cytolytic antibody used for the treatment of Non-Hodgkin’s
Lymphoma, Chronic Lymphocytic Leukemia and Rheumatoid Arthritis. The
trademark is held by Biogen Idec and jointly marketed with
Genentech.
Pre-clinical
studies examining the subcutaneous delivery of rituximab at Bio-Quant showed
that animals receiving subcutaneous injections of rituximab, incorporated with
NexACT, demonstrated a 46% enhancement in bioavailability over rituximab
alone. Unlike the intravenous infusion, which has to be performed in
a hospital setting, subcutaneous injection could be performed at home by the
patient. Subject to available capital, we intend to move forward in
human bioequivalency testing in human clinical trials.
Fluorouracil. Fluorouracil
is 5-fluoro-2,4(1H,3H)-pyrimidinedione. Topical fluorouracil is an established
treatment for actinic keratoses (or pre-cancerous skin conditions) and is the
standard to which other topical treatments are compared. Fluorouracil cream is
available in 5% (Efudex), 1% (Fluoroplex), and 0.5% (Carac)
formulations.
Fluorouracil
5% cream is administered twice daily for two to four weeks. The application in
the presently available formulation is associated with local irritation
presenting as dryness, erythema, erosion, pain or edema. Facial irritation and
disfigurement associated with fluorouracil 5% cream makes the therapy
undesirable to many patients.
We have
conducted feasibility studies on a topical medication to treat the pre-cancerous
conditions such as actinic keratosis and genital warts. This topical approach is
highly desirable but technically very difficult because this category of drugs
is highly toxic and they do not penetrate the skin efficiently. The off-patent
compound, 5-fluorouracil, is a drug of choice for these conditions. Our NexACT®
Formulation containing 5-fluorouracil has been shown to significantly increase
the rate and extent of skin permeation of this compound. Because of
its highly efficient skin permeation, it is expected that an effective topical
product incorporating the NexACT® technology can be developed with a greatly
reduced dose and reduced potential for toxic side effects.
We expect
that the advantages of an improved topical 5-flurouracil product would
include:
1. Efficient
and rapid absorption of a very toxic drug to the “Target” site;
2. Reduction
of the dose due to very efficient absorption; and
3. Elimination
or reduction of systemic exposure.
We
continue with our clinical development in anticipation of human proof of concept
clinical trials.
PsoriaVaTM. PsoriaVa is our
proprietary formulation of calcipotriene 0.005% and betamethasone dipropionate
0.064% for faster skin penetration for the potential treatment of psoriasis.
Calcipotriene 0.005% and betamethasone dipropionate 0.064% is currently approved
under the tradename Taclonex® and is a trademark of Leop Pharma. We
have conducted extensive pre-clinical and long term stability studies on its
formulation in anticipation of human proof of concept clinical
trials.
Lidocaine. Although
there are certain commercial products used for local anesthesia during medical
procedures, minor surgery and before needle insertion (i.e., venipucture and
catheter insertion), a slow onset of action is a major drawback of these
products. Some products require occlusion and have a slow onset of action of 60
minutes or longer.
Recently,
we developed a fast-acting lidocaine local anesthesia gel using the same active
ingredient found in the commercial product, EMLA cream. In pre-clinical studies,
the lag time of our prototype product is reduced by 50% compared to the
commercial product. The skin permeation data compares a 2.5% lidocaine gel and
the EMLA cream, which contains 2.5% lidocaine and 2.5% prilocaine. We continue
to run pre-clinical validation studies in anticipation of human proof of concept
clinical trials,
DDAIP. Through
the acquisition of Bio-Quant, we have expanded our research and development
capabilities with NexACT into the areas of oncology, inflammation, immunology
and metabolic diseases. As a result, we are conducting additional
studies to extend the validation of the NexACT technology including the oral or
subcutaneous delivery of classes of drugs for these indications.
NexACT
enables multi-route administration of active drugs across numerous therapeutic
classes. The NexACT technology has been tested in human clinical
trials as a means of transdermal delivery of drugs (through the skin) and has
been shown in pre-clinical animal studies to serve as an effective vehicle for
the delivery of a wide range of drugs and drug classes, including small
molecules, peptides, proteins and antibodies, via the following routes of
administration:
|
-
Transdermal (topical)
|
-
Rectal
|
|
-
Oral
|
-
Buccal (absorbed in the mouth)
|
|
-
Subcutaneous
|
In
addition to the pharmaceutical uses of DDAIP as a permeation excipient to
increase solubility and delivery of drugs, the Company will further its current
studies for uses as a preservative for creams and solutions and in
cosmeceuticals preparations. Initial experiments showed DDAIP as a potent
anti-microbial against a wide spectrum of microbes which makes it a good
candidate to replace preservatives such as parabens in topical, cosmetic and
liquid preparations.
Furthermore,
in house data showed that the addition of DDAIP to cosmetic preparations
containing L-Ascorbic Acid increased its delivery through human skin cadavers.
The Company intends to run human proof of concept for the use of DDAIP for the
cosmeceutical use.
Programs
with Accepted IND Submissions
PrevOnco. In
March 2010, we acquired PrevOnco™, a marketed anti-ulcer compound, lansoprazole,
for the treatment of solid tumors. Based on in vivo mouse data, we
believe the product has demonstrated potential for treating human hepatocellular
carcinoma (“HCC”), or liver cancer. In addition, PrevOnco has
received Orphan Drug Designation by the FDA for HCC. On March 25,
2010, we filed an IND including a proposed Phase 2 clinical protocol for
PrevOnco.
On April
26, 2010, we announced that the FDA cleared us to proceed with our proposed
Phase 2 clinical study of PrevOnco as a first line therapy for treating
HCC. Additionally, in IND review communication, the FDA provided us
with the opportunity to move PrevOnco directly into a Phase 3 trial that would
support marketing approval, subject to positive study results. In
order to pursue this regulatory path, we would need to expand the proposed Phase
2 study design to use PrevOnco in combination with Doxorubicin as a second-line
therapy for patients who have failed NEXAVAR®, the currently marketed first-line
anticancer treatment in the U.S., for patients with either HCC or advanced renal
cell carcinoma (cancer of the kidney). NEXAVAR® is marketed by
Bayer HealthCare Pharmaceuticals, Inc. If we successfully develop
PrevOnco, we would share future revenues with the party from whom we acquired
the rights to the compound, with a revenue-sharing arrangement whereby we would
pay such party 50% of the net proceeds that we receive in connection with
licensing PrevOnco.
RayVa. In
May 2010, we announced that we obtained an IND number for RayVa, our topical
alprostadil-based treatment for Raynaud’s Syndrome, which is a disorder in which
the fingers or toes (digits) suddenly experience decreased blood circulation,
and is characterized by color changes of the skin of the digits upon exposure to
cold or emotional stress. Given the disease characteristics, Raynaud’s Syndrome
is an appealing product opportunity for us and one that we believe can benefit
strongly from the active ingredient in Vitaros. We met with the FDA
in July 2010 to discuss the proposed regulatory path for our
product. We expect to finalize the clinical development program in
the third quarter of 2010 and then file the IND.
Clinical
Programs
Vitaros. We
also have under development Vitaros, which is a topical alprostadil-based cream
treatment intended for patients with erectile dysfunction (previously known as
Alprox-TD®). On November 1, 2007, we licensed the U.S. rights of
Vitaros to Warner Chilcott Company, Inc. (“Warner”). Warner paid us
$500,000 upon signing and agreed to pay us up to $12.5 million on the
achievement of specific regulatory milestones and to undertake the manufacturing
investment and any other investment for further product development that may be
required for product approval. Additionally, Warner was responsible
for the commercialization and manufacturing of Vitaros.
On
July 21, 2008, we received a not-approvable action letter (the “Action Letter”)
from the FDA in response to our New Drug Application (“NDA”) for
Vitaros. The major regulatory issues raised by the FDA were related
to the results of the transgenic (“TgAC”) mouse carcinogenicity study,
which we completed in 2002. The TgAC concern raised by the FDA
is product-specific, and does not affect the dermatological products in our
pipeline.
On
October 15, 2008, we met with the FDA to discuss the major deficiencies cited in
the Action Letter and to reach consensus on the necessary actions for addressing
these deficiencies for our Vitaros NDA. Several key regulatory
concerns were addressed and agreements were reached at the meeting. The FDA
agreed to: (a) a review by the Carcinogenicity Advisory Committee (“CAC”) of the
2 two-year carcinogenicity studies which were recently completed; (b) one Phase
1 study in healthy volunteers to assess any transfer of the NexACT technology to
the partner and (c) one animal study to assess the transmission of sexually
transmitted diseases with the design of the study to be
determined. The FDA also confirmed the revision on the status of our
manufacturing facility from “withhold” to “acceptable” based on our having
adequately addressed the deficiencies cited in their Pre-Approval Inspection
(“PAI”) of our facility in January 2008. It is also our understanding
that at this time the FDA does not require a one-year open-label safety study
for regulatory approval. After the meeting we estimated that an
additional $4 to $5 million would be needed to be spent to complete the above
mentioned requirements prior to the resubmission of the NDA.
On
February 3, 2009, we announced the sale of the U.S. rights for Vitaros and the
specific U.S. patents covering Vitaros to Warner which terminated the previous
licensing agreement. Under the terms of the agreement, we
received gross proceeds of $2.5 million as an up-front payment and are eligible
to receive an additional payment of $2.5 million upon Warner’s receipt of an NDA
approval from the FDA. In addition, Warner has paid us a total of
$350,000 for the manufacturing equipment for Vitaros. The purchase
agreement with Warner gives us the right to reference their work on Vitaros in
our future filings outside the U.S., which may benefit us in international
partnering opportunities because the additional data may further validate the
safety of the product and enhance its potential value. While Warner
is not obligated by the purchase agreement to continue with the development of
Vitaros and the filing of the NDA, as of the date of this prospectus, Warner
submitted the CAC assessment package to the FDA during the 4th quarter of
2009. Based on previous discussion with the FDA, we expect that an
approval decision will be made in 2010.
In
Canada, we filed the New Drug Submission (“NDS”) for Vitaros in February 2008
and received a Notice of Non-Compliance (“Notice”) on January 19, 2010.
The Notice was an end-of-review communication from Health Canada when additional
information was needed to reach final decision on product approval. The
deficiencies cited in the Notice were related specifically to the product’s CMC
(Chemistry, Manufacturing and Controls), and no pre-clinical or clinical
deficiencies were cited in the Notice. In February 2010, we met with
Health Canada to discuss their concerns and were able to reach agreement with
them on the necessary action to be completed and included in our response to the
Notice. On June 23, 2010, we announced that Health Canada issued The
Screening Acceptance Letter (the “Acceptance Letter”) in connection with our
NDS. The Acceptance Letter confirmed that the CMC response filed by
us in April 2010 was acceptable for the final, 150-day review
cycle. Based on the date of acceptance, a final approval decision
regarding the approvability of the product for marketing in Canada is expected
by the end of November 2010. There is no assurance that we will receive a
favorable decision.
For
Europe, we are currently pursuing a decentralized filing strategy and our first
Marketing Authorization Application (“MAA”) is planned for the United
Kingdom. The Medicines and Healthcare Products Regulatory Agency (the
“MHRA”) has confirmed that due to the backlog of MAA filings, they would not be
able to receive and start reviewing our MAA until October
2010. Our intention is to pursue filing of the MAA with a local
European partner. With that goal in mind, we are actively pursuing
licensing partners and have engaged a business development consultant to assist
us in that endeavor. There is no assurance that we will be able to
find a partner, file our MAA on a timely basis or obtain regulatory
approval.
MycoVa (NM100060)
Anti-Fungal Treatment. We had an exclusive global licensing
agreement with Novartis International Pharmaceutical Ltd. (“Novartis”) for
MycoVa (formerly NM100060), our proprietary topical nail solution for the
treatment of onychomycosis (nail fungal infection). Under the agreement,
Novartis acquired the exclusive worldwide rights to MycoVa and had assumed all
further development, regulatory, manufacturing and commercialization
responsibilities as well as costs. Novartis agreed to pay us up to $51 million
in upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing and $5 million in milestones in 2008. In addition, we were
eligible to receive royalties based upon the level of sales
achieved.
The
completion of patient enrollment in the Phase 3 clinical trials for MycoVa
triggered a $3 million milestone payment from Novartis to be paid 7 months after
the last patient enrolled in the Phase 3 studies. However, the
agreement also provided that clinical milestones paid to us by Novartis would be
reduced by 50% until we received an approved patent claim on
MycoVa. As such, we initially received only $1.5 million from
Novartis.
On
October 17, 2008, the U.S. Patent and Trademark Office issued the Notice of
Allowance on our patent application for MycoVa. This triggered a $2
million milestone payment from Novartis. On October 30, 2008 we
received a payment of $3.5 million from Novartis consisting of the balance of
$1.5 million of the patient enrollment milestone and the $2 million patent
milestone.
In July
2008, Novartis completed the Phase 3 clinical trials for MycoVa. The
Phase 3 program required for the filing of an NDA in the U.S. for MycoVa
consisted of two pivotal, randomized, double-blind, placebo-controlled
studies. The parallel studies were designed to assess the efficacy,
safety and tolerability of MycoVa in patients with mild to moderate toenail
onychomycosis. Approximately 1,000 patients completed testing in the
two studies, which took place in the U.S., Europe, Canada and
Iceland. On August 26, 2008, we announced that based on First
Interpretable Results of these two Phase 3 studies, Novartis had decided not to
submit the NDA at that time.
In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries. The study results
were insufficient to support marketing approval in Europe. As such,
on July 8, 2009, we announced the mutual decision reached with Novartis to
terminate the licensing agreement. In accordance with the terms of
the termination agreement, Novartis has provided us with all of the requested
reports to date for the three Phase 3 studies that they conducted for
MycoVa.
Pursuant
to the termination agreement, we will pay to Novartis 15% of any upfront and/or
milestone payments that we receive from any future third party licensee of
MycoVa, as well as a royalty fee ranging from 2.8% to 6.5% of annual net sales
of products developed from MycoVa (collectively, “Products”), with such royalty
fee varying based on volume of such annual net sales. In the event
that the Company, or a substantial part of our assets, is sold, we will pay to
Novartis 15% of any upfront and/or milestone payments received by us or our
successor relating to the Products, as well as a royalty fee ranging from 3% to
6.5% of annual net sales of any Products, with such royalty fee varying based on
volume of such annual net sales. If the acquirer makes no upfront or
milestone payments, the royalty fees payable to Novartis will range from 4% to
6.5% of annual net sales of any Products.
We have
completed our analysis of the two pivotal Phase 3 studies completed by
Novartis. We are sharing the clinical database and our conclusion
with potential partners who may be interested in licensing MycoVa for further
development.
Femprox® and
Other Product Candidates. Our product pipeline also includes
Femprox, which is an alprostadil-based cream product intended for the treatment
of female sexual arousal disorder. We have completed nine clinical studies to
date, including one 98-patient Phase 2 study in the U.S. for Femprox, and also a
400-patient study for Femprox in China, where the cost for conducting clinical
studies was significantly lower than in the U.S. We do not intend to
conduct additional studies for this product until we have secured a
co-development partner, which we are actively seeking.
We have
also continued early stage development work for our product pipeline with the
goal of focusing our attention on product opportunities that would replicate the
model of our previously licensed anti-fungal nail treatment. We have
in our pipeline a viable topical treatment for psoriasis, a common
dermatological condition. Since the acquisition of Bio-Quant on December 14,
2009, our Bio-Quant team has been reviewing and studying the pre-clinical stage
topical products in our pipeline to determine if additional value can be created
through further testing in-house. These products include the above-mentioned
treatment for psoriasis, cancer inflammation and also treatments for pain and
wound healing.
Patents
We hold
ten U.S. patents out of a series of patent applications that we have filed in
connection with our NexACT technology and our NexACT-based products under
development. To further strengthen our global patent position on our proprietary
products under development, and to expand the patent protection to other
markets, we have filed under the Patent Cooperation Treaty corresponding
international applications in selected countries for our issued U.S. patents and
pending U.S. patent applications.
The
following table identifies the ten U.S. patents issued for NexACT technology
and/or our NexACT-based product candidates under development as of June 30,
2010, and the year of expiration for each patent:
|
Patent Name
|
Expiration Date
|
|
|
Compositions
and Methods for Amelioration of Human Female Sexual
Dysfunction
|
2017
|
|
|
Topical
Compositions for PGE1 Delivery
|
2017
|
|
|
Topical
Compositions for Non-Steroidal Anti-Inflammatory Drug
Delivery
|
2017
|
|
|
Medicament
Dispenser
|
2019
|
|
|
Crystalline
Salts of dodecyl 2-(N, N-Dimethylamino)-propionate*
|
2019
|
|
|
Topical
Compositions Containing Prostaglandin E1
|
2019
|
|
|
CIP:
Topical Compositions Containing Prostaglandin E1
|
2019
|
|
|
Topical
Stabilized Prostaglandin E Compound Dosage Forms
|
2023
|
|
|
Antifungal
Nail Coat Method of Use
|
2026
|
|
|
Stabilized
Prostaglandin E Composition
|
2026
|
*
Composition of matter patent on our NexACT technology
While
we have obtained patents and have several patent applications pending, the
extent of effective patent protection in the U.S. and other countries is highly
uncertain and involves complex legal and factual questions. No
consistent policy addresses the breadth of claims allowed in or the degree of
protection afforded under patents of medical and pharmaceutical
companies. Patents we currently own or may obtain might not be
sufficiently broad to protect us against competitors with similar
technology. Any of our patents could be invalidated or circumvented
at any time.
While
we believe that our patents would prevail in any potential litigation, the
holders of competing patents could determine to commence a lawsuit against us
and may even prevail in any such lawsuit. Litigation could result in
substantial cost to and diversion of effort by us, which may harm our business.
In addition, our efforts to protect or defend our proprietary rights may not be
successful or, even if successful, may result in substantial cost to
us. Additionally, in February 2009, we sold two patents to Warner and
are obligated to indemnify Warner against challenges to those patents which
could result in additional costs to us.
Segment
and Geographic Area Information
You can
find information about our business segments of business in Note 17 of the Notes
to Consolidated Financial Statements.
Employees
As of
July 31, 2010, we had 34 full time employees, 5 of whom are executive management
and 20 of whom are engaged in research and development activities. We
also rely on a number of consultants. None of our employees are
represented by a collective bargaining agreement. We believe that we
have a good relationship with our employees.
Property
and Facilities
We
currently have our corporate office, laboratories and housing facilities at 2
locations that we currently lease in San Diego, CA. In addition, we
own a 31,500 square foot manufacturing facility in East Windsor,
NJ. As discussed in Note 5 of the Notes to the Consolidated Financial
Statements, we signed an agreement to lease the manufacturing facility for 10
years commencing February 1, 2010. The lease agreement also contains
an option allowing the lessee to purchase the facility during the term of the
lease. We believe our existing facilities are adequate for our
current needs and that any additional space we need will be available in the
future on commercially reasonable terms.
Legal
Proceedings
We are
subject to certain legal proceedings in the ordinary course of
business. We do not expect any such items to have a significant
impact on our financial position.
Directors,
Executive Officers and Key Employees
The
following table sets forth information regarding our directors and executive
officers and key employees of our two subsidiaries, including their ages as of
July 30, 2010.
|
Name
|
Age
|
Position
|
||
|
Bassam
B. Damaj, Ph.D.
|
41
|
President
and Chief Executive Officer and Director
|
||
|
Vivian
H. Liu
|
48
|
Executive
Vice President, Director and Chairman of the Board
|
||
|
Henry
J. Esber, Ph.D.
|
72
|
Executive
Vice President (Bio-Quant, Inc.) and Director
|
||
|
Mark
Westgate
|
40
|
Vice
President, Chief Financial Officer and Treasurer
|
||
|
Edward
M. Cox
|
29
|
Vice
President, Investor Relations and Corporate Development
|
||
|
Linda
Smibert
|
56
|
Vice
President of Business Development (NexMed (U.S.A.),
Inc.)
|
||
|
Mark
S. Wilson
|
50
|
Vice
President of Technology Development (NexMed (U.S.A.),
Inc.)
|
||
|
Terry
Ladd
|
60
|
Vice
President of Business Development (Bio-Quant, Inc.)
|
||
|
Richard
Martin, Ph.D.
|
44
|
Vice
President of Chemistry (NexMed (U.S.A.), Inc.)
|
||
|
Mohamed
Hachicha, Ph.D.
|
46
|
Vice
President, Research and Development (NexMed (U.S.A.),
Inc.)
|
||
|
Roberto
Crea, Ph.D. (1)(3)
|
62
|
Director
|
||
|
Deirdre
Y. Gillespie, M.D. (1)(2)
|
54
|
Director
|
||
|
Leonard
A. Oppenheim (2)(3)
|
63
|
Director
|
||
|
Rusty
Ray (1)(2)(3)
|
39
|
Director
|
|
(1)
|
Member
of Corporate Governance/Nominating
Committee.
|
|
(2)
|
Member
of Audit Committee.
|
|
(3)
|
Member
of Executive Compensation
Committee.
|
Executive
Officers
Bassam B. Damaj, Ph.D. has
been a director since December 2009, when he was appointed to the Board of
Directors (the “Board”) in
connection with our acquisition of Bio-Quant, Inc. He is a co-founder of
Bio-Quant, Inc. and has served as the Chief Executive Officer and Chief
Scientific Officer and a director of Bio-Quant since its inception in June 2000.
He has also served as the Group Leader for the Office of New Target Intelligence
and a Group Leader for immunological and inflammatory disease programs at Tanabe
Research Laboratories, U.S.A., Inc., as a senior scientist and member of the
senior staff board of the drug discovery department at Pharmacopeia Inc., and as
a visiting scientist at Genentech Inc., Pfizer Inc. and the National Institutes
of Health (NIH). Dr. Damaj holds a Ph.D. degree in Immunology/Microbiology from
Laval University and completed a postdoctoral fellowship in molecular oncology
from McGill University. In recommending his appointment to the Board, the
Corporate Governance/Nominating Committee and Board considered Dr. Damaj’s
scientific background and ability to lead the Company’s drug development and
contract research business activities in his role as the Company’s President and
Chief Executive Officer.
Vivian H. Liu has been our
Executive Vice President and Chairman of the Board since December 2009. She has
served as a director from June 2007, and was our President and Chief Executive
Officer from June 2007 to December 2009, and our Secretary from 1995 to December
2009. Ms. Liu also served as our Vice President of Corporate Affairs from
September 1995 until December 2005, Acting Chief Executive Officer from December
2005 until January 2006, Executive Vice President and Chief Operating Officer
from January 2006 to June 2007, Chief Financial Officer from January 2004 until
December 2005, Acting Chief Financial Officer from 1999 to January 2004 and
Treasurer from September 1995 through December 2005. In 1994, while we were in a
transition period, Ms. Liu served as Chief Executive Officer. From 1985 to 1994,
Ms. Liu was a business and investment adviser to the government of Quebec and
numerous Canadian companies with respect to product distribution, technology
transfer and investment issues. Ms. Liu received her MPA in International
Finance from the University of Southern California and her B.A. from the
University of California, Berkeley. In recommending her appointment to the
Board, the Corporate Governance/Nominating Committee and Board considered Ms.
Liu’s breadth of skills and experience in the life sciences industry and in
pubic companies generally and with the Company in particular .
Henry J. Esber, Ph.D. has
been a director since December 2009, when he was appointed to the Board in
connection with our acquisition of Bio-Quant, Inc. He is a co-founder of
Bio-Quant, Inc. and served as a director since its inception. Dr. Esber served
as Bio-Quant’s Senior Vice President and Chief Business Development Officer
since January 2006. From September 2000 to December 2005, Dr. Esber served as
the executive director of business development at Charles River Laboratories,
Inc., a global provider of research models and preclinical, clinical, and
support services. Prior to that, Dr. Esber was an executive director at
Primedica Corporation and Genzyme Transgenics Corporation, vice president at
Bio-Development Laboratories, vice president at TSI Corporation, director at
EG&G Mason Research Labs and the director of the Department of Immunology
and Clinical Services at Mason Research Laboratories. Dr. Esber has also served
as an affiliate professor at Anna Maria College Graduate School and the
University of Connecticut. Dr. Esber holds a B.S. degree in Pre-Medicine from
Norfolk College of William and Mary (now Old Dominion), a Master of Science
degree in Public Health in Parasitology and Public Health from the University of
North Carolina, Chapel Hill and a Ph.D. degree in Immunology/Microbiology from
West Virginia University Medical Center, Morgantown. In recommending his
appointment to the Board, the Corporate Governance/Nominating Committee and
Board considered Dr. Esber’s scientific background and significant experience in
senior business development and technical roles in the contract research
industry.
Mark Westgate has been our
Vice President, Chief Financial Officer and Treasurer since December
2005. From March 2002 to December 2005, Mr. Westgate served as our
Controller. He has over 17 years of public accounting and financial
management experience. From August 1998 to March 2002, Mr. Westgate
served as Controller and Director of Finance for Lavipharm Laboratories Inc., a
company specializing in drug delivery and particle design. Prior to
joining Lavipharm, he was a supervisor at Richard A. Eisner & Company, LLP
where he performed audits and provided tax advice for clients in various
industries including biotech. Mr. Westgate is a Certified Public
Accountant in the State of New York and a member of the New York State Society
of Certified Public Accountants. He holds a B.B.A. in public
accounting from Pace University.
Edward M. Cox has been our
Vice President, Investor Relations and Corporate Development since December
2009. Mr. Cox has been the President and a director of Bio-Quant,
Inc. since January 2007. Prior to that, from June 2006 to November
2006, Mr. Cox served as a director of TomCo Energy PLC, a private oil mining
company, which has since become listed on the London AIM market. He
has also acted as a Business Strategist and Consultant for companies in the
areas of Healthcare, Life Science, Technology and
Resources. Mr. Cox holds a Masters of Science degree in
Business from the University of Florida. Mr. Cox was elected an
officer in connection with our acquisition of Bio-Quant.
Key
Employees
Linda Smibert has been Vice
President of Business Development of NexMed (U.S.A.), Inc. since May
2010. Prior to joining NexMed (U.S.A.), Inc., Ms. Smibert served as
Senior Director and Director of Business Development at Santarus, Inc. since
August 2002. Ms. Smibert has over 20 years of experience in the
pharmaceutical industry, and, in addition to her tenure at Santarus, has held a
variety of business development and strategic planning management functions at
Bristol-Myers Squibb in the U.S. and in Canada (from 1997 until 2001), as well
as with Zeneca in Canada and the U.K. (from 1990 until 1997). Ms.
Smibert earned her B.A. from the University of British Columbia and an MBA from
the University of Toronto.
Mark S. Wilson has been Vice
President of Technology Development of NexMed (U.S.A.), Inc. since May
2010. He has over 20 years of experience in the biopharmaceutical,
diagnostic and medical device industries. Prior to joining NexMed
(U.S.A.), Inc., Mr. Wilson was Entrepreneur-in-Residence at CONNECT in San
Diego, where he provided business start-up strategy, development and sourcing
consulting services to local companies. Prior to that, he served for
five years as Vice President of Business Development at Halozyme Therapeutics
(from June 2003 to May 2008). Mr. Wilson earned a B.S. in Mechanical
Engineering from the University of California, Berkeley, and an M.B.A. from the
University of California, Los Angeles.
Terry Ladd has been Vice
President of Business Development of Bio-Quant, Inc. since April
2010. Mr. Ladd has more than 20 years of sales experience in the
preclinical field, including prior senior management positions in sales and
marketing with Calvert Laboratories, Inc. (August 1995 until March 2003 and
January 2009 until April 2010), MDS Pharma Services, Inc. (august 2005 until
October 2008), SkeleTech, Inc. (March 2003 until August 2005), Phoenix
International Life Sciences, Inc., Chrysalis International, Inc., Pharmakon
Research International, Inc., and ITR Laboratories, Inc. Mr. Ladd
holds an M.B.A. in Marketing and Finance from McGill University, an M.A. from
the University of Sherbrooke, and a B.A. Honors degree from Bishop’s
University.
Richard Martin, Ph.D. has
been Vice President of Chemistry of NexMed (U.S.A.), Inc. since April
2010. Dr. Martin has over 20 years of medicinal chemistry research
and development experience in the fields of antibacterial, inflammation,
oncology, antiviral, cardiovascular and metabolic diseases. Prior to
joining NexMed (U.S.A), Inc., Dr. Martin was Senior Director of Chemistry at
RetroVirox, Inc. a privately-held biotechnology company (from October 2009 until
April 2010). Dr. Martin also served as Director of Chemistry at
Exelixis, Inc./X-Ceptor Therapeutics, Inc. (from January 2006 until April 2009),
and Group Leader at Tanabe Research Laboratories U.S.A., Inc. in San Diego, a
wholly owned subsidiary of Mitsubishi-Tanabe in Japan (from January 2000 until
April 2000). Dr. Martin received his Ph.D. in Organic Chemistry from
the University of Toronto and completed his postdoctoral research at The Scripps
Research Institute in San Diego.
Mohamed Hachicha, Ph.D. has
been Vice President, Research and Development of NexMed (U.S.A.), Inc. since
July 2010. Dr. Hachicha has over 15 years of experience in the
pharmaceutical and biotechnology industries. Prior to joining NexMed
(U.S.A.), Inc., from 2005 to 2010, Dr. Hachicha served as Senior Principal
Scientist in the Pharmacology and Drug Discovery Department at Forest
Laboratories. From 1999 to 2005, he was Principal Investigator in the
Molecular Pharmacology Department at Purdue Pharma, L.P. Dr. Hachicha began his
career as a Research Scientist in the Discovery Department at Pharmacopeia,
Inc., and prior to that, conducted post doctorate research focused on
inflammatory diseases at Harvard Medical School. Dr. Hachicha
received his B.S. degree in Biochemistry from the University of Algiers,
Algeria, and both his M.Sc. and Ph.D. in Immunology from Laval University,
Canada.
Non-Employee
Directors
Roberto Crea, Ph.D. has been
a director since December 2009. Dr. Crea has over 30 years of experience in the
biotechnology field as a scientist, investor and entrepreneur. Since October
2005, he has served as the President and Chief Executive Officer of ProtElix,
Inc., a privately held, early stage biotherapeutic company focused on the
discovery and development of optimized protein therapeutics. He has also served
as the President and Chief Executive Officer of CreAgri since 1999, a developer
and supplier of antioxidant polyphenols and other dietary supplements. Prior to
that, from January 2002 to August 2005, Dr. Crea served as a founder and the
Chief Executive Officer of Bioren, Inc., which was acquired by Pfizer, Inc. in
August 2005. He is also one of the scientific co-founders of Genentech, Inc.,
and founder of Creative Bio Molecules, Inc. (1982), Creagen, Inc. (1992) and
CreAgri, Inc. (1998). Dr. Crea holds a Ph.D. degree in Biological Chemistry from
University of Pavia, Italy. He was also an Associate Professor of DNA Chemical
Synthesis at Leiden University in the Netherlands prior to moving to the United
States in 1977. Dr. Crea currently serves as a director of CreAgri, Inc.,
ProtElix, Inc. and SynGen, Inc. In recommending his appointment to the Board,
the Corporate Governance/Nominating Committee and Board considered Dr. Crea’s
scientific background and ability to contribute to the Board’s understanding of
technical matters relating to the Company’s business, as well as Dr. Crea’s
broader business development and corporate experience.
Deirdre Y. Gillespie, M.D.
has been a director since June 2010. Dr. Gillespie currently serves
as President and Chief Executive Officer of La Jolla Pharmaceutical Company (“La
Jolla”), a publicly held biopharmaceutical company. Dr. Gillespie has
served as a director, and as President and Chief Executive Officer, of La Jolla
since March 2006. Dr. Gillespie previously served as the
President and Chief Executive Officer of Oxxon Therapeutics, Inc., a privately
held pharmaceutical company, from 2001 to 2005. Prior to that, she served as
Chief Operating Officer of Vical, Inc., from 2000 to 2001, and Executive Vice
President & Chief Business Officer, from 1998 to
2000. Dr. Gillespie also held a number of positions at DuPont
Merck Pharmaceutical Company, including Vice President of Marketing, from 1991
to 1996. Dr. Gillespie received her M.B.A. from the London
Business School and her M.D. and B.Sc. from London University. Dr.
Gillespie serves on the board of La Jolla. In recommending her
appointment to the Board, the Corporate Governance/Nominating Committee and
Board considered Dr. Gillespie’s medical and scientific background and ability
to contribute to the Board’s understanding of technical matters relating to the
Company’s business, as well as Dr. Gillespie’s broader business development and
corporate experience as a chief executive officer of a publicly traded
biotechnology company.
Leonard A. Oppenheim has been
a director since 2004. He has served as a member of our Audit Committee since
January 2006 and a member of our Finance Committee since June 2006. Mr.
Oppenheim served as the Chairman of the Board from June 2006 through June 2007.
Mr. Oppenheim retired from business in 2001 and has since been active as a
private investor. From 1999 to 2001, Mr. Oppenheim was a partner in Faxon
Research, a company offering independent research to professional investors.
From 1983 to 1999, Mr. Oppenheim was a principal in the Investment Banking and
Institutional Sales division of Montgomery Securities. Prior to that, he was a
practicing attorney. Mr. Oppenheim holds a J.D. degree from New York University
Law School. In recommending his appointment to the Board, the Corporate
Governance/Nominating Committee and Board considered Mr. Oppenheim’s significant
experience in the areas of law, finance and corporate
communications .
Rusty (Russell) Ray has been
a director since December 2009. He is currently a partner with Brocair Partners,
a healthcare focused investment bank, and has been with Brocair Partners since
its founding in 2004. Since joining Brocair, he has worked with a wide variety
of clients across the healthcare industry ranging from large pharmaceutical
companies to early-stage drug development companies to medical device and
service-based companies. Prior to joining Brocair Partners, Mr. Ray was a Deputy
Director for eight years with Resources for the Future (RFF) a non-partisan
Washington-based think tank that conducts independent economic research. During
his tenure at RFF, the organization conducted a number of studies related to the
pharmaceutical and biotechnology industries. Beyond life sciences, Mr. Ray also
worked on issues related to emissions credit trading and utility restructuring.
Prior to joining RFF, Mr. Ray worked with The Meningitis Research Foundation in
London where he worked to support basic research to cure the disease. Mr. Ray is
currently a Director of New Media Mill, a digital media company. Mr. Ray holds
an M.B.A. in Finance from the Fordham University School of Business, and
received a B.S. in Biology from Wake Forest University. In recommending his
appointment to the Board, the Corporate Governance/Nominating Committee and
Board considered Mr. Ray’s experience advising life sciences companies in
matters of finance, corporate communications and business
development.
Director
Independence
Our
Board consists of seven directors, four of whom are not employees and who
qualify as “independent” directors according to the independence requirements of
NASDAQ Marketplace Rule 5605(a)(2). Our Board has determined
that each of Messrs. Oppenheim and Ray and Drs. Crea and Gillespie met the
definition of independence under the applicable NASDAQ Marketplace
Rules. Accordingly, a majority of the directors were deemed to be
independent, including each member of the Executive Compensation Committee, the
Audit Committee and the Corporate Governance/Nominating
Committee.
There are
no family relationships among any of our directors or executive
officers.
Our
Board has considered the relationships of all directors and, where applicable,
the transactions involving them described below under “Certain Relationships and
Related Person Transactions,” and determined that each of them does not have any
relationship which would interfere with the exercise of independent judgment in
carrying out his or her responsibility as a director and that each non-employee
director qualifies as an independent director under the applicable rules of The
NASDAQ Capital Market.
Compensation
Committee Interlocks and Insider Participation
None of
the members of the Compensation Committee is or has at any time during the past
fiscal year been an officer or employee of the Company. None of the members of
the Compensation Committee has formerly been an officer of the Company. None of
our executive officers serve or in the past fiscal year has served as a member
of the Board or Compensation Committee of any other entity that has one or more
executive officers serving as a member of our Board or Compensation
Committee.
Summary
Compensation Table — 2009 and 2008
The
following table sets forth the compensation paid by us during the years ended
December 31, 2008, and December 31, 2009 to the each of the individuals who
served as our principal executive officers and each of the other two most highly
paid executive officers during the periods covered (collectively, the “Named
Executive Officers”):
|
Name
and Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
(4)
|
Option
Awards
|
All
Other Compensation
(5)
|
Total
|
|||||||||||||||||||
|
Vivian
H. Liu (1)
|
2009
|
$ | 285,114 | — | — | — | $ | 5,285 | $ | 290,399 | ||||||||||||||||
|
Executive
Vice President and Chairman of the Board
|
2008
|
$ | 300,000 | — | $ | 147,000 | — | $ | 4,835 | $ | 451,835 | |||||||||||||||
|
Bassam
B. Damaj (2)
|
2009
|
$ | 12,500 | — | — | — | — | $ | 12,500 | |||||||||||||||||
|
President
and Chief Executive Officer
|
2008
|
— | — | — | — | — | — | |||||||||||||||||||
|
Mark
Westgate
|
2009
|
$ | 223,248 | — | — | — | $ | 3,564 | $ | 226,812 | ||||||||||||||||
|
Vice
President and Chief Financial Officer
|
2008
|
$ | 235,000 | — | $ | 222,000 | — | $ | 3,542 | $ | 460,542 | |||||||||||||||
|
Hemanshu
Pandya (3)
|
2009
|
$ | 222,229 | — | — | — | $ | 2,536 | $ | 225,793 | ||||||||||||||||
|
Chief
Operating Officer
|
2008
|
$ | 225,000 | — | $ | 222,000 | — | $ | 2,631 | $ | 449,631 | |||||||||||||||
|
(1)
|
Ms.
Liu was appointed Executive Vice President and Chairman of the Board in
December 2009. Prior to that, she served as our President and
Chief Executive Officer.
|
|
(2)
|
Dr.
Damaj was appointed our President and Chief Executive Officer in December
2009.
|
|
(3)
|
Mr.
Pandya’s employment as our Chief Operating Officer ended in June
2009.
|
|
(4)
|
Market
value of stock awards were determined by multiplying the number of shares
granted by the closing market price of our stock on the grant
date. Values are presented as the grant-date fair value
computed in accordance with FASB ASC Topic 718 and not the amount expensed
in a given year per FAS 123(R).
|
|
(5)
|
All
other Compensation includes amounts for the Company’s matching and profit
sharing contribution to the 401k plan and life insurance premiums paid on
behalf of the Named Executives as part of the employee benefit plan for
all employees, whereby each employee has a Company paid life insurance
policy in the amount of each employee’s annual
salary.
|
Employment
Agreements
Bassam B. Damaj,
Ph.D. In connection with his appointment as our President and Chief
Executive Officer, Dr. Damaj entered into an employment agreement with the
Company, dated as of December 14, 2009 (the “Damaj Employment
Agreement”). Under the Damaj Employment Agreement, Dr. Damaj is
entitled to an initial annual base salary of $300,000 and an annual cash bonus
of up to 65% of his base salary, based upon the achievement by the Company of
objective performance measures established and determined at the beginning of
each fiscal year by the Board or its Executive Compensation
Committee. In addition, following approval by our stockholders of
increases in the authorized number of shares of our common stock under our
amended and restated articles of incorporation and in the number of shares of
our common stock available for issuance under our equity plans, Dr. Damaj
received a grant of 100,000 shares of restricted common stock under our 2006
Stock Incentive Plan, which vests in three installments, with 20,000 shares
vesting on the first anniversary of his employment with the Company, 33,334
shares vesting on the second anniversary of his employment with the Company and
46,667 shares vesting on the third anniversary of his employment with the
Company. In the event of a change of control of the Company, the
termination of Dr. Damaj’s employment by the Company without cause or Dr.
Damaj’s resignation from his employment with the Company for good reason, the
vesting of all unvested shares will accelerate. In addition, Dr.
Damaj will be entitled to cash severance in an amount equal to one year of his
base salary and a pro-rated bonus for the calendar year of such termination or
resignation, if bonus criteria have been met, plus certain other benefits, if
his employment is terminated by the Company without cause or he resigns for good
reason, as further detailed in the Damaj Employment Agreement .
Vivian H.
Liu. In connection with her continued employment with the
Company and her appointment as our Executive Vice President, Ms. Liu entered
into an amended and restated employment agreement with the Company, dated as of
December 14, 2009 (the “Liu Employment Agreement”). Under the Liu
Employment Agreement, which supersedes the terms of Ms. Liu’s previous
employment agreement with the Company, Ms. Liu is entitled to an initial annual
base salary of $280,000 and an annual cash bonus of up to 50% of her base
salary, based upon the achievement by the Company of objective performance
measures established and determined at the beginning of each fiscal year by the
Board or its Executive Compensation Committee. The Liu Employment
Agreement also entitles Ms. Liu to (i) a one-time signing bonus of $50,000, (ii)
a one-time incentive bonus with a value of $100,000, payable one-half in cash
and one-half in shares of our common stock (valued at the fair market value of
the stock one day prior to the date of payment), which was deemed earned in 2010
upon the achievement of certain performance and integration goals established by
our Executive Compensation Committee and (iii) a $25,000 lump sum payment in
connection with her relocation from New Jersey to California. In
addition, under the terms of the Liu Employment Agreement, Ms. Liu is entitled
to receive (i) an annual grant of our restricted common stock with a grant-date
fair value of $20,000 (measured with reference to our closing stock price on the
NASDAQ stock market on the date of grant), vesting over a period of one year
from the date of grant, (ii) an annual grant of 16,667 shares of our restricted
common stock vesting over a period of one year from the date of grant and (iii)
a one-time stock grant consisting of 66,667 fully vested shares of the our
common stock. The foregoing stock grants were made following approval
by our stockholders of increases in the authorized number of shares of our
common stock under our amended and restated articles of incorporation and in the
number of shares of our common stock available for issuance under our equity
plans. In the event of a change of control of the Company, the
termination of Ms. Liu’s employment by the Company without cause or Ms. Liu’s
resignation from her employment with the Company for good reason, the vesting of
all unvested shares will accelerate, and Ms. Liu will be entitled to a pro-rated
bonus for the calendar year of such termination or resignation, if bonus
criteria have been met, and certain other benefits as further detailed in the
Liu Employment Agreement.
Mark
Westgate. On December 15, 2005, we entered into an employment
agreement with Mr. Westgate (the “Westgate Employment
Agreement”). Under the Westgate Employment Agreement, Mr. Westgate
will serve as our Vice President of Finance and Chief Financial Officer and is
currently entitled to an annual base salary of $235,000, and will be eligible to
earn an annual cash bonus based upon the achievement by the Company of objective
performance measures established and determined at the beginning of each fiscal
year by the Board or its Executive Compensation Committee. In
addition, Mr. Westgate will be eligible to receive stock options and restricted
stock under our 2006 Stock Incentive Plan based on the recommendation of the
Board to our Executive Compensation Committee. In April 2010, Mr.
Westgate was awarded 10,000 shares of restricted stock, which vest over a
one-year period from the date of grant. In the event of the
termination of Mr. Westgate’s employment by the Company without cause or Mr.
Westgate’s resignation from his employment with the Company for good reason, any
unvested options granted under the Westgate Employment Agreement shall
immediately vest. In addition, Mr. Westgate will be entitled to
receive a pro-rated bonus for the calendar year of such termination or
resignation, if bonus criteria have been met, certain other benefits and an
amount up to Mr. Westgate’s annual base salary at the time of such termination
based on Mr. Westgate’s length of service.
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows information regarding our outstanding equity awards at
December 31, 2009 for the Named Executive Officers.
|
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number of
Securities
Underlying
Unexercised
Unearned
Options
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)
|
||||||||||||||||||||||||
|
Vivian
H. Liu
|
12,000 | (4) | — | $ | 13.80 |
12/15/15
|
||||||||||||||||||||||||||
| 7,000 | (5) | — | $ | 10.50 |
12/16/12
|
|||||||||||||||||||||||||||
| 7,619 | (6) | — | $ | 8.25 |
12/3/12
|
|||||||||||||||||||||||||||
| 6,667 | (8) | — | $ | 12.15 |
8/3/16
|
|||||||||||||||||||||||||||
| 6,000 | (7) | — | $ | 60.00 |
1/9/10
|
|||||||||||||||||||||||||||
| 16,667 | (13) | $ | 382,500 | (3) | ||||||||||||||||||||||||||||
| 6,667 | (9) | $ | 147,000 | (3) | ||||||||||||||||||||||||||||
|
Bassam
B. Damaj (1)
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Mark
Westgate
|
5,000 | (4) | — | $ | 13.80 |
12/15/15
|
||||||||||||||||||||||||||
| 334 | (10) | — | $ | 19.80 |
1/18/15
|
|||||||||||||||||||||||||||
| 1819 | (6) | — | $ | 8.25 |
12/3/12
|
|||||||||||||||||||||||||||
| 1,000 | (11) | — | $ | 48.75 |
3/11/12
|
|||||||||||||||||||||||||||
| 5,334 | (8) | — | $ | 12.15 |
8/3/16
|
|||||||||||||||||||||||||||
| 16,667 | (12) | $ | 25,000 | (3) | ||||||||||||||||||||||||||||
| 6,667 | (9) | $ | 147,000 | (3) | ||||||||||||||||||||||||||||
|
Hemanshu
Pandya (2)
|
— | — | — | — | — | — | — | |||||||||||||||||||||||||
|
(1)
|
Dr.
Damaj was appointed our President and Chief Executive Officer in December
2009.
|
|
(2)
|
Mr.
Pandya’s employment as our Chief Operating Officer ended in June 2009, at
which time all unvested awards were
forfeited.
|
|
(3)
|
Market
values were determined by multiplying the number of shares granted by the
closing market price of our common stock on the grant
date.
|
|
(4)
|
Options
vested in three equal installments on December 31, 2006, 2007 and
2008.
|
|
(5)
|
Options
vested in three equal installments on December 31, 2003, 2004 and
2005.
|
|
(6)
|
Options
vested on July 1, 2003.
|
|
(7)
|
Options
vested in three equal installments on January 19, 2001, 2002 and
2003.
|
|
(8)
|
Options
vested in two equal installments on the filing of the NDA for Vitaros in
September 2007 and the acceptance of the NDA for review by the FDA in
November 2007.
|
|
(9)
|
The
stock vests in two equal installments upon the re-submission of the NDA
for Vitaros and upon the FDA’s approval of the
NDA.
|
|
(10)
|
Options
vested on the grant date of January 18,
2005.
|
|
(11)
|
Options
vested in three equal installments on March 11, 2003, 2004 and
2005.
|
|
(12)
|
The
award vested on June 30, 2010.
|
|
(13)
|
The
award vested on June 18, 2010.
|
Director
Compensation
In
December 2009, our Board of Directors adopted a new compensation package for our
non-employee directors effective January 1, 2010. Under this
compensation package, each non-employee director is entitled to receive an
annual retainer of $36,000 (which is paid in stock) and a per-meeting fee of
$500 (which is paid in cash) for each Board or committee meeting attended either
in person or by telephone. In addition, each non-employee director
serving as Chairman of one of our standing committees is entitled to receive an
annual retainer of $4,000 (which is paid in stock) for his or her service as a
committee chair.
The
annual retainers for service as a Board member and as a committee chair are
payable quarterly in arrears, in shares of our common stock valued at a price
per share equal to the average closing price of our common stock over the first
five trading days of the calendar year, as reported on the NASDAQ Stock Market,
to be issued under the 2006 Stock Incentive Plan, subject to there being a
sufficient number of shares of common stock reserved for issuance under the 2006
Plan. If, for a given quarter, there is not a sufficient number of
shares available for issuance under the 2006 Plan to cover the annual retainer
grants, then payment of the applicable retainer amount will either be made in
cash, or, at the director’s option, be deferred to a later date. For
the fiscal year ending December 31, 2010, the $36,000 annual retainer for
service as a Board member amounts to 7,844 shares of common stock, and the
$4,000 annual retainer for service as a committee chair amounts to 872 shares of
common stock. The per-meeting fees are payable in cash, quarterly in
arrears.
Below is
a summary of the non-employee director compensation paid in 2009:
Non-Employee
Director Compensation for 2009
|
Name
|
Fees earned or
Paid in cash($)
|
Stock Awards ($)
(3)
|
Option Awards ($)
|
Total
($)
|
||||||||||||
|
Richard
J. Berman (1)
|
$ | 6,000 | $ | 120,776 | — | $ | 126,776 | |||||||||
|
Arthur
D. Emil, Esq. (2)
|
$ | 7,300 | $ | 62,963 | — | $ | 70,263 | |||||||||
|
Leonard
A. Oppenheim
|
$ | 7,900 | $ | 62,963 | — | $ | 70,863 | |||||||||
|
David
S. Tierney, M.D. (2)
|
$ | 4,900 | $ | 62,963 | — | $ | 67,863 | |||||||||
|
Martin
R. Wade, III (2)
|
$ | 7,200 | $ | 62,963 | — | $ | 70,163 | |||||||||
|
Roberto
Crea (3)
|
$ | 500 | — | — | $ | 500 | ||||||||||
|
Rusty
Ray (3)
|
$ | 500 | — | — | $ | 500 | ||||||||||
|
Deirdre
Y. Gillespie, M.D.(4)
|
— | — | — | — | ||||||||||||
|
(1)
|
Mr.
Berman resigned from our Board in June
2010.
|
|
(2)
|
Messrs.
Emil, Tierney and Wade resigned from our Board in December
2009.
|
|
(3)
|
Messrs.
Crea and Ray were appointed to our Board in December
2009.
|
|
(4)
|
Dr.
Gillespie joined our Board in June
2010.
|
|
(5)
|
Market
values for stock awards granted for the annual retainer fees were
calculated based on the average of the closing price of our common stock
over five consecutive trading days, commencing on January 2,
2008.
|
Review
and Approval of Transactions with Related Persons
Our
Board has adopted a written policy and procedures for review, approval and
monitoring of transactions involving our Company and “related persons”
(directors and executive officers or their immediate family members, or
stockholders owning 5% or greater of our outstanding common
stock). The policy covers any related person transaction that meets
the minimum threshold for disclosure in our proxy statement under the relevant
SEC rules (generally transactions involving amounts exceeding $120,000 in which
a related person has a direct or indirect material interest). Related
person transactions must be approved by the Board or by the Audit Committee of
the Board consisting solely of independent directors, which will approve the
transaction if they determine that it is in our best interests. The
Board or Audit Committee will periodically monitor the transaction to ensure
that there are no changes that would render it advisable for us to amend or
terminate the transaction.
Transactions
with Related Persons
Certain
of our Named Executive Officers and directors were former stockholders of
Bio-Quant, Inc. and received shares of our common stock and promissory notes
upon the completion of our merger with Bio-Quant on December 14,
2009. Set forth in the table below are the names of each of these
individuals, their current positions at our Company and the aggregate number of
shares of common stock that were issued to them (and their spouses, if
applicable) upon completion of our merger and repayment of the principal amount
and accrued interest under their notes on March 17, 2010, May 24, 2010 and June
21, 2010. These shares do not include shares placed in escrow to
satisfy potential indemnification claims arising under the Bio-Quant merger
agreement.
|
Name
|
Title
|
Shares Issued upon
Completion of our
Merger with Bio-
Quant
|
Principal Amount of
Notes
|
Shares Issued upon
Repayment of Notes
(Principal plus Accrued
Interest)
|
||||||||||
|
Bassam
B. Damaj, Ph.D.
|
President
and Chief Executive Officer and Director
|
87,320 | $ | 3,974,635 | 1,015,656 | |||||||||
|
Henry
J. Esber, Ph.D.
|
Executive
Vice President and Director
|
44,966 | $ | 2,043,885 | 522,678 | |||||||||
|
Edward
M. Cox
|
Vice
President, Investor Relations and Corporate Development
|
6,683 | $ | 303,985 | 57,466 | |||||||||
|
Roberto
Crea, Ph.D.
|
Director
|
1,295 | $ | 58,892 | 11,133 | |||||||||
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of July 31, 2010, the most recent practicable date,
and as adjusted to reflect the sale of common stock offered by us in this
offering, for:
|
|
•
|
each
beneficial owner of more than 5% of our outstanding common
stock;
|
|
|
•
|
each
of our named executive officers and
directors; and
|
|
|
•
|
all
of our executive officers and directors as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC. These rules
generally attribute beneficial ownership of securities to persons who possess
sole or shared voting power or investment power with respect to those securities
and include shares of common stock issuable upon the exercise of stock options
that are immediately exercisable or exercisable within 60 days after
July 31, 2010, but excludes unvested stock options, which contain an early
exercise feature. Except as otherwise indicated, all of the shares reflected in
the table are shares of common stock and all persons listed below have sole
voting and investment power with respect to the shares beneficially owned by
them, subject to applicable community property laws. The information is not
necessarily indicative of beneficial ownership for any other
purpose.
Percentage
ownership calculations for beneficial ownership prior to this offering are based
on 12,824,692 shares issued and outstanding as of July 31,
2010.
In
computing the number of shares of common stock beneficially owned by a person
and the percentage ownership of that person, we deemed outstanding shares of
common stock subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days of July 31, 2010. We
did not deem these shares outstanding, however, for the purpose of computing the
percentage ownership of any other person.
|
Name of Beneficial Owner
|
Shares
Beneficially
Owned
Before
and After
Offering
|
Percentage of
Common
Stock
Beneficially
Owned
Before
Offering
|
Percentage of
Common
Stock
Beneficially
Owned
After
Offering
|
|||||||||
|
Named
Executive Officers and Directors (1):
|
||||||||||||
|
Bassam
B. Damaj, Ph.D. (2)
|
1,102,976 | 8.6 | % | 6.3 | ||||||||
|
Henry
J. Esber, Ph.D. (3)
|
567,614 | 4.4 | % | 3.2 | ||||||||
|
Vivian
H. Liu (4)
|
182,686 | 1.4 | % | 1.0 | ||||||||
|
Leonard
A. Oppenheim (5)
|
49,655 | * | * | |||||||||
|
Mark
Westgate (6)
|
55,440 | * | * | |||||||||
|
Edward
M. Cox
|
113,079 | * | * | |||||||||
|
Roberto
Crea, Ph.D.
|
23,628 | * | * | |||||||||
|
Rusty
Ray
|
4,358 | * | * | |||||||||
|
Deirdre
Y. Gillespie, M.D
|
654 | * | * | |||||||||
|
All
named executive officers and directors as a group
(9 persons)
|
2,100,090 | 16.3 | % | 11.9 | ||||||||
|
*
|
Less
than one percent (1%).
|
|
(1)
|
The
address for each of our executive officers and directors is 6330 Nancy
Ridge Drive, Suite 103, San Diego, California,
92121.
|
|
(2)
|
Includes
327,100 shares held by Dr. Damaj’s spouse. Dr. Damaj disclaims
beneficial ownership of these
shares.
|
|
(3)
|
Includes
192,412 shares held by Dr. Esber’s spouse. Dr. Esber disclaims beneficial
ownership of these shares.
|
|
(4)
|
Includes
33,286 shares issuable upon exercise of stock options exercisable within
60 days of July 31, 2010.
|
|
(5)
|
Includes
33,333 shares issuable upon exercise of stock options exercisable within
60 days of July 31, 2010.
|
|
(6)
|
Includes
13,485 shares issuable upon exercise of stock options exercisable within
60 days of July 31, 2010.
|
General
The
following description of our capital stock is intended as a summary only and is
qualified in its entirety by reference to our amended and restated articles of
incorporation, as amended, and amended and restated bylaws, which are filed
as exhibits to the registration statement of which this prospectus forms a part,
and to the applicable provisions of Nevada Revised Statutes Chapter
78.
Our
authorized capital stock consists of 75,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share, 8,998,600 of which shares of preferred stock are
undesignated.
As of
June 30, 2010, 12,626,541 shares of our common stock were outstanding. In
addition, as of June 30, 2010, we had outstanding options to purchase 156,771
shares of our common stock under our stock options plans at a weighted-average
exercise price of $16.07 per share, all of which were exercisable, and
outstanding warrants and convertible securities representing the right to
acquire a total of 717,095 shares of our common stock.
Common
Stock
Holders
of our common stock are entitled to one vote per share for the election of
directors and on all other matters that require stockholder approval. Holders of
shares of common stock do not have any cumulative voting
rights. Subject to any preferential rights of any outstanding
preferred stock, in the event of our liquidation, dissolution or winding up,
holders of our common stock are entitled to share ratably in the assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding preferred stock. Our common stock does not carry any redemption
rights or any preemptive or preferential rights enabling a holder to subscribe
for, or receive shares of, any class of our common stock or any other securities
convertible into shares of any class of our common stock.
Preferred
Stock
Under
our amended and restated articles of incorporation, our Board has the authority,
without further action by stockholders, to designate up to
10,000,000 authorized shares of preferred stock in one or more series and
to fix the voting rights, designations, preferences, limitations, restrictions,
privileges and relative rights granted to or imposed upon the preferred stock,
including dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preference and sinking fund terms, any or all of which
may be greater than the rights of the common stock. Of the 10,000,000
shares of preferred stock authorized in our amended and restated articles of
incorporation, our Board has previously designated:
|
|
·
|
1,000,000
shares of our preferred stock as Series A Junior Participating Preferred
Stock, none of which have been
issued;
|
|
|
·
|
800
shares of our preferred stock as Series B 8% Cumulative Convertible
Preferred Stock, all previously outstanding shares of which have been
previously converted into shares of our common stock and may not be
reissued; and
|
|
|
·
|
600
shares of our preferred stock as Series C 6% Cumulative Convertible
Preferred Stock, all previously outstanding shares of which have been
previously converted into shares of our common stock and may not be
reissued.
|
8,998,600
shares of our preferred stock remain available for designation by our board of
directors.
If we
issue preferred stock, we will fix the voting rights, designations, preferences,
limitations, restrictions, privileges and relative rights of the preferred stock
of each series that we sell under this prospectus and applicable prospectus
supplements in the certificate of designation relating to that series. If we
issue preferred stock, we will incorporate by reference into the registration
statement of which this prospectus is a part the form of any certificate of
designation that describes the terms of the series of preferred stock we are
offering before the issuance of such series of preferred stock. We urge you to
read the prospectus supplement related to any series of preferred stock we may
offer, as well as the complete certificate of designation that contains the
terms of the applicable series of preferred stock.
Warrants
As of
June 30, 2010, warrants for the issuance of 250,895 shares of our common stock
were outstanding, which are exercisable at a weighted average exercise price of
$12.76 per share, all of which are exercisable through various dates expiring
between November 29, 2010 and October 26, 2012.
The
descriptions of the warrants are only a summary and are qualified in their
entirety by the provisions of the forms of the warrant, which are incorporated
by reference to the registration statement of which this prospectus forms a
part .
Unit
Warrants
In
connection with this offering, we will issue warrants to purchase up to
1,650,000 shares of our common stock. Each warrant entitles the holder to
purchase at any time for a period of five years following the closing date of
the offering, one share of our common stock at an exercise price of 42% of the
offering price per unit, or $2.55 per warrant assuming a unit offering price per
unit of $6.06. After the expiration of the exercise period, unit warrant holders
will have no further rights to exercise such unit warrants.
The
unit warrants may be exercised only for full shares of common
stock. We will not issue fractional shares of common stock or cash in
lieu of fractional shares of common stock. If a fractional share
would be issuable upon exercise of a unit warrant in full, then the number of
shares of common stock to be issued upon exercise of a unit warrant shall be
rounded up to the next whole share. Unit warrant holders do not have
any voting or other rights as a stockholder of our Company until such unit
warrants have been properly exercised and such holders become holders of our
common stock.
If the
registration statement covering the shares issuable upon exercise of the
warrants contained in the units is not effective at the time of exercise of the
warrants, the unit warrants may only be exercised on a “cashless” basis and will
be issued with appropriate restrictive legends unless such shares are eligible
for resale without restriction under the Securities Act. If we fail
to cause the warrant agent to transmit to the holder a certificate representing
the shares of common stock issuable upon the exercise of the unit warrants and
the holder is required to purchase shares of our common stock in order to
satisfy a sale by the holder of the shares underlying the unit warrants which
the holder anticipated receiving upon such exercise, then we shall pay the
holder the amount by which the shares so purchased exceeds the amount obtained
by multiplying (i) the number of shares of common stock that were required
to be delivered in connection with the exercise of the unit warrants and (ii)
the price at which the sell order giving rise to such purchase obligation was
executed. In addition, at the holder’s option, we shall either
reinstate the holder’s exercised portion of the unit warrant or deliver to the
holder the number of shares that would have been issued had the delivery
obligations been complied with.
The
exercise price and the number of shares of common stock issuable upon the
exercise of each unit warrant are subject to adjustment upon the happening of
certain events, such as stock dividends, distributions and
splits.
The
unit warrants provide that no exercise will be effected, and the holder of a
unit warrant will not have the right to exercise a warrant, if after giving
effect to the exercise the holder, together with any affiliates, would
beneficially own in excess of 4.99% of the number of shares of our common stock
outstanding immediately after giving effect to the issuance of shares upon
exercise of such unit warrant. The holder may, upon 61 days prior
written notice, nullify this 4.99% limit and thereby elect to increase the
exercise limit to 9.99% of our total shares outstanding. The holder
may not waive the 9.99% limit.
In
addition, the unit warrants will be exercisable for the number of shares of
common stock of any successor or acquiring corporation or of the Company, if it
is the surviving corporation, and any additional consideration receivable as a
result of such transactions listed below (each transaction referred to as a
“Fundamental
Transaction”)
if such transaction should occur while the unit warrants are issued and
outstanding:
|
|
·
|
the
Company, directly or indirectly, in one or more related transactions
effects any merger or consolidation of the Company with or into another
person;
|
|
|
·
|
the
Company, directly or indirectly, effects any sale, lease, license,
assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related
transactions;
|
|
|
·
|
any,
direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another person) is completed pursuant to which
holders of our common stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and such offer has
been accepted by the holders of 50% or more of our outstanding common
stock;
|
|
|
·
|
the
Company, directly or indirectly, in one or more related transactions,
effects any reclassification, reorganization or recapitalization of our
common stock or any compulsory share exchange pursuant to which our common
stock is effectively converted into or exchanged for securities other than
the Company’s securities, cash or property;
or
|
|
|
·
|
the
Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another person
whereby such other person acquires more than 50% of the outstanding shares
of our common stock (not including any shares of common stock held by
the other person or other persons making or party to, or associated or
affiliated with the other persons making or party to, such stock or share
purchase agreement or other business
combination).
|
For
purposes of any exercise of a unit warrant after the occurrence of a Fundamental
Transaction, we shall apportion the exercise price of such unit warrant among
any additional consideration receivable in a reasonable manner reflecting the
relative value of any different components of the additional
consideration. If holders of our common stock are given any choice as
to the type of consideration they will receive in a Fundamental Transaction,
then the warrant holders will, upon exercise of the unit warrants, be given the
same choice.
The
unit warrants are subject to the terms and conditions of the unit warrants and
warrant agent agreement between the Company and Wells Fargo Bank, N.A., who will
serve as the warrant agent, forms of which are attached as exhibits to the
registration statement of which this prospectus forms a part. The unit
warrants are expected to be issued in “book entry” form, deposited with the
Depository Trust Company and registered in the name of Cede & Co., a nominee
of Depository Trust Company. If the warrants cannot be issued in book
entry form, then the warrant agent will issue a unit warrant in physical
form.
Anti-Takeover
Effects of Nevada Law and Provisions of our Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws
Certain
provisions of Nevada law and our amended and restated articles of incorporation
and amended and restated bylaws could make the following more
difficult:
|
|
·
|
acquisition
of us by means of a tender offer;
|
|
|
·
|
acquisition
of us by means of a proxy contest or otherwise;
or
|
|
|
·
|
removal
of our incumbent officers and
directors.
|
These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids. These provisions are
also designed to encourage persons seeking to acquire control of us to first
negotiate with our Board.
Classified
Board. Our amended and restated articles of incorporation
provide that our Board is to be divided into three classes, as nearly equal in
number as possible, with directors in each class serving three-year
terms. This provision may serve to delay or prevent an acquisition of
us or a change in our management.
Requirements for Advance
Notification of Stockholder Nominations and Proposals. Our
amended and restated bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board or a
committee of the Board.
Special Meetings of the
Stockholders. Our amended and restated bylaws provide that special
meetings of the stockholders may be called by our Chairman of the Board or our
President, acting pursuant to a resolution adopted by the total number of
authorized directors, whether or not there exist any vacancies in previously
authorized directorships.
No Cumulative Voting. Our
amended and restated articles of incorporation and amended and restated bylaws
do not provide for cumulative voting in the election of directors.
Undesignated Preferred
Stock. The authorization of undesignated preferred stock in
our amended and restated articles of incorporation makes it possible for our
Board to issue preferred stock with voting or other rights or preferences that
could impede the success of any attempt to change control of the
Company. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management of the
Company .
In
addition, the Nevada Revised Statutes contain provisions governing the
acquisition of a controlling interest in certain Nevada corporations. These laws
provide generally that any person that acquires 20% or more of the outstanding
voting shares of certain Nevada corporations in the secondary public or private
market must follow certain formalities before such acquisition or they may be
denied voting rights, unless a majority of the disinterested stockholders of the
corporation elects to restore such voting rights in whole or in
part. These laws will apply to us if we have 200 or more stockholders
of record, at least 100 of whom have addresses in Nevada, unless our amended and
restated articles of incorporation or amended and restated bylaws in effect on
the tenth day after the acquisition of a controlling interest provide
otherwise. These laws provide that a person acquires a “controlling
interest” whenever a person acquires shares of a subject corporation that, but
for the application of these provisions of the Nevada Revised Statutes, would
enable that person to exercise (1) one-fifth or more, but less than one-third,
(2) one-third or more, but less than a majority or (3) a majority or more, of
all of the voting power of the corporation in the election of
directors. Once an acquirer crosses one of these thresholds, shares
which it acquired in the transaction taking it over the threshold and within the
90 days immediately preceding the date when the acquiring person acquired or
offered to acquire a controlling interest become “control shares” to which the
voting restrictions described above apply. These laws may have a
chilling effect on certain transactions if our amended and restated articles of
incorporation or amended and restated bylaws are not amended to provide that
these provisions do not apply to us or to an acquisition of a controlling
interest, or if our disinterested stockholders do not confer voting rights in
the control shares.
Nevada
law also provides that if a person is the “beneficial owner” of 10% or more of
the voting power of certain Nevada corporations, such person is an “interested
stockholder” and may not engage in any “combination” with the corporation for a
period of three years from the date such person first became an interested
stockholder, unless the combination or the transaction by which the person first
became an interested stockholder is approved by the board of directors of the
corporation before the person first became an interested
stockholder. Another exception to this prohibition is if the
combination is approved by the affirmative vote of the holders of stock
representing a majority of the outstanding voting power not beneficially owned
by the interested stockholder at a meeting, no earlier than three years after
the date that the person first became an interested
stockholder. These laws generally apply to Nevada corporations with
200 or more stockholders of record, but a Nevada corporation may elect in its
articles of incorporation not to be governed by these particular
laws. We have not made such an election in our amended and restated
articles of incorporation.
Nevada
law also provides that directors may resist a change or potential change in
control if the directors determine that the change is opposed to, or not in the
best interest of, the corporation. Further, our amended and restated
articles of incorporation permit our Board, when evaluating a tender offer or a
third-party offer relating to a merger or consolidation of the Company or the
acquisition of all or substantially all of our assets, to give due consideration
to all relevant factors in exercising its judgment in determining what is in the
best interest of the Company and its stockholders.
The
NASDAQ Capital Market Listing
Our
common stock is listed on The NASDAQ Capital Market under the trading symbol
“APRI.”
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Wells Fargo Shareowner
Services.
We are
offering up to 1,650,000 units, each consisting of three shares of
common stock and one warrant to purchase one share of common stock for an
assumed offering price of $6.06 per unit. Pursuant to an engagement letter
agreement, we engaged Dawson James Securities, Inc. as our placement agent for
this offering. Dawson James is not purchasing or selling any units, nor are they
required to arrange for the purchase and sale of any specific number or dollar
amount of units, other than to use their “best efforts” to arrange for the sale
of units by us. Therefore, we may not sell the entire amount of units being
offered.
Upon
signing the engagement letter agreement, we paid Dawson James a non-refundable
due diligence fee of $20,000. Upon the closing of the offering, we will pay the
placement agent a cash transaction fee equal to six percent (6%) of the gross
proceeds to us from the sale of the units in the offering. We are not obligated
to pay the placement agent a fee upon exercise of the warrants included in the
units.
Upon the
closing of the offering, we will also pay the placement agent a non-accountable
expense allowance of two percent (2%) of the gross proceeds to us from the sale
of units in the offering.
In
addition, we agreed to grant a five-year (from the closing of the offering)
compensation warrant to the placement agent to purchase a number of shares of
our common stock equal to three percent (3%) of the number of shares of common
stock contained in the units sold by us in the offering, but excluding the
shares that may be issued upon exercise of the warrants included in the
offering. The compensation warrants will have a per unit exercise price equal to
125% of the public offering price of the units and will be exercisable 12 months
after the date of this prospectus. The compensation warrants will comply with
FINRA Rule 5110(g)(1) in that for a period of six months after the issuance date
of the compensation warrants (which shall not be earlier than the closing date
of the offering pursuant to which the compensation warrants are being issued),
neither the compensation warrants nor any warrant shares issued upon exercise of
the compensation warrants shall be (A) sold, transferred, assigned, pledged, or
hypothecated, or (B) the subject of any hedging, short sale, derivative, put, or
call transaction that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately following the date
of effectiveness or commencement of sales of the offering pursuant to which the
compensation warrants are being issued, except the transfer of any security as
permitted by the FINRA rules.
The
placement agent may be deemed to be an underwriter within the meaning of Section
2(a)(11) of the Securities Act and any commissions received by it and any profit
realized on the sale of the securities by them while acting as principal might
be deemed to be underwriting discounts or commissions under the Securities Act.
The placement agent would be required to comply with the requirements of the
Securities Act of 1933, as amended, or the Securities Act, and the Securities
Exchange Act of 1934, as amended, or the Exchange Act, including, without
limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and
regulations may limit the timing of purchases and sales of shares of common
stock and warrants to purchase shares of common stock by the placement agent.
Under these rules and regulations, the placement agent may not (i) engage in any
stabilization activity in connection with our securities; and (ii) bid for or
purchase any of our securities or attempt to induce any person to purchase any
of our securities, other than as permitted under the Exchange Act, until they
have completed their participation in the distribution.
We and
each of our officers and directors have agreed not to offer, sell, contract to
sell or grant any option to sell or otherwise dispose of any shares of our
common stock or other securities convertible into or exchangeable or exercisable
for shares of our common stock or derivatives of our common stock owned by these
persons prior to this offering or common stock issuable upon exercise of options
or warrants held by these persons for a period of 90 days after the last closing
of the offering described herein. The 90-day lock-up period may be extended if
(i) during the last 17 days of the 90-day period we issue an earnings release or
material news or a material event relating to us occurs; or (ii) prior to the
expiration of the 90-day period, we announce that we will release earnings
results during the 16-day period following the last day of the 90-day period.
The period of such extension will be 18 days, beginning on the issuance of the
earnings release or the occurrence of the material news or material event, as
applicable. Dawson James Securities, Inc. may, in its sole discretion, and at
any time without notice release some or all of the shares subject to lock-up
agreements prior to the expiration of the 90-day period. The are no
agreements between Dawson James Securities, Inc. and the Company or any of our
stockholders or affiliates releasing them from this lock-up prior to the
expiration of this 90-day period. Notwithstanding
our lock-up agreement with Dawson James Securities, Inc., we may issue warrants,
options and shares of capital stock (i) in connection with the conversion of
convertible debt or the exercise of warrants and options outstanding prior to
the closing of this offering and the grant of options to our officers,
directors, employees and consultants under our stock option plan and (ii) as
otherwise contemplated by our engagement letter agreement with Dawson James
Securities, Inc. In addition, we have agreed with Dawson James
Securities, Inc. not to make certain issuances or sales of our securities for a
period of 90 days from the completion of this offering, without the prior
written consent of Dawson James Securities, Inc.
The
placement agent agreement provides that we will indemnify the placement agent
against specified liabilities, including liabilities under the Securities Act.
We have been advised that, in the opinion of the Securities and Exchange
Commission, indemnification for liabilities under the Securities Act is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
The
validity of the securities offered by this prospectus will be passed upon for us
by Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada. McDermott Will &
Emery LLP, Menlo Park, California, is acting as counsel for the placement agent
in this offering.
The
financial statements as of December 31, 2008 and 2009 and for each of the three
years in the period ended December 31, 2009 included in this prospectus have
been audited by Amper, Politziner & Mattia, LLP, an independent registered
public accounting firm, as stated in their report appearing herein and have been
so included on reliance upon the report of such firm given upon their authority
as experts in auditing and accounting.
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act, as amended, with respect to the shares of common stock we are
offering by this prospectus. This prospectus does not contain all of the
information included in the registration statement. For further information
pertaining to us and our common stock, you should refer to the registration
statement and the exhibits and schedules filed with the registration statement.
Whenever we make reference in this prospectus to any of our contracts,
agreements or other documents, the references are not necessarily complete, and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement or other document.
We are
subject to the informational requirements of the Exchange Act and file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You can read our SEC filings, including the registration statement, over
the Internet 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 Room at
100 F Street, N.E., Washington, D.C., 20549.
You may
also obtain copies of the documents at prescribed rates by writing to the Public
Reference Room 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
|
||
|
Unaudited
Consolidated Financial Statements:
|
||
|
F-2
|
||
|
F-3
|
||
|
F-4
|
||
|
F-5
|
||
|
F-6
|
||
|
Audited
Consolidated Financial Statements:
|
||
|
F-18
|
||
|
F-19
|
||
|
F-20
|
||
|
F-21
|
||
|
F-22
|
||
|
|
F-23
|
Consolidated
Balance Sheets
|
|
June 30,
|
December 31,
|
||||||
|
2010
|
2009
|
|||||||
|
(Unaudited)
|
||||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
4,215,095
|
$
|
479,888
|
||||
|
Accounts
receivable
|
641,716
|
708,898
|
||||||
|
Other
receivable
|
-
|
437,794
|
||||||
|
Prepaid
expenses and other assets
|
257,581
|
140,521
|
||||||
|
Total
current assets
|
5,114,392
|
1,767,101
|
||||||
|
Fixed
assets, net
|
5,620,741
|
5,616,811
|
||||||
|
Goodwill
|
9,084,476
|
9,084,476
|
||||||
|
Restricted
cash
|
603,000
|
-
|
||||||
|
Intangible
assets, net of accumulated amortization
|
3,965,082
|
4,145,006
|
||||||
|
Due
from related party
|
-
|
204,896
|
||||||
|
Debt
issuance cost, net of accumulated amortization of $10,718 and
$169,304
|
92,972
|
115,047
|
||||||
|
Total
assets
|
$
|
24,480,663
|
$
|
20,933,337
|
||||
|
Liabilities and stockholders’
equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Notes
payable - former Bio-Quant shareholders
|
$
|
-
|
$
|
12,129,010
|
||||
|
Accounts
payable and accrued expenses
|
1,333,499
|
1,453,621
|
||||||
|
Payroll
related liabilities
|
418,083
|
279,960
|
||||||
|
Short-term
borrowing from banks
|
401,000
|
-
|
||||||
|
Deferred
revenue - current portion
|
107,108
|
118,115
|
||||||
|
Capital
lease payable - current portion
|
25,811
|
24,530
|
||||||
|
Due
to related parties
|
-
|
99,682
|
||||||
|
Deferred
compensation - current portion
|
68,596
|
70,000
|
||||||
|
Total
current liabilities
|
2,354,097
|
14,174,918
|
||||||
|
Long
term liabilities:
|
||||||||
|
Convertible
notes payable
|
4,000,000
|
2,990,000
|
||||||
|
Deferred
revenue
|
77,350
|
82,450
|
||||||
|
Capital
lease payable
|
101,374
|
114,965
|
||||||
|
Deferred
compensation
|
839,510
|
865,602
|
||||||
|
Total
liabilities
|
7,372,331
|
18,227,935
|
||||||
|
Commitments
and contingencies (Note 15)
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Common
stock, $.001 par value, 18,000,000 and 8,000,000
|
||||||||
|
shares
authorized, 12,626,541 and 6,988,105
|
||||||||
|
and
outstanding, respectively
|
12,626
|
6,988
|
||||||
|
Additional
paid-in capital
|
202,343,672
|
174,430,276
|
||||||
|
Accumulated
deficit
|
(185,247,966
|
)
|
(171,731,862
|
)
|
||||
|
Total
stockholders’ equity
|
17,108,332
|
2,705,402
|
||||||
|
Total
liabilities and stockholders’ equity
|
$
|
24,480,663
|
$
|
20,933,337
|
||||
See notes
to unaudited consolidated financial statements.
Consolidated
Statements of Operations (Unaudited)
|
|
FOR THE THREE MONTHS
|
FOR THE SIX MONTHS ENDED
|
||||||||||||||
|
|
ENDED JUNE 30,
|
JUNE 30,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
License
fee revenue
|
$
|
32,550
|
$
|
102,613
|
$
|
35,100
|
$
|
2,569,283
|
||||||||
|
Contract
service revenue
|
1,438,377
|
-
|
2,881,579
|
-
|
||||||||||||
|
Total
revenue
|
1,470,927
|
102,613
|
2,916,679
|
2,569,283
|
||||||||||||
|
Cost
of services
|
1,021,951
|
-
|
2,059,183
|
-
|
||||||||||||
|
Gross
profit
|
448,976
|
102,613
|
857,496
|
2,569,283
|
||||||||||||
|
Costs
and expenses
|
||||||||||||||||
|
Research
and development
|
477,566
|
716,453
|
903,959
|
1,318,819
|
||||||||||||
|
General
and administrative
|
2,640,400
|
694,749
|
4,879,936
|
1,785,796
|
||||||||||||
|
Total
costs and expenses
|
3,117,966
|
1,411,202
|
5,783,895
|
3,104,615
|
||||||||||||
|
Loss
from operations
|
(2,668,990
|
)
|
(1,308,589
|
)
|
(4,926,399
|
)
|
(535,332
|
)
|
||||||||
|
Interest
expense, net
|
(1,609,657
|
)
|
(117,569
|
)
|
(8,589,704
|
)
|
(206,054
|
)
|
||||||||
|
Net
loss
|
$
|
(4,278,648
|
)
|
$
|
(1,426,158
|
)
|
$
|
(13,516,104
|
)
|
$
|
(741,386
|
)
|
||||
|
Basic
and diluted loss per common share
|
$
|
(0.47
|
)
|
$
|
(0.25
|
)
|
$
|
(1.64
|
)
|
$
|
(0.13
|
)
|
||||
|
Weighted
average common shares outstanding
|
||||||||||||||||
|
used
for basic and diluted loss per share
|
9,140,451
|
5,625,895
|
8,264,515
|
5,641,166
|
||||||||||||
See notes
to unaudited consolidated financial statements.
Consolidated
Statement of Changes in Stockholders’ Equity (Unaudited)
|
Common
|
Common
|
Additional
|
Total
|
|||||||||||||||||
|
Stock
|
Stock
|
Paid-In
|
Accumulated
|
Stockholders’
|
||||||||||||||||
|
(Shares)
|
(Amount)
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance
at December 31, 2009
|
6,988,105
|
$
|
6,988
|
$
|
174,430,276
|
$
|
(171,731,862
|
)
|
$
|
2,705,402
|
||||||||||
|
Issuance
of compensatory stock to employees
|
-
|
-
|
1,114,936
|
-
|
1,114,936
|
|||||||||||||||
|
Issuance
of compensatory stock to the board of directors
|
8,715
|
9
|
79,991
|
-
|
80,000
|
|||||||||||||||
|
Issuance
of common stock, net of offering costs
|
518,264
|
518
|
3,298,522
|
-
|
3,299,040
|
|||||||||||||||
|
Issuance
of common stock in payment of convertible notes payable
|
468,837
|
469
|
4,578,362
|
-
|
4,578,831
|
|||||||||||||||
|
Issuance
of common stock in payment of notes payable to the former Bio-Quant
shareholders
|
4,642,620
|
4,642
|
18,841,585
|
-
|
18,846,227
|
|||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(13,516,104
|
)
|
(13,516,104
|
)
|
|||||||||||||
|
Balance
at June 30, 2010
|
12,626,541
|
$
|
12,626
|
$
|
202,343,672
|
$
|
(185,247,966
|
)
|
$
|
17,108,332
|
||||||||||
See notes
to unaudited consolidated financial statements.
Consolidated
Statements of Cash Flows (Unaudited)
|
FOR THE SIX MONTHS ENDED
|
||||||||
|
|
JUNE 30,
|
|||||||
|
2010
|
2009
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
loss
|
$
|
(13,516,104
|
)
|
$
|
(741,386
|
)
|
||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
|
Depreciation
and amortization
|
471,398
|
201,767
|
||||||
|
Non-cash
interest, amortization of beneficial conversion feature and deferred
financing costs
|
|
|
8,716,575
|
|
|
|
51,762
|
|
|
Non-cash
compensation expense
|
1,194,927
|
573,234
|
||||||
|
(Gain)
loss on disposal of fixed assets
|
312
|
(42,869
|
)
|
|||||
|
Increase
in prepaid expenses and other assets
|
(117,060
|
)
|
(65,797
|
)
|
||||
|
Decrease
in accounts receivable
|
67,182
|
-
|
||||||
|
Decrease
in other receivable
|
437,794
|
-
|
||||||
|
Decrease
in due from related party
|
204,896
|
|||||||
|
Decrease
in accounts payable and accrued expenses
|
(120,122
|
)
|
(198,583
|
)
|
||||
|
Increase
(decrease) in payroll related liabilities
|
138,124
|
(232,722
|
)
|
|||||
|
Decrease
in due to related party
|
(99,682
|
)
|
-
|
|||||
|
Decrease
in deferred compensation
|
(27,496
|
)
|
(41,873
|
)
|
||||
|
(Decrease)
increase in deferred revenue
|
(16,107
|
)
|
147,750
|
|||||
|
Net
cash used in operating activities
|
(2,665,363
|
)
|
(348,717
|
)
|
||||
|
Cash
flows from investing activities
|
||||||||
|
Proceeds
from sale of fixed assets
|
1,142
|
350,000
|
||||||
|
Capital
expenditures
|
(296,856
|
)
|
(2,928
|
)
|
||||
|
Net
cash (used in) provided by investing activities
|
(295,714
|
)
|
347,072
|
|||||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from issuance of notes payable
|
2,300,000
|
-
|
||||||
|
Proceeds
from issuance of convertible notes payable, net of debt issue
costs
|
3,896,310
|
-
|
||||||
|
Issuance
of common stock, net of offering costs
|
3,306,296
|
-
|
||||||
|
Proceeds
from short-term borrowing
|
401,000
|
-
|
||||||
|
Repayment
of convertible notes payable
|
(2,592,012
|
)
|
(50,000
|
)
|
||||
|
Repayment
of capital lease obligations
|
(12,310
|
)
|
-
|
|||||
|
Net
cash provided by (used in) financing activities
|
7,299,284
|
(50,000
|
)
|
|||||
|
Net
change in cash and cash equivalents
|
4,338,207
|
(51,645
|
)
|
|||||
|
Cash
and cash equivalents, beginning of period
|
$
|
479,888
|
$
|
2,862,960
|
||||
|
Cash
and cash equivalents, end of period
|
$
|
4,818,095
|
$
|
2,811,315
|
||||
|
Supplemental
Information:
|
||||||||
|
Issuance
of common stock in payment of convertible notes payable
|
$
|
397,888
|
$
|
300,000
|
||||
|
Issuance
of common stock in payment of notes payable to
|
||||||||
|
former
Bio-Quant shareholders
|
$
|
12,129,010
|
$
|
-
|
||||
|
Cash
paid for interest
|
$
|
67,762
|
$
|
-
|
||||
See notes
to unaudited consolidated financial statements.
Notes
to Unaudited
Consolidated
Financial Statements
|
1.
|
BASIS
OF PRESENTATION
|
NexMed,
Inc. (the “Company”) was incorporated in Nevada in 1987. The Company
has historically focused its efforts on drug development using its patented drug
delivery technology known as NexACT – see Note 14 for descriptions of
the licensing agreements relating to the Company’s proprietary
products.
On
December 14, 2009, the merger (the “Merger”) contemplated by the Agreement and
Plan of Merger (the “Merger Agreement”) dated November 20, 2009 by and among the
Company (the “Company”) and BQ Acquisition Corp., a wholly-owned subsidiary of
the Company (“Merger Sub”) with Bio-Quant, Inc. (“Bio-Quant”), was
completed. Accordingly, the results of operations of the acquired
company have been included in the consolidated results of operations of the
Company from December 14, 2009, the date of the Merger. Bio-Quant is
one of the largest specialty biotechnology contract research
organizations (“CROs”) based in San Diego, California and is one of the
industry’s most experienced CROs for non-GLP (good laboratory practices) in vitro and in vivo contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant performs both in vitro and in vivo pharmacology,
pharmacokinetic (PK) and toxicology studies to support pre-regulatory filing
packages.
The
Company is currently focusing its efforts on the development of new and patented
pharmaceutical products, some of which are based on NexACT, and on seeking to
grow the CRO business operated through the Bio-Quant
subsidiary.
The
Company’s long-term goal is to generate revenues from the growth of its CRO
business while aggressively seeking to monetize the NexACT technology
through out-licensing agreements with pharmaceutical and biotechnology companies
worldwide. The Company is actively pursuing partnering opportunities
for its clinical stage NexACT based and non NexACT based treatments in the areas
of oncology, inflammation, dermatology, pain, autoimmune diseases and sexual
dysfunction as discussed below. The
successful licensing of one or more of these products would be expected to
generate additional revenues for funding the Company’s long-term growth
strategy.
Following
the acquisition of Bio-Quant, the Company now operates in two segments –
designing and developing pharmaceutical products and providing pre-clinical CRO
services through its subsidiary, Bio-Quant.
Effective
June 21, 2010, the Company completed a reverse stock split pursuant to
which each fifteen shares of Company’s common stock then issued and outstanding
was automatically converted into one share of the Company’s common stock; no
change was made to the per-share par value of the common stock. The authorized
capital stock was also proportionately reverse split by a factor of
fifteen-for-one. All share and per share amounts in the accompanying
consolidated financial statements have been adjusted to reflect the reverse
stock split as if it had occurred at the beginning of the earliest period
presented.
Liquidity
The
accompanying consolidated financial statements have been prepared on a basis
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has an
accumulated deficit of $185,247,966 at June 30, 2010 and expects that it will
incur additional losses in the future relating to research and development
activities and integration of the operations of Bio-Quant into its
strategies. Further, the Company has certain notes payable due within
24 months, which if not converted to common stock or re-financed, would
significantly impact liquidity. These obligations raise substantial
doubt about the Company’s ability to continue as a going
concern. Management anticipates that the Company will require
additional financing, which it is actively pursuing, to fund operations,
including continued research and development of the Company’s NexACT technology,
expansion of the Bio-Quant CRO business, and to fund potential future
acquisitions. Although management continues to pursue these plans,
there is no assurance that the Company will be successful in obtaining financing
on terms acceptable to the Company. See Notes 7, 8 and 11 for a
description of funds raised during 2010 through the date of this
report. If the Company is unable to obtain additional financing,
operations will need to be reduced or discontinued. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
New Accounting
Pronouncements
In April
2010, an accounting standard update was issued by the Financial Accounting
Standards Board to provide guidance on defining a milestone and determining
when it is appropriate to apply the milestone method of revenue recognition for
research and development transactions. Vendors can recognize consideration
that is contingent upon achievement of a milestone in its entirety as revenue in
the period the milestone is achieved if the milestone meets all the criteria
stated in the guidance to be considered substantive and must be considered
substantive in its entirety. The amendments in this update will be effective
prospectively for milestones achieved in fiscal years and interim periods
beginning on or after June 15, 2010, with early adoption permitted.
The Company does not expect this standard to have a material impact on its
financial statements.
|
2.
|
ACQUISITION
|
On
November 20, 2009, the Company entered into the Merger Agreement with Bio-Quant.
Pursuant to the Merger Agreement, on December 14, 2009 (the “Effective Time”),
each outstanding share of common stock, par value $0.01 per share, of Bio-Quant
was cancelled and converted into the right to receive 60.93 shares of common
stock, par value $0.001 per share, of the Company (the “NexMed Shares”), as well
as a promissory note (each, a “Note”) in the original principal amount of
$2,771.37. In connection with the closing of the Merger, the
Company issued an aggregate of 266,667 NexMed Shares and Notes in the aggregate
original principal amount of $12,129,010 to the shareholders of
Bio-Quant.
The Notes
accrued interest at a rate of 10% per annum, with all principal and interest
accrued thereunder becoming due and payable one year from the closing date of
the Merger. The terms of the Notes provide that the principal amounts
and all interest thereunder were payable by the Company in cash or, at the
Company’s option, in NexMed Shares, which would be valued at the fixed price of
$2.52 per share. The Merger Agreement provides that if the Company
repaid the Notes in NexMed Shares, the total number of NexMed Shares issuable to
Bio-Quant shareholders could not exceed 19.99% of outstanding NexMed Shares at
the Effective Time unless the Company received stockholder approval to do so in
accordance with applicable rules of the NASDAQ Stock Market. The
Company received stockholder approval at its May 24, 2010 meeting for the
potential issuance of shares in full repayment of the remaining amounts owed
under the Notes, and, on June 21, 2010, the Company repaid the remaining
outstanding principal and interest accrued under the Notes in NexMed
Shares.
The
acquisition was accounted for under the purchase method of accounting under FASB
ASC 805 Business
Combinations. The Company has determined that it is the
“accounting acquirer” in this transaction, as it meets the predominance of the
factors outlined in FASB ASC 805. Accordingly, the results of
operations of the acquired company have been included in the consolidated
results of operations of the Company from the date of the Merger.
The total
consideration was estimated to be approximately $13.7 million as of December 14,
2009, the date the Merger was consummated, as follows (in
thousands):
|
Fair
value of 266,667 shares of common stock issued for Bio-Quant common stock
(1)
|
$
|
1,600
|
||
|
Fair
value of promissory notes issued for Bio-Quant common
stock
|
12,129
|
|||
|
Total
consideration
|
$
|
13,729
|
(1) The
fair value of the shares of NexMed common stock issued was based on the closing
price of the Company’s common stock on December 14, 2009, the date the Merger
was consummated, or $6.00 per share.
The
purchase price was allocated based on the estimated fair value of the tangible
and identifiable intangible assets acquired and liabilities assumed in the
Merger. An allocation of the purchase price was made to major categories of
assets and liabilities in the accompanying consolidated balance sheet based on
management’s best estimates. The fair value of the other current assets and
assumed liabilities were estimated by management based upon the relative short
term nature of the accounts and the fair value of the machinery and equipment
was established based upon expected replacement costs.
Management
obtained the assistance of an independent third party valuation specialist in
performing its purchase price allocation analysis. The fair value of
Bio-Quant’s tangible and identifiable intangible assets were determined based on
this analysis. The excess of the purchase price over the estimated
fair value of tangible and identifiable intangible assets acquired and
liabilities assumed was allocated to goodwill.
Accordingly,
the purchase price has been allocated to the assets and liabilities of Bio-Quant
as presented below (in thousands):
|
Cash & cash equivalents
|
$
|
151
|
||
|
Accounts receivable
|
576
|
|||
|
Prepaids and other current assets
|
105
|
|||
|
Other assets
|
27
|
|||
|
Property and equipment
|
783
|
|||
|
Due
from related party
|
205
|
|||
|
Accounts payable and accrued expenses
|
(1,041
|
)
|
||
|
Related party payable
|
(85
|
)
|
||
|
Deferred revenue
|
(45
|
)
|
||
|
Other
current liabilities
|
(68
|
)
|
||
|
Other long term liabilities
|
(122
|
)
|
||
|
Amortizable
intangible assets:
|
||||
|
Know-How
|
3,037
|
|||
|
Trade Name
|
1,123
|
|||
|
Indefinite
lived intangible assets:
|
||||
|
Goodwill
|
9,083
|
|||
|
Total net assets acquired
|
$
|
13,729
|
Intangible
assets of $4,160,000 consist primarily of developed know-how and the Bio-Quant
trade name. Developed know-how relates to Bio-Quant’s pre-clinical
service expertise including, but not limited to, its extensive inventory of
internally developed cell lines. The Bio-Quant trade name represents future
revenue attributable to the reputation and name recognition of Bio-Quant within
the pharmaceutical industry where Bio-Quant is a known expert in pre-clinical
services.
Bio-Quant
is a revenue generating, cash flow positive CRO. Bio-Quant is
expected to continue its revenue growth and cash generating CRO
business. The $9,084,476 of goodwill generated from the acquisition
of Bio-Quant consists largely of the expected ability of the Bio-Quant CRO to
continue to grow its revenues and generate positive cash flow to contribute to
the pharmaceutical product development business segment of the
Company.
The
following unaudited pro forma consolidated results of operations for the period
assumes the acquisition of Bio-Quant had occurred as of January 1, 2009,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect the actual results
of operations had Bio-Quant been operated as part of the Company since
January 1, 2009.
Consolidated
Pro Forma Statements of Operations (unaudited)
|
Six Months Ended
June 30, 2009
|
||||||||
|
|
As Presented
|
Pro Forma
|
||||||
|
Revenues
|
$
|
2,569,283
|
$
|
5,645,154
|
||||
|
Net
(loss) income
|
(741,386
|
)
|
531,408
|
|||||
|
Net
(loss) income per basic and diluted shares
|
$
|
(0.13
|
)
|
$
|
0.09
|
|||
|
3.
|
ACCOUNTING
FOR STOCK BASED COMPENSATION
|
The value
of restricted stock grants are calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant. For stock
options granted to employees and directors, we recognize compensation expense
based on the grant-date fair value estimated in accordance with the appropriate
accounting guidance, and recognized over the expected service period. We
estimate the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. Stock options and warrants issued to
consultants are accounted for in accordance with accounting guidance.
Compensation expense is calculated each quarter for consultants using the
Black-Scholes option pricing model until the option is fully vested and is
included in research and development or general and administrative facility
expenses, based upon the services performed by the recipient.
During
December 1996, the Company adopted The NexMed, Inc. Stock Option and Long-Term
Incentive Compensation Plan (“the Incentive Plan”) and The NexMed, Inc.
Recognition and Retention Stock Incentive Plan (“the Recognition
Plan”). A total of 133,333 shares were set aside for these two
plans. In May 2000, the stockholders of the Company approved an
increase in the number of shares reserved for the Incentive Plan and Recognition
Plan to a total of 500,000. During June 2006, the Company adopted the
NexMed, Inc. 2006 Stock Incentive Plan (the “2006 Plan”). A total of
200,000 shares were set aside for the 2006 Plan and an additional 133,333 shares
were added to the 2006 Plan in June 2008. The Company received
stockholder approval at its May 24, 2010 meeting to add an additional 1,000,000
shares to the 2006 Plan. Options granted under the Company’s plans
generally vest over a period of one to five years, with exercise prices of
currently outstanding options ranging between $8.25 to $74.10. The
maximum term for options granted under these plans is 10 years.
The
following table summarizes information about options outstanding, all of which
are exercisable, at June 30, 2010:
|
|
Options Outstanding
|
|||||||||||||
|
|
Weighted Average
|
Aggregate
|
||||||||||||
|
Range of
|
Number
|
Remaining
|
Weighted Average
|
Intrinsic
|
||||||||||
|
Exercise Prices
|
Outstanding
|
Contractual Life
|
Exercise Price
|
Value
|
||||||||||
|
$
|
8.25
- 21.00
|
145,104
|
5.24
years
|
$
|
11.99
|
$
|
-
|
|||||||
|
48.75
- 52.50
|
3,667
|
2.08
years
|
51.47
|
-
|
||||||||||
|
73.50
- 74.10
|
8,000
|
3.45
years
|
73.70
|
-
|
||||||||||
|
156,771
|
5.06
years
|
$
|
16.07
|
$
|
-
|
|||||||||
A summary
of stock option activity is as follows:
|
Weighted
|
Weighted
|
Total
|
|||||||||||
|
Average
|
Average Remaining
|
Aggregate
|
|||||||||||
|
Number
of
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||
|
Shares
|
Price
|
Term
|
Value
|
||||||||||
|
Outstanding
at December 31, 2009
|
196,713
|
$
|
21.00
|
-
|
|||||||||
|
Granted
|
-
|
-
|
|||||||||||
|
Exercised
|
-
|
-
|
-
|
||||||||||
|
Forfeited
|
(39,943
|
)
|
40.05
|
-
|
|||||||||
|
Outstanding
at June 30, 2010
|
156,771
|
16.07
|
5.06
years
|
-
|
|||||||||
|
Vested
or expected to vest at June 30, 2010
|
156,771
|
1.07
|
5.06
years
|
-
|
|||||||||
|
Exercisable
at June 30, 2010
|
156,771
|
$
|
1.07
|
5.06
years
|
-
|
||||||||
Expected Volatility. The
Company uses analysis of historical volatility to compute the expected
volatility of its stock options.
Expected Term. The expected
term is based on several factors including historical observations of employee
exercise patterns during the Company’s history and expectations of employee
exercise behavior in the future giving consideration to the contractual terms of
the stock-based awards.
Risk-Free Interest Rate. The
interest rate used in valuing awards is based on the yield at the time of grant
of a U.S. Treasury security with an equivalent remaining term.
Dividend Yield. The Company
has never paid cash dividends, and does not currently intend to pay cash
dividends, and thus has assumed a 0% dividend yield.
Pre-Vesting Forfeitures.
Estimates of pre-vesting option forfeitures are based on Company experience. The
Company will adjust its estimate of forfeitures over the requisite service
period based on the extent to which actual forfeitures differ, or are expected
to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative catch-up adjustment in the period of change and
will also impact the amount of compensation expense to be recognized in future
periods.
As of
June 30, 2010, there was no unrecognized compensation cost related to unvested
stock options.
Compensatory Share
Issuances
The value
of restricted stock grants is calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant. The value of the
grant is expensed over the vesting period of the grant in accordance with FASB
ASC 718. As of June 30, 2010 there was $1,328,413 of total
unrecognized compensation cost related to unvested restricted
stock. That cost is expected to be recognized over a period of 2.5
years.
Principal
equity compensation transactions for the six months ended June 30, 2010 were as
follows:
For the
six months ended June 30, 2010, the Company issued 16,996 shares of common stock
to members of the Board of Directors for services rendered and recorded expenses
related to such issuances of $80,000.
On April
9, 2010, the Company awarded grants of restricted shares of Common Stock of
10,000 shares to Mark Westgate, the Company’s Chief Financial Officer, 6,667
shares to Dr Henry Esber, the Company’s Executive Vice President and Board
member and 5,000 shares to Edward Cox, the Company’s Vice President of investor
relations. The awards vest on April 9, 2011provided that each officer
remains in continuous uninterrupted service with the Company. The Company
recorded compensation expense of $33,201 during the six months ended June 30,
2010 for such grants.
On May
24, 2010, at the Company’s annual stockholder meeting, the stockholders of the
Company approved an increase in the number of shares reserved for issuance under
the 2006 Plan. Upon such approval, the Company issued the following
restricted share grants to satisfy commitments to grant restricted shares
contingent upon such stockholder approval:
Dr.
Bassam Damaj, the Company’s Chief Executive Officer, was awarded a grant of
100,000 restricted shares of Common Stock. The grant will vest in
three installments of 20,000 shares, 33,333 shares and 46,667 shares on December
14, 2010, 2011 and 2012, respectively, provided that Dr. Damaj remain in
continuous and uninterrupted service with the Company. The Company
recorded compensation expense of $35,375 during the six months ended June 30,
2010 for such grant.
Vivian
Liu, the Company’s Chairman of the Board and Executive Vice President, was
awarded grants of restricted shares of Common Stock of 66,667 shares, 16,667
shares and 3,509 shares. The grant of 66,667 shares vested on
immediately upon issuance. The grants of 16,667 and 3,509 shares vest
on December 14, 2010 provided that Ms. Liu remains in continuous and
uninterrupted service with the Company. The Company recorded compensation
expense of $405,884 during the six months ended June 30, 2010 for such
grants.
The
Company awarded grants of restricted shares of Common Stock totaling 137,411
shares to certain Bio-Quant employees. The awards vest over various
time periods and require that the employees remain in continuous and
uninterrupted service with the Company. The Company recorded compensation
expense of $442,966 during the six months ended June 30, 2010 for such
grants.
The
following table indicates where the total stock-based compensation expense
resulting from stock options and restricted stock awards appears in the
Unaudited Consolidated Statements of Operations:
|
FOR THE THREE MONTHS
|
FOR THE SIX MONTHS
|
|||||||||||||||
|
|
ENDED JUNE 30,
|
ENDED JUNE 30,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Research
and development
|
$
|
10,284
|
$
|
47,515
|
$
|
10,284
|
$
|
61,576
|
||||||||
|
General
and administrative
|
1,040,090
|
284,731
|
1,184,643
|
511,658
|
||||||||||||
|
Stock-based
compensation expense
|
$
|
1,050,374
|
$
|
332,246
|
$
|
1,194,927
|
$
|
573,234
|
||||||||
The
stock-based compensation expense has not been tax-effected due to the recording
of a full valuation allowance against U.S. net deferred tax assets.
|
4.
|
WARRANTS
|
A summary
of warrant activity for the six-month period ended June 30, 2010 is as
follows:
|
|
Common Shares
|
Average
|
Average
|
||||||
|
|
Issuable upon
|
Exercise
|
Contractual
|
||||||
|
|
Exercise
|
Price
|
Life
|
||||||
|
Outstanding
at December 31, 2009
|
465,275
|
$
|
15.45
|
1.03
years
|
|||||
|
Issued
|
-
|
||||||||
|
Exercised
|
-
|
||||||||
|
Expired
|
(214,380
|
)
|
$
|
16.65
|
|||||
|
Outstanding
at June 30, 2010
|
250,895
|
$
|
12.76
|
1.37
years
|
|||||
|
Exercisable
at June 30, 2010
|
250,895
|
$
|
12.76
|
1.37
years
|
|||||
|
5.
|
LOSS
PER SHARE
|
At June
30, 2010 and 2009, respectively, options to acquire 156,771 and 201,656 shares
of Common Stock, warrants to acquire 250,895 and 600,775 shares of Common Stock
and convertible securities convertible into 466,200 and 144,667 shares of Common
Stock were excluded from the calculation of diluted loss per share, as their
effect would be anti-dilutive. Loss per share for the three and six
months ended June 30, 2010 and 2009 was calculated as follows (net loss /
weighted average common shares outstanding):
|
FOR THE THREE MONTHS
|
FOR THE SIX MONTHS ENDED
|
|||||||||||||||
|
|
ENDED JUNE 30,
|
JUNE 30,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Net
loss
|
$
|
(4,278,648
|
)
|
$
|
(1,426,158
|
)
|
$
|
(13,516,104
|
)
|
$
|
(741,386
|
)
|
||||
|
Weighted
average common shares outstanding used for basic and diluted loss per
share
|
9,140,451
|
5,625,895
|
8,264,515
|
5,641,166
|
||||||||||||
|
Basic
and diluted loss per common share
|
$
|
(0.47
|
)
|
$
|
(0.25
|
)
|
$
|
(1.64
|
)
|
$
|
(0.13
|
)
|
||||
|
6.
|
INTANGIBLE
ASSETS
|
Intangible
assets are listed below with associated accumulated amortization:
|
|
June 30,
2010
|
December
31, 2009
|
||||||
|
Bio-Quant
Know-How
|
$
|
3,037,000
|
3,037,000
|
|||||
|
Bio-Quant
Trade Name
|
1,123,000
|
1,123,000
|
||||||
|
Accumulated
amortization
|
(194,918
|
)
|
(14,994
|
)
|
||||
|
Intangible
assets, net
|
$
|
3,965,082
|
4,145,006
|
|||||
The
Company is currently amortizing know-how over the expected useful life of 10
years and the trade name over the expected useful life of 20 years. Amortization
expense amounted to $179,924 for the six months ended June 30,
2010. Based on the carrying amount of intangible assets, assuming no
future impairment of underlying assets, the estimated future amortization
expense for the next five years ending June 30 and thereafter is as
follows:
|
2011
|
$
|
359,860
|
||
|
2012
|
359,860
|
|||
|
2013
|
359,860
|
|||
|
2014
|
359,860
|
|||
|
2015
|
359,860
|
|||
|
Thereafter
|
2,165,782
|
|||
|
|
||||
|
Total
future amortization expense
|
$
|
3,965,082
|
|
7.
|
CONVERTIBLE
NOTES PAYABLE
|
2010 Convertible
Notes
On March
15, 2010, the Company issued convertible notes (the “2010 Convertible Notes”) in
an aggregate principal amount of $4 million to the holders of the 2008
Convertible Notes discussed below. The 2010 Convertible Notes are
secured by the Company’s facility in East Windsor, New Jersey and are due on
December 31, 2012. The proceeds were used to repay the 2008
Convertible Notes then outstanding as discussed below. As such, the
Company received approximately $1.4 million in net proceeds from the issuance of
the 2010 Convertible Notes.
The 2010
Convertible Notes are payable in cash or convertible into shares of Common Stock
at $8.70 per share (the “conversion price”), which may be subject to adjustment,
on or before the maturity date of December 31, 2012 at the holders’
option. The 2010 Convertible Notes have a coupon rate of 7% per
annum, which is payable at the Company’s option in cash or, if the Company’s net
cash balance is less than $3 million at the time of payment, in shares of Common
Stock. If paid in shares of Common Stock, then the price of the stock
issued will be the lesser of $1.20 below or 95% of the five-day weighted average
of the market price of the Common Stock prior to the time of
payment. Such additional interest consideration is considered
contingent and therefore would only be recognized upon occurrence.
On June
3, 2010, the conversion price was adjusted to $8.58 per share as a result of the
issuance of securities as discussed in Note 11 below.
2008 Convertible
Notes
On June
30, 2008, the Company issued convertible notes (the “2008 Convertible Notes”) in
an aggregate principal amount of $5.75 million. The 2008 Convertible
Notes were secured by the Company’s facility in East Windsor, New
Jersey. $4.75 million of the principal amount of the Convertible
Notes would have been due on December 31, 2011 (the “Due Date”) and $1 million
of the principal amount of the Convertible Notes was due on December 31,
2008.
The 2008
Convertible Notes were payable in cash or convertible into shares of Common
Stock with the remaining principal amount initially convertible at $30 per share
on or before the Due Date at the holders’ option. The 2008
Convertible Notes had a coupon rate of 7% per annum, which was payable at the
Company’s option in cash or, if the Company’s net cash balance was less than $3
million at the time of payment, in shares of Common Stock. If paid in
shares of Common Stock, then the price of the stock issued would be the lesser
of $1.20 below or 95% of the five-day weighted average of the market price of
the Common Stock prior to the time of payment. Such additional
interest consideration would be considered contingent and therefore would only
be recognized upon occurrence.
Conversion of 2008
Convertible Notes during 2009 and 2010
As
discussed in Note 14, the Company sold $350,000 of manufacturing equipment to
Warner Chilcott Company, Inc. (“Warner”). The holders of the 2008
Convertible Notes agreed to release the lien on the equipment in exchange for a
$50,000 repayment of principal that was to be paid in 2009 when the equipment
was transferred to Warner. Accordingly, on May 15, 2009, the Company
repaid $50,000 to the holders of the 2008 Convertible Notes upon the
transfer of the manufacturing equipment to Warner.
On May
27, 2009, the Company agreed to convert $150,000 of the outstanding 2008
Convertible Notes to Common Stock at a price of $3.45 per share. As
such, the Company issued 43,960 shares of Common Stock to the note holders in
repayment of such $150,000 principal amount plus interest.
On June
11, 2009, the Company agreed to convert $150,000 of the outstanding 2008
Convertible Notes to Common Stock at a price of $3.45 per share. As
such, the Company issued 32,710 shares of Common Stock to the note holders in
repayment of such $150,000 principal amount plus interest.
On July
23, 2009, the Company agreed to convert $300,000 of the outstanding 2008
Convertible Notes to Common Stock at a price of $2.40 per share. As
such, the Company issued 125,559 shares of Common Stock to the note holders in
repayment of such $300,000 principal amount plus interest.
On July
29, 2009, the Company agreed to convert $100,000 of the outstanding 2008
Convertible Notes to Common Stock at a price of $0.15 per share. As
such, the Company issued 670,426 shares of Common Stock to the note holders in
repayment of such $100,000 principal amount plus interest.
On
September 16, 2009, the Company agreed to convert $350,000 of the outstanding
2008 Convertible Notes to Common Stock at a price of $2.25 per
share. As such, the Company issued 157,915 shares of Common Stock to
the note holders in repayment of such $350,000 principal amount plus
interest.
On
October 14, 2009, the Company agreed to convert $350,000 of the outstanding 2008
Convertible Notes to Common Stock at a price of $2.40 per share. As
such, the Company issued 146,230 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
On
October 15, 2009, the Company agreed to convert $250,000 of the outstanding 2008
Convertible Notes to Common Stock at a price of $2.25 per share. As
such, the Company issued 111,435 shares of Common Stock to the note holders in
repayment of such $250,000 principal amount plus interest.
On
November 10, 2009, the Company issued convertible notes in the aggregate
principal amount of $750,000 under terms substantially similar to the original
2008 Convertible Notes as described above.
On
November 10, 2009, the Company amended the 2008 Convertible Notes such that the
conversion price for $750,000 in principal amount of the 2008 Convertible Notes
was changed from $30.00 to $2.10 per share.
On
November 24, December 7, December 9 and December 14, 2009, the note holders
converted $500,000, $125,000, $35,000 and $90,000, respectively, of the
outstanding 2008 Convertible Notes pursuant to the November 10, 2009 amendment
above. As such, the Company issued 361,319 shares of Common Stock to
the note holders in repayment of such $750,000 principal amount plus
interest.
As a
result of these prepayments and conversions, at December 31, 2009, the principal
amount outstanding of the 2008 Convertible Notes was $2,990,000, of which the
conversion price was $30.00 per share for all such principal
amount.
On
January 26, 2010, the Company agreed to convert $397,988 of the outstanding 2008
Convertible Notes to Common Stock at a price of $7.50 per share. As
such, the Company issued 53,333 shares of Common Stock to the note holders in
repayment of such $397,988 principal amount plus interest.
The
remaining balance outstanding on the 2008 Convertible Notes of $2,592,012 was
repaid in full on March 15, 2010 with the proceeds received from the 2010
Convertible Notes.
The
Company recognized a debt inducement charge in interest expense for the
differential between the original conversion rate of $30.00 per share and the
$7.50 price listed above. Non-cash interest expense recognized with
respect to this conversion was $1,200,000 during the six months ended June 30,
2010.
|
8.
|
NOTES
PAYABLE
|
Former Bio-Quant
Shareholders’ Notes
On
December 14, 2009, the Company issued $12,129,010 in promissory notes (the
“Notes”) in connection with the acquisition of Bio-Quant as discussed in Note 2
above. The Notes accrued interest at a rate of 10% per annum, with all principal
and interest accrued thereunder becoming due and payable one year from the
closing date of the Merger or December 14, 2010. The terms of the
Notes provided that the principal amounts and all interest thereunder were
payable by the Company in cash or, at the Company’s option, in NexMed Shares,
which would be valued at the fixed price of $2.52 per share. The
Merger Agreement provided that if the Company repaid the Notes in NexMed Shares,
the total number of NexMed Shares issuable to Bio-Quant shareholders could not
exceed 19.99% of outstanding NexMed Shares at the Effective Time unless the
Company received stockholder approval to do so in accordance with applicable
rules of the NASDAQ Stock Market. At its May 24, 2010 meeting of
stockholders, the Company received such stockholder approval for the issuance of
up to approximately 4.2 million NexMed Shares in repayment of the
Notes. The principal amount of the Notes outstanding at December 31,
2009 was $12,129,010 and is reflected as Notes payable in the current
liabilities section of the Consolidated Balance Sheet. The Company
has determined that it will recognize a beneficial conversion charge based upon
the difference between the quoted market price of the common stock and the fixed
conversion price at the time of the conversion.
On
January 11, 2010, the Company repaid $261,016 of outstanding principal of the
Notes through the issuance of Common Stock at $2.52 per share, which is the
fixed payment price pursuant to the terms of the Notes. As such, the
Company issued 140,500 shares of Common Stock to the note holders in repayment
of such $261,016 principal amount plus interest.
On March
17, 2010, the Company repaid an additional $1,969,185 of outstanding principal
of the Notes through the issuance of Common Stock at $2.52 per share, which is
the fixed payment price pursuant to the terms of the Notes. As such,
the Company issued 862,710 shares of Common Stock to the note holders in
repayment of such $1,969,185 principal amount plus interest.
On May
24, 2010, Company officers who are also holders of Bio-Quant Notes agreed to
receive approximately 2,057,000 Shares in repayment of approximately $6.2
million of principal and interest owed which results in an effective repayment
price of $3.00 per share.
On June
21, 2010, the Notes were repaid in full with the issuance of 3,639,410 shares of
common stock to repay the remaining outstanding principal amount of $10,159,825
plus interest.
The
Company recognized a beneficial conversion charge for the differential between
the original conversion rates of $2.52 and $3.00 per share and the market price
of the Company’s Common Stock at the time of the above payments. As
such the beneficial conversion charge to non-cash interest expense recognized
with respect to the Notes for the six months ended June 30, 2010 was
$6,139,741.
2010 Promissory
Notes
In
January 2010, the Company raised gross proceeds of $2.3 million in an offering
of unsecured promissory notes (the “2010 Notes”). The 2010 Notes
accrued interest at a rate of 10% per annum and were due and payable in full six
months from the date of issuance. The principal and accrued interest due under
the Notes was payable, at the election of the Company, in either cash or shares
of Common Stock, par value $0.001 per share (the “Shares”). The
weighted average conversion price of the 2010 Notes was $5.55 per share, with
the conversion prices ranging from $5.40 to $6.00 per share.
On March
17, 2010, the 2010 Notes were repaid in full with the issuance of 415,504 shares
of common stock to repay such $2.3 million principal amount and
interest. The Company recognized a beneficial conversion charge on
the differential between the original conversion rates of $5.40 to $6.00 per
share and the market price of the Company’s Common Stock at the time of the
above repayment. The Company has recorded a beneficial conversion
charge to interest expense of $660,819 during the six months ended June 30, 2010
as a result of the conversion.
|
9.
|
LINES
OF CREDIT
|
On March
8, 2010, Bio-Quant entered into a Loan and Security agreement with Square 1 Bank
for a revolving line of credit (“credit line”) in the amount of
$250,000. The credit line is secured by a $255,000 cash deposit from
the Company which is classified as restricted cash on the accompanying
consolidated balance sheet at June 30, 2010. The credit line expires
on March 7, 2011 and bears interest at the rate of 4.25% per annum or 1% above
the Prime Rate.
On April
12, 2010, Bio-Quant entered into a Loan and Security agreement with Torrey Pines
Bank for a revolving line of credit (“credit line”) in the amount of
$250,000. The credit line is secured by a $278,000 cash deposit from
the Company which is classified as restricted cash on the accompanying
consolidated balance sheet at June 30, 2010. The credit line expires
on April 12, 2011 and bears interest at the rate of 2.6% per annum.
As of
June 30, 2010, $401,000 had been drawn down on the credit lines and is recorded
as short-term borrowing on the accompanying unaudited Consolidated Balance
Sheet.
|
10.
|
DEFERRED
COMPENSATION
|
On
February 27, 2002, the Company entered into an employment agreement with Y.
Joseph Mo, Ph.D., that had a constant term of five years, and pursuant to which
Dr. Mo would serve as the Company’s Chief Executive Officer and
President. Under the employment agreement, Dr. Mo was entitled to
deferred compensation in an annual amount equal to one sixth of the sum of his
base salary and bonus for the 36 calendar months preceding the date on which the
deferred compensation payments commenced subject to certain limitations,
including annual vesting through January 1, 2007, as set forth in the employment
agreement. The deferred compensation is payable monthly for 180
months commencing on termination of employment. Dr. Mo’s employment
was terminated as of December 15, 2005. At such date, the Company
accrued deferred compensation of $1,178,197 based upon the estimated present
value of the obligation. The monthly deferred compensation payment
through May 15, 2021 is $9,158. As of June 30, 2010, the Company has
accrued $908,106 in deferred compensation.
|
11.
|
COMMON
STOCK
|
On April
21, 2010, the Company entered into a Sales Agreement with Brinson Patrick
Securities Corporation (the “Sales Manager”) to issue and sell through the Sales
Manager, as agent, up to $10,000,000 of common stock from time to time pursuant
to the Company’s effective shelf registration statement on Form S-3 (File No.
333-165960). Through June 30, 2010, the Company had sold an aggregate
of 518,264 shares of common stock under the Sales Agreement at a weighted
average sales price of approximately $6.73 per share, resulting in offering
proceeds of approximately $3.3 million, net of sales commissions.
|
12.
|
RELATED
PARTY TRANSACTIONS
|
Approximately
63% of the Bio-Quant notes payable described in Note 8 were held by executives
of the Company. As discussed in Note 8 above, such notes payable were
repaid in full on June 21, 2010 with the issuance of Common Stock.
Prior to
the Merger, Bio-Quant had promissory notes receivable of approximately $380,000
from three entities controlled by the former Bio-Quant
shareholders. Management of the Company has determined that the fair
value of these notes was $204,896, representing the value of Prevonco™ purchased
in 2010 by the Company from one of these entities in settlement of a like-amount
of the promissory note. Prevonco™ is a marketed anti-ulcer compound,
lansoprazole, that is being studied for the treatment of solid tumors. The
remainder of the notes receivable have been assigned no fair value, as there is
significant uncertainty as to whether any amounts will be
collectible.
Prior to
the Merger, Bio-Quant periodically borrowed and repaid funds from the Company’s
Chief Executive Officer and his affiliates pursuant to promissory notes bearing
interest rate of 10% per annum, The balance owed by the Company at December 31,
2009 and included in amounts due to related parties in the accompanying
consolidated balance sheet is $84,979. These amounts were repaid in full during
the first quarter of 2010.
|
13.
|
INCOME
TAXES
|
The
Company has incurred losses since inception, which have generated net operating
loss carryforwards of approximately $107 million for federal and state income
tax purposes. These carryforwards are available to offset future
taxable income and expire beginning in 2014 through 2028 for federal income tax
purposes. In addition, the Company has general business and research and
development tax credit carryforwards of approximately $2.4
million. Internal Revenue Code Section 382 places a limitation on the
utilization of federal net operating loss carryforwards when an ownership
change, as defined by United States tax law, occurs. Generally, an
ownership change, as defined, occurs when a greater than 50 percent change in
ownership takes place during any three-year period. It is likely that such
limitation occurred when the Bio-Quant notes were converted to common stock. The
actual utilization of net operating loss carryforwards generated prior to such
changes in ownership will be limited, in any one year, to a percentage of fair
market value of the Company at the time of the ownership change. Such
a change may have already resulted from the equity financing obtained by the
Company since its formation.
On
January 1, 2007, we adopted the provisions of ASC 740-10-25. ASC 740-10-25
provides recognition criteria and a related measurement model for uncertain tax
positions taken or expected to be taken in income tax returns. ASC 740-10-25
requires that a position taken or expected to be taken in a tax return be
recognized in the financial statements when it is more likely than not that the
position would be sustained upon examination by tax authorities. Tax positions
that meet the more likely than not threshold are then measured using a
probability weighted approach recognizing the largest amount of tax benefit that
is greater than 50% likely of being realized upon ultimate settlement. The
Company’s Federal income tax returns for 2001 to 2008 are still open and subject
to audit. The Company had no tax positions relating to open income
tax returns that were considered to be uncertain. Accordingly, we have not
recorded a liability for unrecognized tax benefits upon adoption of ASC
740-10-25. There continues to be no liability related to unrecognized tax
benefits at June 30, 2010.
|
14.
|
LICENSING
AND RESEARCH AND DEVELOPMENT
AGREEMENTS
|
Vitaros
On
November 1, 2007, the Company signed an exclusive licensing agreement with
Warner Chilcott Company, Inc. (“Warner”) for its topical alprostadil-based cream
treatment for erectile dysfunction (“Vitaros”). Under the agreement,
Warner acquired the exclusive rights in the United States to Vitaros and would
assume all further development, manufacturing, and commercialization
responsibilities as well as costs. Warner agreed to pay the Company
an up- front payment of $500,000 and up to $12.5 million in milestone payments
on the achievement of specific regulatory milestones. In
addition, the Company was eligible to receive royalties in the future based upon
the level of sales achieved by Warner, assuming the product is approved by the
U.S. Food and Drug Administration (“FDA”).
On
February 3, 2009, the Company terminated the licensing agreement and sold the
U.S. rights for Vitaros to
Warner. Under the terms of the Asset Purchase Agreement, the Company
received an up-front payment of $2.5 million and is eligible to receive an
additional payment of $2.5 million upon Warner’s receipt of a New Drug
Application (NDA) approval for Vitaros from the FDA. As such, the
Company is no longer responsible for obtaining regulatory approval of
Vitaros and
will no longer be eligible to receive royalties in the future based upon the
level of sales achieved by Warner. In addition, Warner has paid the
Company a total of $350,000 for the manufacturing equipment for Vitaros and the
Company recognized a gain of $43,840. While the Company believes that Warner is
currently moving forward in pursuing NDA approval for Vitaros, Warner is not
obligated by the Asset Purchase Agreement to continue with the development of
Vitaros or obtain approval of Vitaros from the FDA. The Company allocated
$2,398,000 of the $2,500,000 purchase price to the U.S. rights for Vitaros and
the related patents acquired by Warner. The balance of $102,000 was
allocated to the rights of certain technology based patents which Warner
licensed as part of the sale of U.S. rights for Vitaros. The
$2,398,000 was recognized as revenue for the three months ended March 31, 2009,
as the Company had no continuing obligations or rights with respect to Vitaros
in the U.S. market. The $102,000 allocated to the patent license is
being recognized over a period of ten years, the estimated useful commercial
life of the patents. Accordingly, $5,100 and $4,250 was being
recognized as revenue for the six months ended June 30, 2010 and 2009,
respectively. The balance of $87,550 is recorded as deferred revenue
on the unaudited Consolidated Balance Sheet at June 30, 2010.
On April
15, 2009, the Company entered into a First Amendment (the “Amendment”) to the
Asset Purchase Agreement. The Amendment provided that from May 15,
2009 through September 15, 2009, the Company would permit certain
representatives of Warner access to and use of the Company’s manufacturing
facility for the purpose of manufacturing Vitaros, and in connection therewith
the Company would provide reasonable technical and other assistance to
Warner. In consideration, Warner agreed to pay the Company a fee of
$50,000 per month, or $200,000 in the aggregate.
MycoVa
(formerly NM100060)
On
September 15, 2005, the Company signed an exclusive global licensing agreement
with Novartis International Pharmaceutical Ltd. (“Novartis”) for its anti-fungal
product, MycoVa (formerly NM100060). Under the agreement, Novartis
acquired the exclusive worldwide rights to NM100060 and would assume all further
development, regulatory, manufacturing and commercialization responsibilities as
well as costs. Novartis agreed to pay the Company up to $51 million
in upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing. In addition, the Company was eligible to receive royalties
based upon the level of sales achieved and to receive reimbursements of third
party preclinical study costs up to $3.25 million. On February 16,
2007, the Novartis agreement was amended. Pursuant to the amendment,
the Company was no longer obligated to complete the remaining preclinical
studies for MycoVa (formerly NM100060). Novartis took over all
responsibilities and completed the remaining preclinical studies.
In July
2008, Novartis completed testing for the Phase 3 clinical trials for MycoVa
(formerly NM100060) required for the filing of the NDA in the U.S. On
August 26, 2008, the Company announced that Novartis had decided not to submit
the NDA in the U.S. based on First Interpretable Results of the Phase 3
trials.
In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries. The study results
were insufficient to support marketing approval in Europe. As such,
on July 8, 2009, the Company announced the mutual decision reached with Novartis
to terminate the licensing agreement. Accordingly, pursuant to the
Termination Agreement, Novartis has provided the Company reports associated with
the Phase 3 clinical trials conducted for MycoVa (formerly NM100060) and is
assisting and supporting the Company in connection with the assignment, transfer
and delivery to the Company of all know-how and data relating to MycoVa
(formerly NM100060) in accordance with the terms of the License
Agreement.
In
consideration of such assistance and support, the Company will pay to Novartis
15% of any upfront and/or milestone payments that it receives from any future
third party licensee of MycoVa (formerly NM100060), as well as a royalty fee
ranging from 2.8% to 6.5% of annual net sales of products developed from MycoVa
(formerly NM100060) (collectively, “Products”), with such royalty fee varying
based on volume of such annual net sales. In the event that the
Company, or a substantial part of its assets, is sold, the Company will pay to
Novartis 15% of any upfront and/or milestone payments received by the Company or
its successor relating to the Products, as well as a royalty fee ranging from 3%
to 6.5% of annual net sales of any Products, with such royalty fee varying based
on volume of such annual net sales. If the acquirer makes no upfront
or milestone payments, the royalty fees payable to Novartis will range from 4%
to 6.5% of annual net sales of any Products.
|
15.
|
COMMITMENTS
AND CONTINGENCIES
|
Employment
Agreement
We have
an employment agreement with Dr. Damaj, our President and Chief Executive
Officer. Pursuant to that agreement, we may terminate Dr. Damaj’s employment
without cause, in which event Dr. Damaj would be entitled to severance pay equal
to twelve months’ base salary. Under the employment agreement, if we had
terminated Dr. Damaj effective December 31, 2009, based on his 2009
compensation, he would have been paid an aggregate of $300,000, his 2009 base
salary and $100,000, which represents twice his accrued 2009
bonus. The employment agreement further provides that in the event
that within one year after a “Change of Control” (as defined therein) of the
Company occurs, and the President and Chief Executive Officer’s employment is
terminated without cause or he resigns for good reason, the President and Chief
Executive Officer will be paid a lump sum amount equal to his base salary for a
12-month period following such termination or resignation. Based on this change
of control provision, if there had been a change of control of the Company in
2009 and Dr. Damaj’s employment had terminated effective December 31, 2009,
either for “Good Reason” or without cause, then Dr. Damaj would have been
entitled to termination payments equal to $300,000.
|
16.
|
SEGMENT
INFORMATION
|
NexMed
operates in two segments: the NexACT drug
delivery technology business and the Bio-Quant CRO business. The
NexACT drug
delivery technology business segment consists of designing and developing
pharmaceutical products using the Company’s proprietary NexACT drug
delivery technology. This segment performs research and development
by creating new pharmaceutical products through the successful application of
the NexACT technology to improve therapeutic outcomes and reduce systemic side
effects that often accompany existing oral and injectable
medications. The Bio-Quant CRO business segment provides
pre-clinical CRO services to pharmaceutical and biotechnology companies in the
areas of in vitro and
in vivo pharmacology,
pharmacokinetics (PK) and toxicology to support pre-investigational new drug
(“pre-IND”) enabling packages.
Segment
information for the six months ended June 30, 2010 follows:
|
NexACT Drug
Delivery
|
Bio-Quant CRO
|
Other Corporate
Not Allocated to
Segments
|
Consolidated
Total
|
|||||||||||||
|
Revenue
|
$ | 35,100 | $ | 2,812,679 | $ | 68,900 | $ | 2,916,679 | ||||||||
|
Cost
of Services
|
- | 2,046,399 | - | 2,046,399 | ||||||||||||
|
Gross
Profit
|
$ | 2,550 | $ | 766,280 | $ | - | $ | 870,280 | ||||||||
|
Costs
and expenses
|
||||||||||||||||
|
Research
and development
|
916,743 | - | - | 916,743 | ||||||||||||
|
General
and administrative
|
- | 1,593,627 | 3,286,309 | 4,879,936 | ||||||||||||
|
Loss
from operations
|
$ | (914,193 | ) | $ | (827,347 | ) | $ | (3,286,309 | ) | $ | (4,926,399 | ) | ||||
|
Total
assets
|
$ | - | $ | 15,045,423 | $ | 9,435,240 | $ | 24,480,663 | ||||||||
|
Capital
expenditures
|
$ | - | $ | 295,052 | $ | 1,804 | $ | 296,856 | ||||||||
To the
Board of Directors
Stockholders
of NexMed, Inc.
We have
audited the accompanying consolidated balance sheets of NexMed, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity and cash
flows for the years ended December 31, 2009, 2008 and 2007. These
consolidated 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 audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of NexMed, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for the years ended December 31, 2009, 2008 and 2007 in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations and expects to incur future losses. Further, the
Company has substantial notes payable and other obligations that mature within
the next 12 months. These issues raise substantial doubt about its
ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
On
December 14, 2009, the Company acquired Bio-Quant Inc., a San Diego based
contract research organization. See Note 3 for further
details.
|
/s/
Amper, Politziner & Mattia, LLP
|
|
|
March
31, 2010
|
|
|
Edison,
New Jersey
|
Consolidated
Balance Sheets
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 479,888 | $ | 2,862,960 | ||||
|
Accounts
receivable
|
708,898 | - | ||||||
|
Other
receivable
|
437,794 | - | ||||||
|
Prepaid
expenses and other current assets
|
140,521 | 83,761 | ||||||
|
Total
current assets
|
1,767,101 | 2,946,721 | ||||||
|
Fixed
assets, net
|
5,616,811 | 5,519,652 | ||||||
|
Goodwill
|
9,084,476 | - | ||||||
|
Intangible
assets, net of accumulated amortization
|
4,145,006 | - | ||||||
|
Due
from related party
|
204,896 | - | ||||||
|
Debt
issuance cost, net of accumulated amortization of $169,304 and
$129,980
|
115,047 | 91,139 | ||||||
|
Total
assets
|
$ | 20,933,337 | $ | 8,557,512 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Notes
payable - former Bio-Quant shareholders
|
$ | 12,129,010 | $ | - | ||||
|
Accounts
payable and accrued expenses
|
1,453,621 | 1,029,486 | ||||||
|
Payroll
related liabilities
|
279,960 | 296,135 | ||||||
|
Deferred
revenue
|
118,115 | - | ||||||
|
Capital
lease payable - current portion
|
24,530 | - | ||||||
|
Due
to related parties
|
99,682 | - | ||||||
|
Deferred
compensation - current portion
|
70,000 | 74,245 | ||||||
|
Total
current liabilities
|
14,174,918 | 1,399,866 | ||||||
|
Long
term liabilities
|
||||||||
|
Convertible
notes payable
|
2,990,000 | 4,690,000 | ||||||
|
Deferred
revenue
|
82,450 | - | ||||||
|
Capital
lease payable
|
114,965 | - | ||||||
|
Deferred
compensation
|
865,602 | 935,517 | ||||||
|
Total
liabilities
|
18,227,935 | 7,025,383 | ||||||
|
Commitments
and contingencies (Note 16)
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Common
stock, $.001 par value, 8,000,000 shares authorized, 6,988,105 and
5,623,357 shares issued and outstanding, respectively
|
6,988 | 5,623 | ||||||
|
Additional
paid-in capital
|
174,430,276 | 141,215,806 | ||||||
|
Accumulated
deficit
|
(171,731,862 | ) | (139,689,300 | ) | ||||
|
Total
stockholders’ equity
|
2,705,402 | 1,532,129 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 20,933,337 | $ | 8,557,512 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
Statements of Operations
|
For
the Year Ended
|
||||||||||||
|
December
31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
License
fee revenue
|
$ | 2,681,271 | $ | 5,957,491 | $ | 1,270,367 | ||||||
|
Contract
service revenue
|
292,437 | - | - | |||||||||
|
Total
Revenue
|
2,973,708 | 5,957,491 | 1,270,367 | |||||||||
|
Cost
of Services
|
128,355 | - | - | |||||||||
|
Gross
Profit
|
2,845,353 | 5,957,491 | 1,270,367 | |||||||||
|
Costs
and expenses
|
||||||||||||
|
Research
and development
|
1,883,458 | 5,410,513 | 5,022,671 | |||||||||
|
General
and administrative
|
4,196,359 | 5,720,832 | 5,634,479 | |||||||||
|
Acquisition
costs
|
585,378 | - | - | |||||||||
|
Total
costs and expenses
|
6,665,195 | 11,131,345 | 10,657,150 | |||||||||
|
Loss
from operations
|
(3,819,842 | ) | (5,173,854 | ) | (9,386,783 | ) | ||||||
|
Other
income (expense)
|
||||||||||||
|
Interest
income
|
25,291 | 71,793 | 275,508 | |||||||||
|
Other
income
|
10,201 | - | - | |||||||||
|
Interest
expense
|
(28,696,006 | ) | (1,006,794 | ) | (481,862 | ) | ||||||
|
Total
other income (expense)
|
(28,660,514 | ) | (935,001 | ) | (206,354 | ) | ||||||
|
Loss
before benefit from income taxes
|
(32,480,356 | ) | (6,108,855 | ) | (9,593,137 | ) | ||||||
|
Benefit
from income taxes
|
437,794 | 937,657 | 805,909 | |||||||||
|
Net
loss
|
$ | (32,042,562 | ) | $ | (5,171,198 | ) | $ | (8,787,228 | ) | |||
|
Basic
and diluted loss per share
|
$ | (5.43 | ) | $ | (.93 | ) | $ | (1.61 | ) | |||
|
Weighted
average common shares outstanding used for basic and diluted loss per
share
|
5,906,455 | 5,578,987 | 5,467,727 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
Statements of Changes in Stockholders’ Equity
|
Accumulated
|
||||||||||||||||||||||||
|
Common
|
Common
|
Additional
|
Other
|
Total
|
||||||||||||||||||||
|
Stock
|
Stock
|
Paid-In
|
Accumulated
|
Comprehensive
|
Stockholders’
|
|||||||||||||||||||
|
(Shares)
|
(Amount)
|
Capital
|
Deficit
|
Income
|
Equity
|
|||||||||||||||||||
|
Balance
at January 1, 2007
|
5,352,394 | $ | 5,352 | $ | 137,239,593 | $ | (125,730,874 | ) | $ | (9,596 | ) | $ | 11,504,475 | |||||||||||
|
Issuance
of common stock upon exercise of stock options and warrants,
net
|
114,530 | 115 | 220,778 | - | - | 220,893 | ||||||||||||||||||
|
Issuance
of compensatory options to employees and consultants
|
- | - | 776,835 | - | - | 776,835 | ||||||||||||||||||
|
Issuance
of compensatory stock to employees and consultants
|
40,600 | 41 | 89,959 | - | - | 90,000 | ||||||||||||||||||
|
Issuance
of common stock in payment of interest on notes
|
9,708 | 10 | 190,738 | - | - | 190,748 | ||||||||||||||||||
|
Issuance
of compensatory stock to the board of directors
|
20,303 | 20 | 288,978 | - | - | 288,998 | ||||||||||||||||||
|
Net
offering costs from issuance of common stock
|
- | - | (2,110 | ) | - | - | (2,110 | ) | ||||||||||||||||
|
Discount
on Note payable for issuance of warrants
|
- | - | 512,550 | - | - | 512,550 | ||||||||||||||||||
|
Realized
gain on foreign currency exchange
|
9,596 | 9,596 | ||||||||||||||||||||||
|
Net
loss
|
- | - | - | (8,787,228 | ) | - | (8,787,228 | ) | ||||||||||||||||
|
Balance
at December 31, 2007
|
5,537,535 | $ | 5,538 | $ | 139,317,321 | $ | (134,518,102 | ) | - | $ | 4,804,757 | |||||||||||||
|
Issuance
of common stock upon exercise of stock options and
warrants
|
35,125 | 35 | 459,713 | - | - | 459,748 | ||||||||||||||||||
|
Issuance
of compensatory options to employees and consultants
|
- | - | 138,511 | - | - | 138,511 | ||||||||||||||||||
|
Issuance
of compensatory stock to employees and consultants
|
25,500 | 25 | 704,707 | - | - | 704,732 | ||||||||||||||||||
|
Issuance
of compensatory stock to the board of directors
|
25,197 | 25 | 480,804 | - | - | 480,829 | ||||||||||||||||||
|
Discount
on Note payable for issuance of warrants
|
- | - | 114,750 | - | - | 114,750 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (5,171,198 | ) | - | (5,171,198 | ) | ||||||||||||||||
|
Balance
at December 31, 2008
|
5,623,357 | $ | 5,623 | $ | 141,215,806 | $ | (139,689,300 | ) | - | $ | 1,532,129 | |||||||||||||
|
Issuance
of compensatory stock to employees and consultants
|
54,025 | 54 | 691,189 | - | - | 691,243 | ||||||||||||||||||
|
Issuance
of compensatory stock to the board of directors
|
16,899 | 17 | 211,411 | - | - | 211,428 | ||||||||||||||||||
|
Issuance
of common stock to the Bio-Quant shareholders as consideration for the
acquisition
|
266,667 | 267 | 1,599,733 | - | - | 1,600,000 | ||||||||||||||||||
|
Issuance
of common stock in payment of convertible notes payable
|
1,023,824 | 1,024 | 30,712,140 | - | - | 30,713,164 | ||||||||||||||||||
|
Issuance
of common stock to warrant holders for early forfeiture
|
3,333 | 3 | (3 | ) | - | - | 0 | |||||||||||||||||
|
Net
loss
|
- | - | - | (32,042,562 | ) | - | (32,042,562 | ) | ||||||||||||||||
|
Balance
at December 31, 2009
|
6,988,105 | $ | 6,988 | $ | 174,430,276 | $ | (171,731,862 | ) | - | $ | 2,705,402 | |||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Consolidated
Statements of Cash Flows
|
For
the Year Ended
|
||||||||||||
|
December
31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
loss
|
$ | (32,042,562 | ) | $ | (5,171,198 | ) | $ | (8,787,228 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
|
Depreciation
and amortization
|
387,708 | 486,420 | 621,869 | |||||||||
|
Non-cash
interest, amortization of debt discount and deferred financing
costs
|
28,352,598 | 693,316 | 408,538 | |||||||||
|
Non-cash
compensation expense
|
902,671 | 1,324,072 | 1,155,832 | |||||||||
|
Net
gain on foreign currency exchange
|
- | - | 9,596 | |||||||||
|
(Gain)
loss on disposal of property and equipment
|
(31,345 | ) | 904,902 | 10,121 | ||||||||
|
Changes
in assets and liabilities, net of amounts acquired from Bio-Quant,
Inc.
|
||||||||||||
|
Increase
in accounts receivable
|
(132,960 | ) | - | - | ||||||||
|
(Increase)
decrease in other receivable
|
(437,794 | ) | - | 183,700 | ||||||||
|
Decrease
in prepaid expense and other assets
|
73,817 | 43,898 | 37,239 | |||||||||
|
Increase
(decrease) in deferred revenue
|
189,980 | (953,528 | ) | (740,389 | ) | |||||||
|
(Decrease)
increase in payroll related liabilities
|
(16,175 | ) | (397,639 | ) | 537,207 | |||||||
|
(Decrease)
increase in deferred compensation
|
(74,160 | ) | (50,512 | ) | (58,036 | ) | ||||||
|
(Decrease)
increase in accounts payable and accrued expenses
|
(686,427 | ) | 407,818 | 33,918 | ||||||||
|
Net
cash used in operating activities
|
(3,514,649 | ) | (2,712,451 | ) | (6,587,633 | ) | ||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Capital
expenditures
|
(5,526 | ) | (28,988 | ) | (100,875 | ) | ||||||
|
Proceeds
from sale of fixed assets
|
350,000 | 75,000 | - | |||||||||
|
Purchases
of short term investments
|
- | - | (3,000,000 | ) | ||||||||
|
Proceeds
from sale of short term investments
|
750,000 | 3,250,000 | ||||||||||
|
Net
cash provided by investing activities
|
344,474 | 796,012 | 149,125 | |||||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Issuance
of convertible notes payable, net of debt issue costs
|
686,678 | 5,643,711 | - | |||||||||
|
Repayment
of notes payable
|
(50,000 | ) | (4,000,000 | ) | (2,000,000 | ) | ||||||
|
Proceeds
from exercise of stock options and warrants
|
459,748 | 220,893 | ||||||||||
|
Issuance
of notes payable, net of debt issue costs
|
- | - | 2,886,532 | |||||||||
|
Issuance
of common stock, net of offering costs
|
- | - | (2,110 | ) | ||||||||
|
Repayment
of convertible notes payable
|
(60,000 | ) | (3,000,000 | ) | ||||||||
|
Principal
payments on capital lease obligations
|
(601 | ) | - | - | ||||||||
|
Net
cash provided by (used in) financing activities
|
636,077 | 2,043,459 | (1,894,685 | ) | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(2,534,098 | ) | 127,020 | (8,333,193 | ) | |||||||
|
Cash
and cash equivalents
|
||||||||||||
|
Beginning
of period
|
3,013,986 | 2,735,940 | 11,069,133 | |||||||||
|
End
of period
|
$ | 479,888 | $ | 2,862,960 | $ | 2,735,940 | ||||||
|
Cash
paid for interest
|
$ | 303,652 | $ | 324,314 | $ | 119,307 | ||||||
|
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||||||
|
Issuance
of notes to former Bio-Quant shareholders upon acquisition
|
$ | 12,129,010 | $ | - | $ | - | ||||||
|
Issuance
of common stock in payment of convertible notes payable
|
$ | 3,475,377 | $ | - | $ | - | ||||||
|
Issuance
of 4 million shares of common stock to former Bio-Quant shareholders upon
acquisition
|
$ | 1,600,000 | $ | - | $ | - | ||||||
|
Payment
of interest in common stock
|
$ | 21,247 | $ | - | $ | 190,748 | ||||||
|
Amortization
of debt discount
|
$ | - | $ | 461,295 | $ | 178,640 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Notes
to Consolidated Financial
Statements
|
|
|
1.
|
Organization,
Basis of Presentation and Liquidity
|
NexMed,
Inc. (the “Company”) was incorporated in Nevada in 1987. The Company
has historically focused its efforts on drug development using its patented drug
delivery technology known as NexACT – see Note 4 for description of
licensing agreements of its proprietary products.
On
December 14, 2009, the merger (the “Merger”) contemplated by the Agreement and
Plan of Merger (the “Merger Agreement”) dated November 20, 2009 by and among
NexMed, Inc. (the “Company”) and BQ Acquisition Corp., a wholly-owned subsidiary
of the Company (“Merger Sub”) with Bio-Quant, Inc. (“Bio-Quant”), was
completed. Accordingly, the results of operations of the
acquired company have been included in the consolidated results of operations of
the Company from December 14, 2009, the date of the Merger. Bio-Quant
is one of the largest specialty biotech contract research
organization (“CRO”) based in San Diego, California and is one of the industry’s
most experienced CROs for non-GLP (good laboratory practices) in vitro and in vivo contract drug
discovery and pre-clinical development services, specializing in oncology,
inflammation, immunology, and metabolic diseases. Bio-Quant has over 300 clients
world-wide and performs hundreds of studies a year both in in vitro and in vivo pharmacology,
pharmacokinetic (PK) and toxicology to support pre-regulatory filing
packages.
The
combined Company is currently focusing its efforts on new and patented
pharmaceutical products based on NexACT and on growing the newly acquired CRO
business through organic growth within Bio-Quant’s current business operations
and through acquiring small cash flow positive entities who have complimentary
capabilities to those of Bio-Quant but are not operating at full capacity due to
insufficient business development efforts. This strategy will ensure
Bio-Quant’s expansion through broadening its service capabilities and going into
new markets.
The
Company’s long-term goal is to generate revenues from the growth of its CRO
business while aggressively seeking to monetize the NexACT technology
through out-licensing agreements with pharmaceutical and biotechnology companies
worldwide. At the same time the Company is actively pursuing
partnering opportunities for its clinical stage NexACT based treatments in the
areas of dermatology and sexual dysfunction as discussed below. The
successful licensing of one or more of these products will generate additional
revenues for funding the Company’s long-term growth strategy.
The
Company now operates in two segments – designing and developing pharmaceutical
products and providing pre-clinical CRO services through its subsidiary,
Bio-Quant.
Effective
June 21, 2010, the Company completed a reverse stock split pursuant to which
each fifteen shares of the Company’s common stock then issued and outstanding
was automatically converted into one share of the Company’s common stock; no
change was made to the per-share par value of the common stock. The authorized
capital stock was also proportionately reverse split by a factor of
fifteen-for-one. All share and per share amounts in the accompanying
consolidated financial statements have been adjusted to reflect the reverse
stock split as if it had occurred at the beginning of the earliest period
presented.
Liquidity
The
accompanying consolidated financial statements have been prepared on a basis
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has an
accumulated deficit of ($171,731,862) at December 31, 2009 and expects that it
will incur additional losses in the future completing the research and
development of its technologies, and integrating the operations of Bio-Quant
into its strategies. Further, the Company has substantial notes
payable due within 12 months, which if not converted to common stock or
re-financed, would significantly impact liquidity. These
circumstances raise substantial doubt about the Company’s ability to continue as
a going concern. Management anticipates that the Company will require
additional financing, which it is actively pursuing, to fund operations,
including continued research and development of the Company’s NexACT technology,
integration of the Bio-Quant CRO business, and to fund potential future
acquisitions. Although management continues to pursue these plans,
there is no assurance that the Company will be successful in obtaining financing
on terms acceptable to the Company. See Note 18 for description of
funds raised to date in 2010. If the Company is unable to obtain
additional financing, operations will need to be reduced or
discontinued. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
|
|
2.
|
Summary
of Significant Accounting
Principles
|
Significant
accounting principles followed by the Company in preparing its financial
statements are as follows:
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash
and cash equivalents
Cash
equivalents represent all highly liquid investments with an original maturity
date of three months or less.
Accounts
Receivable
Our
policy is that an allowance is recorded for estimated losses resulting from the
inability of our customers to make required payments. Such allowances are
computed based upon a specific customer account review of larger customers and
balances in excess of 90 days old. Our assessment of our customers’ ability to
pay generally includes direct contact with the customer, investigation into our
customers’ financial status, as well as consideration of our customers’ payment
history with us. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. If we determine, based on our assessment,
that it is more likely than not that our customers will be unable to pay, we
will write-off the account receivables.
Fair
value of financial instruments
The fair
value of a financial instrument represents the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. Significant differences can arise between the
fair value and carrying amounts of financial instruments that are recognized at
historical cost amounts. Given our financial condition described in Note 1, it
is not practicable to estimate the fair value of our notes payable at December
31, 2009.
The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses and deferred compensation approximates fair value
due to the relatively short maturity of these instruments.
Fixed
assets
Property
and equipment are stated at cost less accumulated
depreciation. Depreciation of equipment and furniture and fixtures is
provided on a straight-line basis over the estimated useful lives of the assets,
generally three to ten years. Depreciation of our building in East
Windsor New Jersey is provided on a straight-line basis over the
estimated useful life of 31 years. Amortization of leasehold
improvements is provided on a straight-line basis over the shorter of their
estimated useful life or the lease term. The costs of additions and
betterments are capitalized, and repairs and maintenance costs are charged to
operations in the periods incurred.
Long-lived
assets
The
Company reviews for the impairment of long-lived assets whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than its carrying amount. If such
assets are considered impaired, the amount of the impairment loss recognized is
measured as the amount by which the carrying value of the asset exceeds the fair
value of the asset, fair value being determined based upon future cash flows or
appraised values, depending on the nature of the asset. The Company
recorded an impairment charge of $884,271 in 2008 to reduce the carrying amount
of its land and building to reflect the current commercial real estate market,
as the Company had initiated efforts to sell its facility. The
Company leased its facility in December 2009 (See note 5). This
charge is recorded within general and administrative expenses on the statement
of operations. No such impairment losses have been recorded by the
Company during 2007 or 2009.
Other
intangible assets
Other
intangible assets consists principally of the Trade Name of Bio-Quant and the
Know-How acquired from Bio-Quant, which were recorded at fair value in
connection with the acquisition of Bio-Quant on December 14, 2009. The
Company expects to amortize Know-How over the expected useful life of 10 years
and the Trade Name over the expected useful life of 20 years.
Management
evaluates the recoverability of such other intangible assets whenever events or
changes in circumstances indicate that the carrying value may not be fully
recoverable. The evaluation is based on estimates of undiscounted future cash
flows over the remaining useful life of the assets. If the amount of such
estimated undiscounted future cash flows is less than the net book value of the
asset, the asset is written down to fair value. As of December 31, 2009, no
such write-down was required.
Goodwill
Goodwill
was recorded in connection with the acquisition of Bio-Quant on December
14, 2009, and will be included in the CRO segment. Goodwill consists of the
excess of cost over the fair value of net assets acquired in business
combinations accounted for as purchases. See Note 3.
The
Company follows the provision of FASB ASC 805, Business Combinations, which
requires an annual impairment test for goodwill and intangible assets with
indefinite lives. Under FASB ASC 805, the first step of the impairment test
requires that the Company determine the fair value of each reporting unit, and
compare the fair value to the reporting unit’s carrying amount. To the extent a
reporting unit’s carrying amount exceeds its fair value, an indication exists
that the reporting unit’s goodwill may be impaired and the Company must perform
a second more detailed impairment assessment. The second impairment assessment
involves comparing the implied fair value of the reporting unit’s goodwill
to the carrying amount of goodwill to quantify an impairment charge as of the
assessment date.
Application
of the goodwill impairment test requires significant judgments including
estimation of future cash flows, which is dependent on internal forecasts,
estimation of the long-term rate of growth for the businesses, the useful life
over which cash flows will occur, and determination of the Company’s weighted
average cost of capital. Changes in these estimates and assumptions could
materially affect the determination of fair value and/or conclusions on goodwill
impairment for each reporting unit. The Company will perform its annual
impairment test on December 31 each year, unless triggering events occur
that would cause the Company to test for impairment at interim periods. At
December 31, 2009, no impairment was recorded.
Deferred
Financing Costs
Amounts
paid related to debt financing activities are capitalized and amortized over the
term of the loan. Our expenses incurred related to the convertible notes payable
are being amortized over the three-year term of the notes to interest expense on
a straight-line basis which approximates the effective interest rate
method.
Revenue
recognition
Bio-Quant’s
revenues are derived from two sources, the delivery of pre-clinical services and
the sale of diagnostic kits. Both of these sources are part of the
CRO services segment. Revenues from Bio-Quant’s performance of pre-clinical
services are recognized according to the proportional performance method whereby
revenue is recognized as performance occurs, based on the relative outputs of
the performance that have occurred up to that point in time under the respective
agreement, typically the delivery of data to our clients on the results of the
pre-clinical tests or the delivery of the formal report which documents the
results of our pre-clinical testing services. Deferred revenues represent
billings in advance of the recognition of revenue. When the current
estimates of total contract revenue and contract cost indicate a loss, a
provision for the entire loss on the contract is made in the period which it
becomes probable. All costs related to these agreements are expensed
as incurred and classified within “Cost of Services” expenses in the
Consolidated Statements of Operations.
Revenues
from sales of diagnostic kits are recognized upon delivery of products to
customers, less allowances for estimated returns and discounts.
Revenues
from the drug development technology segment consist principally of licensing
revenues, and revenues under research and development contracts with our
licensing partners. Revenues earned under licensing and research and
development contracts are recognized in accordance with the cost-to-cost method
whereby the extent of progress toward completion is measured on the cost-to-cost
basis; however, revenue recognized at any point will not exceed the cash
received. When the current estimates of total contract revenue and
contract cost indicate a loss, a provision for the entire loss on the contract
is made in the period which it becomes probable. All costs related to
these agreements are expensed as incurred and classified within “Research and
development” expenses in the Consolidated Statements of Operations.
Also,
licensing agreements typically include several elements of revenue, such as
up-front payments, milestones, royalties upon sales of product, and the delivery
of product and/or research services to the licensor. We follow the accounting
guidance of ASC 605. Non-refundable license fees received upon
execution of license agreements where we have continuing involvement are
deferred and recognized as revenue over the estimated performance period of the
agreement. This requires management to estimate the expected term of the
agreement or, if applicable, the estimated life of its licensed
patents.
In
addition, ASC 605 requires a company to evaluate its arrangements
under which it will perform multiple revenue-generating activities. For example,
a license agreement with a pharmaceutical company may involve a license,
research and development activities and/or contract manufacturing, and royalties
upon commercialization of the product. Management is required to determine if
the separate components of the agreement have value on a standalone basis and
qualify as separate units of accounting, whereby consideration is allocated
based upon their relative “fair values” or, if not, the consideration should be
allocated based upon the “residual method.” Accordingly, up-front and
development stage milestone payments will be deferred and recognized as revenue
over the performance period of such license agreement.
There
have been no royalties received during the years ended December 31, 2009, 2008
and 2007.
Research
and development
Research
and development costs are expensed as incurred and include the cost of salaries,
building costs, utilities, allocation of indirect costs, and expenses to third
parties who conduct research and development, pursuant to development and
consulting agreements, on behalf of the Company.
Income
taxes
Income
taxes are accounted for under the asset and liability method. Deferred income
taxes are recorded for temporary differences between financial statement
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets and liabilities reflect the tax rates expected to be in effect for the
years in which the differences are expected to reverse. A valuation allowance is
provided if it is more likely than not that some or all of the deferred tax
assets will not be realized.
The
Company also follows the provisions of “Accounting for Uncertainty in Income
Taxes” which prescribes a model for the recognition and measurement of a tax
position taken or expected to be taken in a tax return, and provides guidance on
de-recognition, classification, interest and penalties, disclosure and
transition. At December 31, 2009 the Company did not have any significant
unrecognized tax benefits.
Loss
per common share
Basic
earnings (loss) per share is computed by dividing income (loss) available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share gives effect to all
dilutive potential common shares outstanding during the period. The
computation of diluted earnings per share does not assume conversion, exercise
or contingent exercise of securities that would have an antidilutive effect on
per share amounts.
At
December 31, 2009, 2008 and 2007, outstanding options to purchase 196,713,
224,599 and 231,323 shares of Common Stock, respectively, with exercise prices
ranging from $8.25 to $180.00 have been excluded from the computation of diluted
loss per share as they are antidilutive. At December 31, 2009, 2008
and 2007, outstanding warrants to purchase 465,275, 807,870 and 829,330, shares
of Common Stock, respectively, with exercise prices ranging from $8.25 to $60.60
have also been excluded from the computation of diluted loss per share as they
are antidilutive. Promissory notes convertible into 99,667 and 156,333 shares of
Common Stock in 2009 and 2008, respectively have also been excluded from the
computation of diluted loss per share, as they are antidilutive. Additionally,
promissory notes issued in connection with the Bio-Quant acquisition are
convertible, at the Company’s option, into 4,813,099 shares of common stock have
been excluded from the computation of diluted loss per share, as they are
ant-dilutive.
Accounting
for stock based compensation
The value
of restricted stock grants are calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant. For stock
options granted to employees and directors, we recognize compensation expense
based on the grant-date fair value estimated in accordance with the appropriate
accounting guidance, and recognized over the expected service period. We
estimate the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. Stock options and warrants issued to
consultants are accounted for in accordance with accounting guidance.
Compensation expense is calculated each quarter for consultants using the
Black-Scholes option pricing model until the option is fully vested and is
included in research and , development or general and administrative facility
expenses, based upon the services performed by the recipient.
Additional
disclosures required under FASB ASC 718, “Stock Compensation” are presented in
Note 9.
Concentration
of credit risk
From time
to time, the Company maintains cash in bank accounts that exceed the FDIC
insured limits. The Company has not experienced any losses on its cash accounts.
The Company’s credit risk with respect to accounts receivable is limited, in
that the CRO segment serves a large number of customers, none of which is
individually in excess of 10% of the revenues of the segment. We
perform credit evaluations of our customers, but generally do not require
collateral to support accounts receivable.
Accounting
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company’s most significant estimates relate
to the valuation of its long-lived assets, whether revenue recognition criteria
have been met, estimated cost to complete under its research contracts, whether
beneficial conversion features exist under convertible financing instruments,
and valuation allowances for its deferred tax benefit. Actual results
may differ from those estimates.
Recent
accounting pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued its final
Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162.” SFAS No. 168
made the FASB Accounting Standards Codification (the Codification) the single
source of U.S. GAAP used by nongovernmental entities in the preparation of
financial statements, except for rules and interpretive releases of the SEC
under authority of federal securities laws, which are sources of authoritative
accounting guidance for SEC registrants. The Codification is meant to simplify
user access to all authoritative accounting guidance by reorganizing U.S. GAAP
pronouncements into roughly 90 accounting topics within a consistent structure;
its purpose is not to create new accounting and reporting guidance. The
Codification supersedes all existing non-SEC accounting and reporting standards
and was effective for the Company beginning July 1, 2009. Following SFAS No.
168, the Board will not issue new standards in the form of Statements, FASB
Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue
Accounting Standards Updates. The FASB will not consider Accounting Standards
Updates as authoritative in their own right; these updates will serve only to
update the Codification, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the
Codification.
In
October 2009, the FASB issued FASB ASU 2009-13, Revenue Recognition (Topic 605)
– Multiple-Deliverable Revenue Arrangements. The consensus in ASU 2009-13
supersedes certain guidance in ASC 605-25, Revenue Recognition – Multiple
Element Arrangements, and requires an entity to allocate arrangement
consideration at the inception of an arrangement to all of its deliverables
based on their relative selling prices (i.e., the relative-selling-price
method). The consensus eliminates the use of the residual method of allocation
(i.e., in which the undelivered element is measured at its estimated selling
price and the delivered element is measured as the residual of the arrangement
consideration) and requires the relative-selling-price method in all
circumstances in which an entity recognizes revenue for an arrangement with
multiple deliverables subject to ASC 605-25. When applying the
relative-selling-price method, the determination of the selling price for each
deliverable must be consistent with the objective of determining vendor-specific
objective evidence of fair value (VSOE); that is, the price at which the entity
does or would sell the element on a stand-alone basis. This determination
requires the use of a hierarchy designed to maximize the entity’s use of
available, objective evidence to support its selling price. The entity must
consider market conditions as well as entity-specific factors when estimating
this selling price. The amendments in ASU 2009-13 require both ongoing
disclosures regarding an entity’s multiple-element revenue arrangements as well
as certain transitional disclosures during periods after adoption. The objective
of the ongoing disclosures is to provide information regarding the significant
judgments and estimates made and their impact on revenue recognition.
Additionally, disclosures will be made when changes in either those judgments or
the application of the relative-selling-price method may significantly affect
the timing or amount of revenue recognition. An entity will be required to
aggregate these disclosures for similar types of arrangements. Adoption will be
required for the year beginning January 1, 2011.
In
December 2007, the FASB updated “Business Combinations.” Among other
requirements, the update requires an acquirer to recognize the assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. The update also requires a.) costs incurred to effect the
acquisition to be recognized separately from the acquisition as period costs;
b.) the acquirer to recognize restructuring costs that the acquirer expects to
incur, but is not obligated to incur, separately from the business combination;
and c.) an acquirer to recognize assets and liabilities assumed arising from
contractual contingencies as of the acquisition date, measured at their
acquisition-date fair values. Other key provisions of this update include the
requirement to recognize the acquisition-date fair values of research and
development assets separately from goodwill and the requirement to recognize
changes in the amount of deferred tax benefits that are recognizable due to the
business combination in either income from continuing operations in the period
of the combination or directly in contributed capital, depending on the
circumstances. The Company adopted this update as of December 28, 2008 and has
applied its provisions prospectively to business combinations that have occurred
after adoption. In April 2009, the FASB issued “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” This update requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with “Accounting for Contingencies,” and “Reasonable Estimation of
the Amount of a Loss.” Further, the FASB decided to remove the subsequent
accounting guidance for assets and liabilities arising from contingencies, and
carry forward without significant revision the guidance in “Business
Combinations.” This update is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 28, 2008. The Company adopted this update effective December 16, 2008,
and applied this guidance to our acquisition of Bio-Quant (see Note
3).
In April
2009, the FASB issued “Interim Disclosures about Fair Value of Financial
Instruments.” This update amends “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This update also amends Interim Financial Reporting, to
require those disclosures in summarized financial information at interim
reporting periods. This update became effective for the interim period ending
June 27, 2009 and did not have a material impact on the Company’s consolidated
financial statements.
In
September 2006, the FASB issued guidance which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This guidance
applies under other accounting pronouncements that require or permit fair value
measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this guidance does not require any new fair value measurements. The
provision delayed the effective date of ASC 820 for all non-financial assets and
non-financial liabilities, except for the items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least
annually), until the beginning of the Company’s fiscal year beginning on January
1, 2009. The application of this guidance did not have a material effect on the
December 31, 2009 Consolidated Financial Statements.
|
|
3.
|
Acquisition
|
On
December 14, 2009, the Company entered into the Merger Agreement with Bio-Quant.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
“Effective Time”), each outstanding share of common stock, par value $0.01 per
share, of Bio-Quant was cancelled and converted into the right to receive 913.96
shares of common stock, par value $0.001 per share, of the Company (the “NexMed
Shares”), as well as a promissory note (each, a “Note”) in the original
principal amount of $2,771.37. In connection with the closing
of the Merger, the Company issued an aggregate of 266,667 NexMed Shares and
Notes in the aggregate original principal amount of $12,129,010 to the
shareholders of Bio-Quant.
The Notes
bear interest at a rate of 10% per annum, with all principal and interest
accrued thereunder becoming due and payable one year from the closing date of
the Merger. The terms of the Notes provide that the principal amounts
and all interest thereunder are payable by the Company in cash or, at the
Company’s option, in NexMed Shares, which shall be valued at the fixed price of
$0.168 per share. The Merger Agreement provides that if the Company
repays the Notes in NexMed Shares, the total number of NexMed Shares issuable to
Bio-Quant shareholders shall not exceed 19.99% of outstanding NexMed Shares at
the Effective Time unless the Company receives stockholder approval to do
so. If the Company receives such stockholder approval, the total
number of NexMed Shares issued to Bio-Quant shareholders in the Merger will not
exceed 45% of outstanding NexMed Shares immediately prior to the Effective
Time.
The
acquisition was accounted for under the purchase method of accounting under FASB
ASC 805 Business
Combinations,. The Company has determined that it is the “accounting
acquirer” in this transaction, as it meets the predominance of the factors
outlined in FASB ASC 805. Accordingly, the results of operations of
the acquired company have been included in the consolidated results of
operations of the Company from the date of the Merger.
The total
consideration was estimated to be approximately $13.7 million as of December 14,
2009, the date the Merger was consummated, as follows (in
thousands):
|
Fair
value of 266,667 shares of common stock issued for Bio-Quant common stock
|
$ | 1,600 | ||
|
Fair
value of promissory notes issued for Bio-Quant common
stock
|
12,129 | |||
|
Total
consideration
|
$ | 13,729 |
The fair
value of the shares of NexMed common stock issued was based on the closing price
of the Company’s common stock on December 14, 2009, the date the Merger was
consummated, or $6.00 per share.
The
purchase price was allocated based on the estimated fair value of the tangible
and identifiable intangible assets acquired and liabilities assumed in the
Merger. An allocation of the purchase price was made to major categories of
assets and liabilities in the accompanying consolidated balance sheet based on
management’s best estimates. The fair value of the other current assets and
assumed liabilities were estimated by management based upon the relative short
term nature of the accounts and the fair value of the machinery and equipment
was established based upon expected replacement costs.
Management
obtained the assistance of an independent third party valuation specialist in
performing its purchase price allocation analysis. The fair value of
Bio-Quant’s tangible and identifiable intangible assets were determined based on
this analysis. The excess of the purchase price over the estimated
fair value of tangible and identifiable intangible assets acquired and
liabilities assumed was allocated to goodwill.
Accordingly,
the purchase price is allocated to the assets and liabilities of Bio-Quant as
presented below (in thousands):
|
Cash
& cash equivalents
|
$ | 151 | ||
|
Accounts
receivable
|
576 | |||
|
Prepaids
and other current assets
|
105 | |||
|
Other
assets
|
27 | |||
|
Property
and equipment
|
783 | |||
|
Due
from related party
|
205 | |||
|
Accounts
payable and accrued expenses
|
(1,041 | ) | ||
|
Related
party payable
|
(85 | ) | ||
|
Deferred
revenue
|
(45 | ) | ||
|
Other
current liabilities
|
(68 | ) | ||
|
Other
long term liabilities
|
(122 | ) | ||
|
Amortizable
intangible assets:
|
||||
|
Know-How
|
3,037 | |||
|
Trade
Name
|
1,123 | |||
|
Indefinite
lived intangible assets:
|
||||
|
Goodwill
|
9,083 | |||
|
Total
net assets acquired
|
$ | 13,729 |
Intangible
assets of $4,160,000 consist primarily of developed Know-How and the Bio-Quant
Trade Name. Developed Know-How relates to Bio-Quant’s pre-clinical service
expertise including, but not limited to, its extensive inventory of internally
developed cell lines. The Bio-Quant Trade Name represents future revenue
attributable to the reputation and name recognition of Bio-Quant within the
pharmaceutical industry where Bio-Quant is a known expert in pre-clinical
services.
Bio-Quant
is a revenue generating, cash flow positive CRO. Bio-Quant is
expected to continue its revenue growth and cash generating CRO
business. The $9,083,000 of goodwill generated from the acquisition
of Bio-Quant consists largely of the ability of the Bio-Quant CRO to continue to
grow its revenues and generate positive cash flow to contribute to the
pharmaceutical product development business segment of the Company.
Costs
associated with the merger of $585,378 were expensed for the year ended December
31, 2009.
The
following unaudited pro forma consolidated results of operations for the period
assumes the acquisition of Bio-Quant had occurred as of January 1, 2008,
giving effect to purchase accounting adjustments. The pro forma data is for
informational purposes only and may not necessarily reflect the actual results
of operations had Bio-Quant been operated as part of the Company since
January 1, 2008 (in thousands).
Consolidated
Pro Forma Statements of Operations
(unaudited)
|
Year Ended
December 31,
2009
|
Year Ended
December 31,
2008
|
|||||||||||||||
|
As
Presented
|
Pro
Forma
|
As Presented
|
Pro Forma
|
|||||||||||||
|
Revenues
|
$ | 2,974 | $ | 8,715 | $ | 5,957 | $ | 10,998 | ||||||||
|
Net
Loss
|
(32,043 | ) | (32,196 | ) | (5,171 | ) | (8,686 | ) | ||||||||
|
Net
loss per basic and diluted shares
|
$ | (5.43 | ) | $ | (5.43 | ) | $ | (0.93 | ) | $ | (1.50 | ) | ||||
|
|
4.
|
Licensing
and Research and Development
Agreements
|
Vitaros
On
November 1, 2007, the Company signed an exclusive licensing agreement with
Warner Chilcott Company, Inc., (“Warner”) for its topical alprostadil-based
cream treatment for erectile dysfunction (“Vitaros”). Under the
agreement, Warner acquired the exclusive rights in the United States to Vitaros
and would assume all further development, manufacturing, and commercialization
responsibilities as well as costs. Warner agreed to pay the Company
an up- front payment of $500,000 and up to $12.5 million in milestone payments
on the achievement of specific regulatory milestones. In
addition, the Company was eligible to receive royalties in the future based upon
the level of sales achieved by Warner, assuming the product is approved by the
U.S. Food and Drug Administration (“FDA”).
The
Company has recognized the initial up-front payment as revenue on a straight
line basis over the nine month period ended July 31, 2008 which was the
remaining review time by the FDA for the Company’s new drug application filed in
September 2007 for Vitaros. Pursuant to the agreement, NexMed was
responsible for obtaining regulatory approval of Vitaros. Accordingly, for the
years ended December 31, 2008 and 2007, the Company recognized licensing revenue
of $388,889 and $111,111, respectively, related to the Warner
agreement.
On
February 3, 2009, the Company terminated the licensing agreement and sold the
U.S. rights for Vitaros to
Warner. Under the terms of the Asset Purchase Agreement, the Company
received an up-front payment of $2.5 million and is eligible to receive an
additional payment of $2.5 million upon Warner’s receipt of a New Drug
Application (NDA) approval for Vitaros from the FDA. As such,
the Company is no longer responsible for obtaining regulatory approval of
Vitaros and
will no longer be eligible to receive royalties in the future based upon the
level of sales achieved by Warner. In addition, Warner has paid the
Company a total of $350,000 for the manufacturing equipment for Vitaros, and
recognized a gain of $43,840. While the Company believes that Warner is
currently moving forward in pursuing NDA approval for Vitaros, Warner is not
obligated by the Asset Purchase Agreement to continue with the development of
Vitaros or obtain approval of Vitaros from the FDA. The Company allocated
$2,398,000 of the $2,500,000 purchase price to the U.S. rights for Vitaros and
the related patents acquired by Warner. The balance of $102,000 was
allocated to the rights of certain technology based patents which Warner
licensed as part of the sale of U.S. rights for Vitaros. The
$2,398,000 is recognized as revenue for year ended December 31, 2009, as the
Company has no continuing obligations or rights with respect to Vitaros in the
U.S. market. The $102,000 allocated to the patent license is being
recognized over a period of ten years, the estimated useful commercial life of
the patents. Accordingly, $9,350 is being recognized as revenue for
the year ended December 31, 2009. The balance of $92,650 is recorded
as deferred revenue on the Consolidated Balance Sheet at December 31,
2009.
On April
15, 2009, the Company entered into a First Amendment (the “Amendment”) to the
Asset Purchase Agreement. The Amendment provided that from May 15,
2009 through September 15, 2009, the Company would permit certain
representatives of Warner access to and use of the Company’s manufacturing
facility for the purpose of manufacturing Vitaros, and in connection therewith
the Company would provide reasonable technical and other assistance to
Warner. In consideration, Warner would pay to the Company a fee of
$50,000 per month, or $200,000 in the aggregate. The arrangement was
subject to extension for successive 30 day periods for additional consideration
of $50,000 per month until terminated by either party prior to the expiration of
each successive period. On September 15, 2009, Warner decided not to
extend the facility usage period. For the year ended December 31,
2009, the Company recorded $200,000 in revenue for the fees received from May
15th
through September 15th.
NM100060
On
September 15, 2005, the Company signed an exclusive global licensing agreement
with Novartis International Pharmaceutical Ltd. (“Novartis”) for its anti-fungal
product, NM100060. Under the agreement, Novartis acquired the
exclusive worldwide rights to NM100060 and would assume all further development,
regulatory, manufacturing and commercialization responsibilities as well as
costs. Novartis agreed to pay the Company up to $51 million in
upfront and milestone payments on the achievement of specific development and
regulatory milestones, including an initial cash payment of $4 million at
signing. In addition, the Company was eligible to receive royalties
based upon the level of sales achieved and to receive reimbursements of third
party preclinical study costs up to $3.25 million. The Company
began recognizing the initial up- front and preclinical reimbursement revenue
from this agreement based on the cost-to-cost method over the 32-month period
estimated to complete the remaining preclinical studies for
NM100060. On February 16, 2007, the Novartis agreement was
amended. Pursuant to the amendment, the Company was no longer
obligated to complete the remaining preclinical studies for
NM100060. Novartis took over all responsibilities and completed
the remaining preclinical studies. As such, the balance of deferred
revenue of $1,693,917 at December 31, 2006 was recognized as revenue on a
straight line basis over the 18 month period ended June 30, 2008 which was the
performance period for Novartis to complete the remaining preclinical studies.
Accordingly, for the years ended December 31, 2008 and 2007, the Company
recognized licensing revenue of $564,639 and $1,129,276 respectively, related to
the initial $4 million cash payment from the Novartis agreement.
On March
4, 2008, the Company received a $1.5 million milestone payment from Novartis
pursuant to the terms of the licensing agreement whereby the payment was due
seven months after the completion of patient enrollment for the Phase 3 clinical
trials for NM100060, which occurred in July 2007. Although the
completion of patient enrollment in the Phase 3 clinical trials for NM100060
triggered a $3 million milestone payment from Novartis, the agreement also
provided that clinical milestones paid to us by Novartis shall be reduced by 50%
until the Company receives an approved patent claim on the NM100060 patent
application filed with the U.S. patent office in November 2004. The
$1.5 million milestone payment was recognized on a straight-line basis over the
six month period to complete the Phase 3 clinical trial, and
therefore the $1.5 million milestone payment was recognized as
revenue during the year ended December 31, 2008.
In July
2008, Novartis completed testing for the Phase 3 clinical trials for NM100060
required for the filing of the NDA in the U.S. On August 26, 2008,
the Company announced that Novartis had decided not to submit the NDA in the
U.S. based on First Interpretable Results of the Phase 3 trials.
On
October 17, 2008, the Company received a Notice of Allowance for its U.S. patent
covering NM100060. Pursuant to the license agreement, the payment of
the issuance fee for an approved patent claim on NM100060 triggered the $2
million patent milestone payment from Novartis. Additionally, $1.5
million, which represents the remaining 50% of the patient enrollment milestone
also became due and payable. As such the Company received a payment
of $3.5 million from Novartis on October 30, 2008 and recognized it as licensing
revenue for the year ended December 31, 2008.
In total,
the Company recognized $5,564,639 and $1,129,276 of revenue related to the
Novartis agreements for the years ended December 31, 2008 and 2007,
respectively.
In July
2009, Novartis completed final analysis of the comparator study which they had
initiated in March 2007 in ten European countries. The study results
were insufficient to support marketing approval in Europe. As such,
on July 8, 2009, the Company announced the mutual decision reached with Novartis
to terminate the licensing agreement. Accordingly, pursuant to the
Termination Agreement, Novartis has provided the Company reports associated with
the Phase III clinical trials conducted for NM100060 and is assisting and
supporting the Company in connection with the assignment, transfer and delivery
to the Company of all know-how and data relating to NM100060 in accordance with
the terms of the License Agreement.
In
consideration of such assistance and support, the Company will pay to Novartis
15% of any upfront and/or milestone payments that it receives from any future
third party licensee of NM100060, as well as a royalty fee ranging from 2.8% to
6.5% of annual net sales of products developed from NM100060 (collectively,
“Products”), with such royalty fee varying based on volume of such annual net
sales. In the event that the Company, or a substantial part of its
assets, is sold, the Company will pay to Novartis 15% of any upfront and/or
milestone payments received by the Company or its successor relating to the
Products, as well as a royalty fee ranging from 3% to 6.5% of annual net sales
of any Products, with such royalty fee varying based on volume of such annual
net sales. If the acquirer makes no upfront or milestone payments,
the royalty fees payable to Novartis will range from 4% to 6.5% of annual net
sales of any Products.
|
|
5.
|
Fixed
Assets
|
Fixed
assets at December 31, 2009 and 2008 were comprised of the
following:
|
|
2009
|
2008
|
||||||
|
Land
|
$
|
363,909
|
$
|
363,909
|
||||
|
Building,
including impairment charge of $884,271 in 2008
|
6,042,583
|
6,378,587
|
||||||
|
Leasehold
improvements
|
650,991
|
-
|
||||||
|
Machinery
and equipment
|
2,517,256
|
2,599,159
|
||||||
|
Computer
software
|
622,313
|
600,167
|
||||||
|
Furniture
and fixtures
|
253,846
|
188,935
|
||||||
|
10,450,898
|
10,130,757
|
|||||||
|
Less:
accumulated depreciation and amortization
|
(4,834,087
|
)
|
(4,611,105
|
)
|
||||
|
$
|
5,616,811
|
$
|
5,519,652
|
|||||
Depreciation
and amortization expense was $372,714 , $486,420
and $621,870 for 2009, 2008 and 2007 respectively. Assets
held under capital lease, acquired with Bio-Quant and included in the above
table, amounted to $147,138 at December 31, 2009
In
December, 2009, the Company entered into an agreement to lease its facility in
East Windsor New Jersey for a period of 10 years at $34,450 per month with
annual 2.5% escalations. Further, the tenant has an option to purchase the
building for an initial purchase price of $4.4 million (plus a 2.5% annual
escalation commencing in year 5 of the sublease). The lease commencement
date was February 1, 2010. As such, the tenant moved into the
facility on February 1, 2010 and per the terms of the lease agreement, will
commence paying monthly lease payments on May 1, 2010.
|
6.
|
Intangible
Assets
|
Intangible
assets are listed below with associated accumulated amortization as of December
31, 2009:
|
Bio-Quant Know-How
|
$
|
3,037,000
|
||
|
Bio-Quant
Trade Name
|
1,123,000
|
|||
|
Accumulated
amortization
|
(14,994
|
)
|
||
|
Intangible
assets, net
|
$
|
4,145,006
|
The
Company is currently amortizing Know-How over the expected useful life of 10
years and the Trade Name over the expected useful life of 20 years. Amortization
expense amounted to $14,994 for the year ended December 31,
2009. Based on the carrying amount of intangible assets, assuming no
future impairment of underlying assets, the estimated future amortization
expense for the next five years ended December 31 and thereafter is as
follows:
|
2010
|
$
|
359,860
|
||
|
2011
|
359,860
|
|||
|
2012
|
359,860
|
|||
|
2013
|
359,860
|
|||
|
2014
|
359,860
|
|||
|
Thereafter
|
2,345,706
|
|||
|
Total
future amortization expense
|
$
|
4,145,006
|
|
|
7.
|
Deferred
Compensation
|
On
February 27, 2002, the Company entered into an employment agreement with Y.
Joseph Mo, Ph.D., that had a constant term of five years, and pursuant to which
Dr. Mo served as the Company’s Chief Executive Officer and
President. Under the employment agreement, Dr. Mo is entitled to
deferred compensation in an annual amount equal to one sixth of the sum of his
base salary and bonus for the 36 calendar months preceding the date on which the
deferred compensation payments commence subject to certain limitations,
including a vesting requirement through the date of termination, as set forth in
the employment agreement. The deferred compensation is payable
monthly for 180 months commencing on termination of employment. Dr.
Mo’s employment was terminated as of December 15, 2005 and the present value of
the vested portion of the obligation was recognized. The
monthly deferred compensation payment through May 15, 2021 will be
$9,158. As of December 31, 2009 and 2008, the Company has
accrued $935,602 and $1,009,762 respectively, which is included in
deferred compensation.
|
|
8.
|
Convertible
Notes Payable
|
On June
30, 2008, the Company issued convertible notes (the “Convertible Notes”) in an
aggregate principal amount of $5.75 million. The Convertible Notes are
collateralized by the Company’s facility in East Windsor, New
Jersey. $4.75 million of the principal amount of the Convertible
Notes are due on December 31, 2011 (the “Due Date”) and $1 million of
the principal amount of the Convertible Notes were due on December 31,
2008. On October 16, 2008, the Company sold certain building
equipment and received proceeds of $60,000 which was used to prepay a portion of
the $4.75 million payment due on December 31, 2011. On December 31,
2008, the Company paid the $1 million principal payment due in cash, such that
at December 31, 2008 the amount outstanding was $4,690,000.
The
Convertible Notes are payable in cash or convertible into shares of Common Stock
with the remaining principal amount initially convertible at $30 per share
on or before the Due Date at the holders’ option. The Convertible
Notes have a coupon rate of 7% per annum, which is payable at the Company’s
option in cash or, if the Company’s net cash balance is less than $3 million at
the time of payment, in shares of Common Stock. If paid in
shares of Common Stock, then the price of the stock issued will be the lesser of
$1.20 below or 95% of the five-day weighted average of the market price of the
Common Stock prior to the time of payment. Such additional interest
consideration is considered contingent and therefore would only be recognized
upon occurrence.
2009 transactions with
respect to this convertible note are as follows:
As
discussed in Note 4, the Company sold $350,000 of manufacturing equipment to
Warner. The note holders agreed to release the lien on the equipment
in exchange for a $50,000 repayment of principal to be paid in 2009 when the
equipment is transferred to Warner. Accordingly, on May 15, 2009, the
Company repaid $50,000 to the note holders upon the transfer of the
manufacturing equipment to Warner.
On May
27, 2009, the Company agreed to convert $150,000 of the outstanding Convertible
Notes to Common Stock at a price of $3.45 per share. As such, the
Company issued 43,960 shares of Common Stock to the note holders in repayment of
such $150,000 principal amount plus interest.
On June
11, 2009, the Company agreed to convert $150,000 of the outstanding Convertible
Notes to Common Stock at a price of $4.65 per share. As such, the
Company issued 32,710 shares of Common Stock to the note holders in repayment of
such $150,000 principal amount plus interest.
On July
23, 2009, the Company agreed to convert $300,000 of the outstanding Convertible
Notes to Common Stock at a price of $2.40 per share. As such, the
Company issued 125,559 shares of Common Stock to the note holders in repayment
of such $300,000 principal amount plus interest.
On July
29, 2009, the Company agreed to convert $100,000 of the outstanding Convertible
Notes to Common Stock at a price of $2.25 per share. As such, the
Company issued 44,695 shares of Common Stock to the note holders in repayment of
such $100,000 principal amount plus interest.
On
September 16, 2009, the Company agreed to convert $350,000 of the outstanding
Convertible Notes to Common Stock at a price of $2.25 per share. As
such, the Company issued 157,915 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
On
October 1, 2009, the Company paid $62,825 in cash for interest on the Note for
the period July 1, 2009 through September 30, 2009.
On
October 14, 2009, the Company agreed to convert $350,000 of the outstanding
Convertible Notes to Common Stock at a price of $2.40 per share. As
such, the Company issued 146,230 shares of Common Stock to the note holders in
repayment of such $350,000 principal amount plus interest.
On
October 15, 2009, the Company agreed to convert $250,000 of the outstanding
Convertible Notes to Common Stock at a price of $2.25 per share. As
such, the Company issued 111,435 shares of Common Stock to the note holders in
repayment of such $250,000 principal amount plus interest.
On
November 10, 2009, the Company issued convertible notes in the aggregate
principal amount of $750,000 under the same terms as the original note as
described above.
On
November 10, 2009, the Company amended the 2008 Notes such that the conversion
price of $750,000 in principal amount of the Convertible Notes has been changed
from $30.00 to $2.10 per share.
On
November 24, December 7 , 9 and 14, 2009, the note holders converted $500,000,
$125,000, $35,000 and $90,000, respectively, of the outstanding Convertible
Notes pursuant to the November 10, 2009 amendment above. As such, the
Company issued 361,319 shares of Common Stock to the note holders in
repayment of such $750,000 principal amount plus interest.
As a
result of these prepayments and conversions, at December 31, 2009, the principal
amount outstanding of the Convertible Notes was $2,990,000, of which the
conversion price is $30.00 per share for all such principal amount.
The
Company recognized a debt inducement charge for the differential between the
original conversion rate of $30.00 per share and the agreed prices as listed
above. Non-cash interest expense recognized with respect to this note
for the year ended December 31, 2009 was 28,352,598.
To the
extent that the Company and convertible note holders agree to effect subsequent
conversions in the future at conversion rates below the original conversion rate
of $30.00, the Company will recognize additional debt inducement
charges.
Repaid
Notes
During
2006 and 2007, the Company entered into a series of notes payable aggregating $5
million, of which $3 million was paid in 2008 and $2 million was repaid in
2007. In connection with these notes and a line of credit which was
cancelled during 2008, the Company issued warrants to purchase 80,000 shares of
common stock at prices ranging from $8.30 to $22.80. The Company also
issued approximately 5,733 shares of common stock in payment of accrued
interest. Non-cash interest expense associated with these instruments
were $693,316 and $408,538 during the years ended December 31, 2008 and 2007,
respectively.
|
9.
|
Notes
Payable
|
On
December 14, 2009, the Company issued $12,129,010 in promissory notes (the
“Notes”) in connection with the acquisition of Bio-Quant as discussed in Note 3
above. The Notes bear interest at a rate of 10% per annum, with all principal
and interest accrued thereunder becoming due and payable one year from the
closing date of the Merger, or December 14, 2010. The terms of the
Notes provide that the principal amounts and all interest thereunder are payable
by the Company in cash or, at the Company’s option, in NexMed Shares, which
shall be valued at the fixed price of $2.52 per share. The Merger
Agreement provides that if the Company repays the Notes in NexMed Shares, the
total number of NexMed Shares issuable to Bio-Quant shareholders shall not
exceed 19.99% of outstanding NexMed Shares at the Effective Time unless the
Company receives stockholder approval to do so. If the Company
receives such stockholder approval, the total number of additional NexMed Shares
issued to Bio-Quant shareholders in payment of the Notes will be up to
approximately 4.2 million shares. The principal amount of the Notes
outstanding at December 31, 2009 was $12,129,010 and is reflected as Notes
payable in the current liabilities section of the Consolidated Balance
Sheet. The Company has determined that it will recognize a beneficial
conversion charge based upon the difference between the quoted market price of
the common stock and the fixed conversion price at the time of the
conversion.
On
January 11, 2010, the Company converted $297,568.72 of outstanding principal of
the Notes to Common Stock at $2.52 per share, the fixed conversion price
pursuant to the terms of the Notes. As such, the Company issued
140,500 shares of Common Stock to the note holders in repayment of such
$297,568.72 principal amount plus interest.
On March
17, 2010, the Company converted $1,934,160 of outstanding principal of the Notes
to Common Stock at $2.52 per share, the fixed conversion price pursuant to the
terms of the Notes. As such, the Company issued 862,710 shares of
Common Stock to the note holders in repayment of such $1,934,160 principal
amount plus interest.
|
10.
|
Related
Party Transactions
|
In
addition to the Bio-Quant notes payable described in Note 9, of which
approximately 63% are held by executives of the Company, the Company had the
following related party transactions:
|
|
·
|
At
December 31, 2009 $14,703 is included in due to related parties in the
accompanying consolidated balance sheets for amounts owed to the Chief
Executive Officer and affiliates for certain consulting and supplies
purchased by the Company. There are charges of $2,500 related
to such consulting services in the statement of operations for the 2009
period since the Merger.
|
|
|
·
|
Prior
to Merger, Bio-Quant had promissory notes receivable of approximately
$380,000 from three entities controlled by the former Bio-Quant
shareholders. Management of the Company has determined that the
fair value of these notes was $204,896, representing the value of
Prevonco™ purchased in 2010 by the Company from one of these entities in
settlement of a like-amount of the promissory note. Prevonco™
is a marketed anti-ulcer compound, lansoprazole, for the treatment of
solid tumors. The remainder of the notes receivable have been assigned no
fair value, as there is significant uncertainty as to whether any amounts
will be collectible.
|
|
|
·
|
Prior
to the Merger, Bio-Quant periodically borrowed and repaid funds from the
Company’s Chief Executive Officer and his affiliates pursuant to
promissory notes bearing interest rate of 10% per annum, The balance owed
by the Company at December 31, 2009 and included in due to related parties
in the accompanying consolidated balance sheet is $84,979. These amounts
have been repaid in full during the first quarter of
2010.
|
|
11.
|
Stock
Options and Restricted Stock
|
During
December 1996, the Company adopted The NexMed, Inc. Stock Option and Long-Term
Incentive Compensation Plan (“the Incentive Plan”) and The NexMed, Inc.
Recognition and Retention Stock Incentive Plan (“the Recognition
Plan”). A total of 133,333 shares were set aside for these two
plans. In May 2000, the Stockholders’ approved an increase in the
number of shares reserved for the Incentive Plan and Recognition Plan to a total
of 500,000. During June 2006, the Company adopted the NexMed, Inc.
2006 Stock Incentive Plan. A total of 200,000 shares were set aside
for the plan and an additional 133,333 shares were added to the plan in June
2008. Options granted under the Company’s plans generally vest over a
period of one to five years, with exercise prices of currently outstanding
options ranging between $8.25 to $180.00. The maximum term under
these plans is 10 years.
The
following table summarizes information about options outstanding, all of which
are exercisable, at December 31, 2009:
|
|
Options Outstanding
|
||||||||||||||
|
|
Weighted Average
|
Aggregate
|
|||||||||||||
|
Range of
|
Number
|
Remaining
|
Weighted Average
|
Intrinsic
|
|||||||||||
|
Exercise Prices
|
Outstanding
|
Contractual Life
|
Exercise Price
|
Value
|
|||||||||||
| $ | 8.25 – 27.75 | 166,097 |
5.72
years
|
$ | 12.30 | $ | - | ||||||||
| 30.00 – 59.85 | 5,157 |
2.27
years
|
49.65 | - | |||||||||||
| 60.00 - 82.50 | 24,760 |
2.75
years
|
69.75 | - | |||||||||||
| 105.00 - 180.00 | 700 |
0.53
years
|
137.10 | - | |||||||||||
| 196,714 |
5.24
years
|
$ | 21.00 | $ | - | ||||||||||
A summary
of stock option activity is as follows:
|
|
Weighted
|
Weighted
|
Total
|
||||||||||
|
|
Average
|
Average Remaining
|
Aggregate
|
||||||||||
|
|
Number of
|
Exercise
|
Contractual
|
Intrinsic
|
|||||||||
|
|
Shares
|
Price
|
Life
|
Value
|
|||||||||
|
Outstanding
at January1, 2007
|
244,228
|
$
|
22.80
|
||||||||||
|
Granted
|
13,473
|
21.15
|
|||||||||||
|
Exercised
|
(5,232
|
)
|
16.05
|
||||||||||
|
Cancelled
|
(21,147
|
)
|
42.30
|
||||||||||
|
Outstanding
at December 31, 2007
|
231,322
|
$
|
21.15
|
||||||||||
|
Granted
|
-
|
||||||||||||
|
Exercised
|
(3,666
|
)
|
$
|
10.95
|
|||||||||
|
Cancelled
|
(3,056
|
)
|
49.95
|
||||||||||
|
Outstanding
at December 31, 2008
|
224,600
|
$
|
21.00
|
||||||||||
|
Granted
|
-
|
||||||||||||
|
Exercised
|
-
|
||||||||||||
|
Cancelled
|
(27,886
|
)
|
$
|
21.00
|
|||||||||
|
Outstanding
at December 31, 2009
|
196,714
|
5.24 years
|
$
|
0
|
|||||||||
|
Vested
or expected to vest at
|
|||||||||||||
|
December
31, 2009
|
196,714
|
$
|
21.00
|
5.24 years
|
$
|
0
|
|||||||
|
Exercisable
at December 31, 2009
|
196,714
|
$
|
21.00
|
5.24 years
|
$
|
0
|
|||||||
|
Exercisable
at December 31, 2008
|
211,840
|
$
|
21.00
|
||||||||||
|
Exercisable
at December 31, 2007
|
208,183
|
$
|
21.45
|
||||||||||
|
Options
available for grant at December 31, 2009
|
88,204
|
||||||||||||
There
were no options granted during 2008 or 2009. The weighted average
grant date fair value of options granted during 2007 was $21.15. The
intrinsic value of options exercised during the year ended December 31, 2008 was
$43,270.
The fair
value of each stock option grant is estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions used for the
year ended December 31, 2007:
|
Dividend
yield
|
0.00
|
%
|
||
|
Risk-free
yields
|
1.35% - 5.02
|
%
|
||
|
Expected
volatility
|
54.38% - 103.51
|
%
|
||
|
Expected
option life
|
1 - 6 years
|
|||
|
Forfeiture
rate
|
8.22
|
%
|
||
Expected Volatility. The
Company uses analysis of historical volatility to compute the expected
volatility of its stock options.
Expected Term. The expected
term is based on several factors including historical observations of employee
exercise patterns during the Company’s history and expectations of employee
exercise behavior in the future giving consideration to the contractual terms of
the stock-based awards.
Risk-Free Interest Rate. The
interest rate used in valuing awards is based on the yield at the time of grant
of a U.S. Treasury security with an equivalent remaining term.
Dividend Yield. The Company
has never paid cash dividends, and does not currently intend to pay cash
dividends, and thus has assumed a 0% dividend yield.
Pre-Vesting Forfeitures.
Estimates of pre-vesting option forfeitures are based on Company experience. The
Company will adjust its estimate of forfeitures over the requisite service
period based on the extent to which actual forfeitures differ, or are expected
to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative catch-up adjustment in the period of change and
will also impact the amount of compensation expense to be recognized in future
periods.
As of
December 31, 2009, there was not any unrecognized compensation cost related to
non-vested stock options.
Compensatory Share
Issuances
The value
of restricted stock grants is calculated based upon the closing stock price of
the Company’s Common Stock on the date of the grant. The value of the
grant is expensed over the vesting period of the grant in accordance with FASB
ASC 718 as discussed in Note 2. As of December 31, 2009 there was
$238,169 of total unrecognized compensation cost related to non-vested
restricted stock. That cost is expected to be recognized during
2010.
Principal
employee based compensation transactions for the year ended December 31, 2009
were as follows:
For the
years ended December 31, 2009, 2008 and 2007, the Company issued 16,899, 25,197
and 20,303 shares of common stock, respectively, to Board of
Directors members for services rendered, and recorded expenses related to such
issuances of $211,428, $480,829 and $288,998, respectively.
On
September 12, 2008, the Board of Directors approved new stock grants (“New Stock
Grants”) for Hemanshu Pandya, the Company’s then Chief Operating Officer and
Mark Westgate, the Company’s Chief Financial Officer, with each grant comprised
of 33,333 restricted shares of Common Stock. The two New Stock Grants
will vest in two equal installments on June 30, 2009 and June 30, 2010,
respectively, provided that Mr. Pandya and Mr. Westgate remain in continuous and
uninterrupted service with the Company. For the years ended December
31, 2009 and 2008, the Company recorded expenses of approximately $70,000 and
$35,000, respectively, for such grant.
The
following table indicates where the total stock-based compensation expense
resulting from stock options and awards appears in the Statements of
Operations:
|
|
Year Ended
|
|||||||||||
|
|
December 31, 2009
|
December 31, 2008
|
December 31, 2007
|
|||||||||
|
Research
and development
|
$
|
86,210
|
$
|
71,833
|
$
|
111,108
|
||||||
|
General
and administrative
|
816,461
|
1,252,239
|
1,044,724
|
|||||||||
|
Total
stock-based compensation expense
|
$
|
902,671
|
$
|
1,324,072
|
$
|
1,155,832
|
||||||
The
stock-based compensation expense has not been tax-effected due to the recording
of a full valuation allowance against U.S. net deferred tax assets.
|
12.
|
Capital
Leases
|
The
Company has entered into various capital leases for certain equipment used in
its laboratory and cell processing facility as of December 31, 2009. The lease
obligations are payable as follows:
|
|
Monthly
payment
|
Interest
rate
|
Number
of
payments
per lease
|
Maturity
date
|
Aggregate
remaining
principal
outstanding
at December
31, 2009
|
||||||||||||
|
Lease
1
|
$
|
384
|
10
|
%
|
60
|
12/1/2013
|
$
|
14,901
|
|||||||||
|
Lease
2
|
136
|
19.2
|
%
|
36
|
12/31/2011
|
2,685
|
|||||||||||
|
Lease
3
|
441
|
13.7
|
%
|
60
|
2/1/2013
|
16,717
|
|||||||||||
|
Lease
4
|
897
|
10
|
%
|
60
|
9/1/2013
|
41,155
|
|||||||||||
|
Lease
5
|
1,483
|
13.8
|
%
|
60
|
12/1/2014
|
64,037
|
|||||||||||
|
$
|
139,495
|
||||||||||||||||
The
leases are secured by a first lien on the underlying equipment. At December 31,
2009, the assets held subject to capital leases totaled $147,138 and the related
accumulated depreciation was $6,149.
Future
maturities of capital lease obligations at December 31, 2009 are:
|
Years Ended
December 31,
|
Amount
|
|||
|
2010
|
$
|
40,101
|
||
|
2011
|
40,101
|
|||
|
2012
|
38,473
|
|||
|
2013
|
31,374
|
|||
|
2014
|
17,800
|
|||
|
Total
|
167,849
|
|||
|
Less
portion representing interest
|
28,354
|
|||
|
Total
principal due at December 31, 2009
|
139,495
|
|||
|
Less:
current maturities
|
24,530
|
|||
|
Long-term
portion
|
$
|
114,965
|
||
|
13.
|
Stockholder
Rights Plan
|
On April
3, 2000, the Company declared a dividend distribution of one preferred share
purchase Right for each outstanding share of the Company’s Common Stock to
shareholders of record at the close of business on April 21,
2000. One Right will also be distributed for each share of Common
Stock issued after April 21, 2000, until the Distribution Date described in the
next paragraph. Each Right entitles the registered holder to purchase
from the Company a unit consisting of one one-hundredths of a share (a Unit) of
Series A Junior Participating Preferred Stock, $.001 par value per share, at a
Purchase Price of $100.00 per Unit, subject to adjustment. Under the
Rights Plan, 1,000,000 shares of the Company’s preferred stock have been set
aside.
Initially,
the Rights will be attached to all Common Stock certificates representing shares
then outstanding, and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) ten (10) business days
following a public announcement that a person or group of affiliated or
associated persons (an Acquiring Person) has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of Common
Stock , or (ii) ten (10) business days following the public announcement of a
tender offer or exchange offer that would, if consummated, result in a person or
group beneficially owning 15% or more of such outstanding shares of Common
Stock, subject to certain limitations.
Under the
terms of the Rights Agreement, Dr. Y. Joseph Mo, the Company’s former CEO, will
be permitted to increase his ownership to up to 25% of the outstanding shares of
Common Stock, without becoming an Acquiring Person and triggering a Distribution
Date.
On
January 16, 2007 the Rights Agreement was amended to exempt Southpoint Master
Fund, LP and its affiliates from becoming an Acquiring Person within the meaning
of the Rights Agreement, provided that Southpoint’s aggregate beneficial
ownership of the Company’s Common Stock is less than 20% of the shares of Common
Stock then outstanding.
On
December 8, 2009 the Rights Agreement was amended to exempt any
person who receives the Company’s Common Stock in satisfaction of the Notes
issued pursuant to the Bio-Quant Merger Agreement as discussed in Notes 3 and 9
above.
|
14.
|
Warrants
|
A summary
of warrant activity is as follows:
|
|
Weighted
|
Weighted
|
|||||||
|
|
Common Shares
|
Average
|
Average
|
||||||
|
|
Issuable upon
|
Exercise
|
Contractual
|
||||||
|
|
Exercise
|
Price
|
Life
|
||||||
|
Outstanding
at January 1, 2007
|
1,341,668
|
$
|
19.95
|
||||||
|
Issued
(Note 8)
|
30,000
|
$
|
22.80
|
||||||
|
Exercised
|
(186,033
|
)
|
$
|
27.45
|
|||||
|
Cancelled
|
(356,305
|
)
|
$
|
21.00
|
|||||
|
Outstanding
at December 31, 2007
|
829,330
|
$
|
18.45
|
||||||
|
Issued
(Note 8)
|
16,667
|
$
|
17.25
|
||||||
|
Exercised
|
(31,460
|
)
|
$
|
13.35
|
|||||
|
Cancelled
|
(6,667
|
)
|
$
|
22.80
|
|||||
|
Outstanding
at December 31, 2008
|
807,870
|
$
|
18.45
|
||||||
|
Issued
|
|||||||||
|
Exercised
|
|||||||||
|
Cancelled
|
(342,595
|
)
|
$
|
23.70
|
|||||
|
Outstanding
at December 31, 2009
|
465,275
|
$
|
15.45
|
1.03 years
|
|||||
|
Exercisable
at December 31, 2009
|
465,275
|
$
|
18.45
|
1.22
years
|
|||||
|
15.
|
Income
Taxes
|
The
Company has incurred losses since inception, which have generated net operating
loss carryforwards of approximately $107 million for federal income tax
purposes. These carryforwards are available to offset future taxable
income and expire beginning in 2014 through 2028 for federal income tax
purposes. In addition, the Company has general business and research and
development tax credit carryforwards of approximately $2.4
million. Internal Revenue Code Section 382 places a limitation on the
utilization of federal net operating loss carryforwards when an ownership
change, as defined by tax law, occurs. Generally, an ownership
change, as defined, occurs when a greater than 50 percent change in ownership
takes place during any three-year period. It is likely that such a limitation
will occur if most of the Bio-Quant notes are converted to common stock. The
actual utilization of net operating loss carryforwards generated prior to such
changes in ownership will be limited, in any one year, to a percentage of fair
market value of the Company at the time of the ownership change. Such
a change may have already resulted from the equity financing obtained
by the Company since its formation.
In 2007,
2008 and 2009,the Company was approved by the State of New Jersey to sell a
portion of its state tax credits pursuant to the Technology Tax Certificate
Transfer Program. The Company no longer has any significant NJ tax
credit benefits left available to sell at December 31, 2009, and was approved to
sell net operating loss tax benefits of $491,903 in 2009, $1,053,547 in 2008,
and $905,515 in 2007. The Company generated net revenues of $437,794,
$937,657, and $805,909 in 2009, 2008, and 2007, respectively, as a result of the
sale of the tax credits, which has been recognized as received as an income tax
benefit in the Consolidated Statements of Operations. There can be no
assurance that this program will continue in future years.
Deferred
tax assets consist of the following:
|
|
December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net
operating tax loss carryforwards
|
$
|
44,000,000
|
$
|
40,500,000
|
||||
|
Research
and development tax credits
|
2,400,000
|
2,200,000
|
||||||
|
Deferred
compensation
|
300,000
|
300,000
|
||||||
|
Bases
of intangible assets
|
(1,660,000
|
)
|
-
|
|||||
|
Total
deferred tax asset
|
45,040,000
|
43,000,000
|
||||||
|
Less
valuation allowance
|
(45,040,000
|
)
|
(43,000,000
|
)
|
||||
|
Net
deferred tax asset
|
$
|
—
|
$
|
—
|
||||
The net
operating loss carryforwards and tax credit carryforwards resulted in a
noncurrent deferred tax benefit at December 31, 2009, 2008 and 2007 of
approximately $45, $43 million, and $39 million,
respectively. In consideration of the Company’s accumulated losses
and the uncertainty of its ability to utilize this deferred tax benefit in the
future, the Company has recorded a valuation allowance of an equal amount on
such date to fully offset the deferred tax benefit amount.
The
acquisition of Bio-Quant was the acquisition of the stock of
Bio-Quant. Therefore, the Company does not have the amortizable tax
bases in the intangible assets, including goodwill.
On
January 1, 2007, we adopted the provisions of ASC 740-10-25. ASC 740-10-25
provides recognition criteria and a related measurement model for uncertain tax
positions taken or expected to be taken in income tax returns. ASC 740-10-25
requires that a position taken or expected to be taken in a tax return be
recognized in the financial statements when it is more likely than not that the
position would be sustained upon examination by tax authorities. Tax positions
that meet the more likely than not threshold are then measured using a
probability weighted approach recognizing the largest amount of tax benefit that
is greater than 50% likely of being realized upon ultimate settlement. The
Company’s Federal income tax returns for 2001 to 2008 are still open and subject
to audit. The Company had no tax positions relating to open income
tax returns that were considered to be uncertain. Accordingly, we have not
recorded a liability for unrecognized tax benefits upon adoption of ASC
740-10-25. There continues to be no liability related to unrecognized tax
benefits at December 31, 2009.
The
reconciliation of income taxes computed using the statutory U.S. income tax rate
and the provision (benefit) for income taxes for the years ended December 31,
2009, 2008 and 2007 are as follows:
|
|
For the years ended
|
|||||||||||
|
|
December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Federal
statutory tax rate
|
(35
|
)%
|
(35
|
)%
|
(35
|
)%
|
||||||
|
State
taxes, net of federal benefit
|
(6
|
)%
|
(6
|
)%
|
(6
|
)%
|
||||||
|
Valuation
allowance
|
41
|
%
|
41
|
%
|
41
|
%
|
||||||
|
Sale
of state net operating losses
|
(8.35
|
)%
|
(15.35
|
)%
|
(8.40
|
)%
|
||||||
|
Provision
(benefit) for income taxes
|
(8.35
|
)%
|
(15.35
|
)%
|
(8.40
|
)%
|
||||||
For the
years ended December 31, 2009, 2008 and 2007, the Company’s effective tax rate
differs from the federal statutory rate principally due to net operating losses
and other temporary differences for which no benefit was recorded offset by the
state tax benefit from the sale of the net operating losses in New Jersey and
other permanent differences.
|
16.
|
Commitments
and Contingencies
|
Equity
Compensation
The
Company has made commitments to issue equity awards to certain Officers of the
Company and employees of Bio-Quant. Such commitments will be
satisfied only upon approval by the shareholders of the Company to increase the
number of authorized shares in the NexMed, Inc. 2006 Stock Incentive Plan (the
“Plan”). Upon approval of the Plan, the Company will issue
approximately 158,067 restricted shares to certain Bio-Quant employees pursuant
to the provisions of the Plan. Additionally, the Company will issue
250,000 shares to certain of its Officers pursuant to the provisions of the
Plan.
Operating
Leases
In
January 2007, Bio-Quant entered into a lease agreement for its headquarters
location in San Diego California expiring December 31, 2011. The headquarters
lease term contains a base rent of $18,400 per month with 4% annual escalations,
plus a real estate tax and operating expense charge to be determined
annually.
In
February 2008, Bio-Quant entered into a four year lease agreement for its second
location in San Diego California expiring December 31, 2015 as amended in
February 2010. The Lease term has a base rent of $13,065
per month, plus a real estate tax and operating expense charge to be determined
annually.
For the
period from Merger to December 31, 2009, rent expense under all operating
leases was approximately $18,000.
Future
minimum rental payments under the operating leases noted above are
approximately:
|
Years Ended
December 31,
|
Amount
|
|||
|
2010
|
405,144
|
|||
|
2011
|
420,167
|
|||
|
2012
|
172,236
|
|||
|
2013
|
177,396
|
|||
|
2014
|
182,724
|
|||
|
Thereafter
|
188,208
|
|||
|
$
|
1,545,875
|
|||
Employment
Agreements
We have
an employment agreement with Mr. Damaj, our President and Chief Executive
Officer. Pursuant to that agreement, we may terminate Mr. Damaj’s employment
without cause on ten days notice, in which event severance pay equal to twelve
months’ base salary. Under the employment agreement, if we had
terminated Mr. Damaj effective December 31, 2009, based on his 2009
compensation, he would have been paid an aggregate of $300,000, his 2009 base
salary and $100,000 of which represents twice his accrued 2009
bonus. The employment agreement further provides that in the event
that within one year after a “Change of Control” (as defined therein) of the
Company occurs, and the President and Chief Executive Officer’s employment is
terminated or resigns for cause, the President and Chief Executive Officer will
be paid a lump sum amount equal to their base salary for a 12-month period
following termination or resignation. Based on this change of control provision,
if there had been a change of control of the Company in 2009 and the President
and Chief Executive Officer’s employment had terminated effective December 31,
2009, either for “Good Reason” or without cause, then the President and Chief
Executive Officer would be entitled to termination pay equal to
$300,000.
Other
The
Company was a party to clinical research agreements with a clinical research
organization (“CRO”) in connection with a one-year open-label study for
Vitaros with commitments by the Company that initially totaled
approximately $12.8 million. These agreements were amended in October
2005 such that the total commitment was reduced to approximately $4.2
million. These agreements provided that if the Company cancelled them
prior to 50% completion, the Company will owe the higher of 10% of the
outstanding contract amount prior to the amendment or 10% of the outstanding
amount of the amended contract at the time of cancellation. On
September 30, 2008, the clinical research agreements were cancelled as it was
determined that the one-year open-label study would no longer be required by the
FDA for regulatory approval of Vitaros. As such, a cancellation fee
of approximately $892,000 was accrued at September 30, 2008. Pursuant
to the terms of the clinical research agreement, the cancellation fee was not
payable until December 15, 2008. On each of December 31, 2008 and
March 31, 2009, the Company paid $300,000 toward the total cancellation
fee. The balance of approximately $292,000 was paid on July 7,
2009.
The
Company is a party to several short-term consulting and research agreements
that, generally, can be cancelled at will by either party.
We are
subject to certain legal proceedings in the ordinary course of business.
We do not expect any such items to have a significant impact on our financial
position.
|
17.
|
Segment
and Geographic Information
|
The
Company has two active business segments: designing and developing
pharmaceutical products and providing pre-clinical CRO services through its
subsidiary, Bio-Quant.
The
acquisition of Bio-Quant occurred on December 14, 2009 as discussed in Note 3
above. The revenue and expenses of Bio-Quant for the16 day period ended
December 31, 2009 are not material to present as a separate segment in
2009. Total assets of the CRO segment at December 31, 2009 are
approximately $15 million. Pro-forma information for NexMed and Bio-Quant
for the years ended December 31, 2009 and 2008 is shown in Note 3
above.
|
18.
|
Subsequent
Events
|
In
January 2010, the Company raised gross proceeds of $2.3 million in an offering
of unsecured promissory notes (the “2010 Notes”). The Notes accrue
interest at a rate of 10% per annum and are due and payable in full six months
from the date of issuance. The principal and accrued interest due under the
Notes is payable, at our election of the Company, in either cash or shares of
Common Stock, par value $0.001 per share (the “Shares”). The weighted
average conversion price of the Shares potentially issuable under the Notes is
$5.55 per Share, with the conversion prices ranging from $5.40 to $6.00 per
Share. Upon the maturity of the Notes, up to 416,216 Shares could
potentially be issued in satisfaction of the then outstanding principal and
accrued interest. The Notes may be prepaid at any time without
penalty.
On
January 26, 2010, the Company agreed to convert $397,988 of the outstanding
Convertible Notes (see Note 8) to Common Stock at a price of $7.50 per
share. As such, the Company issued 53,333 shares of Common Stock to the
note holders in repayment of such $397,988 principal amount plus
interest.
On March
17, 2010, the 2010 Notes were repaid in full with the issuance of 415,504 shares
of common stock to repay such $2.3 million principal amount and
interest.
On March
2, 2010, the Company held a special meeting of stockholders to approve an
amendment to the Company’s Amended and Restated Articles of Incorporation to
increase the number of shares of Common Stock authorized for issuance by the
Company from 8,000,000 shares to 18,000,000 shares. The proposal was
approved at the special meeting and the amendment was filed with the Nevada
Secretary of State on March 3, 2010.
On
January 11, 2010, the Company converted $297,568.72 of outstanding principal of
the Notes issued in connection with the Bio-Quant acquisition (see Note 9) to
Common Stock at $2.52 per share, the fixed conversion price pursuant to the
terms of the Notes. As such, the Company issued 140,500 shares of Common
Stock to the note holders in repayment of such $297,568.72 principal amount plus
interest.
On March
17, 2010, the Company converted $1,934,160 of outstanding principal of the Notes
issued in connection with the Bio-Quant acquisition (see Note 9) to Common Stock
at $2.52 per share, the fixed conversion price pursuant to the terms of the
Notes. As such, the Company issued 862,710 shares of Common Stock to the
note holders in repayment of such $1,934,160 principal amount plus
interest.
On March
15, 2010, the Company issued convertible notes (the “2010 Convertible Notes”) in
an aggregate principal amount of $4 million to the holders of the Convertible
Notes discussed in Note 8 above. The 2010 Convertible Notes are
collateralized by the Company’s facility in East Windsor, New Jersey and are due
on December 31, 2012. The proceeds were used to repay the Convertible
Notes then outstanding as discussed in Note 8 above. As such, the Company
received approximately $1.4 million in net proceeds.
The
Convertible Notes are payable in cash or convertible into shares of Common Stock
at $8.70 per share on or before the Due Date at the holders’ option.
The Convertible Notes have a coupon rate of 7% per annum, which is payable at
the Company’s option in cash or, if the Company’s net cash balance is less than
$3 million at the time of payment, in shares of Common Stock. If paid in
shares of Common Stock, then the price of the stock issued will be the lesser of
$1.20 below or 95% of the five-day weighted average of the market price of the
Common Stock prior to the time of payment. Such additional interest
consideration is considered contingent and therefore would only be recognized
upon occurrence.
The
Company had 8,460,152 shares of Common Stock issued and outstanding as of March
31, 2010, the date Annual Report on Form was filed with the SEC, as a result of
the repayment of the promissory notes in 2010 as discussed
above
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance
and Distribution.
The
expenses (other than placement agent fees) payable by us in connection with this
offering are as follows:
|
Amount
|
||||
|
Securities
and Exchange Commission registration fee
|
$ | 1,537 | ||
|
Financial
Industry Regulatory Authority, Inc. fee
|
$ | 1,150 | ||
|
Accountants’
fees and expenses
|
$ | 25,000 | ||
|
Legal
fees and expenses
|
$ | 150,000 | ||
|
Transfer
Agent’s fees and expenses
|
$ | 5,200 | ||
|
Printing
and engraving expenses
|
$ | 25,000 | ||
|
Miscellaneous
|
$ | 42,113 | ||
|
Total
Expenses
|
$ | 250,000 | ||
All
expenses are estimated except for the Securities and Exchange Commission fee and
the Financial Industry Regulatory Authority, Inc. fee.
Item 14. Indemnification of Directors
and Officers.
Our
officers and directors are indemnified under Nevada law, our Amended and
Restated Articles of Incorporation and our Second Amended and Restated By-Laws
as against certain liabilities. Our Amended and Restated Articles of
Incorporation require us to indemnify our directors and officers to the fullest
extent permitted by the laws of the State of Nevada in effect from time to time.
Our Second Amended and Restated By-Laws contain provisions that implement the
indemnification provisions of our Amended and Restated Articles of
Incorporation.
Pursuant
to Article X of our Amended and Restated Articles of Incorporation, none of our
directors or officers shall be personally liable to us or our stockholders for
damages for breach of fiduciary duty as a director or officer, except for (1)
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law or (2) the payment of dividends in violation of the applicable
statutes of Nevada. This Article X also says that if Nevada law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors or officers, the liability of a director or officer of
the corporation shall be eliminated or limited to the fullest extent permitted
by Nevada law, as so amended from time to time. Pursuant to Section 8.1 of our
Amended and Restated By-Laws, no officer or director shall be personally liable
for any obligations arising out of any of his or her acts or conduct performed
for or on our behalf. Nevada Revised Statutes Section 78.138 currently provides
that, except as otherwise provided in the Nevada Revised Statutes, a director or
officer shall not be individually liable to us or our stockholders or creditors
for any damages as a result of any act or failure to act in his or her capacity
as a director or officer unless it is proven that (i) the director’s or
officer’s acts or omissions constituted a breach of his or her fiduciary duties
as a director or officer and (ii) such breach involved intentional misconduct,
fraud or a knowing violation of the law.
Pursuant
to Article XI of our Amended and Restated Articles of Incorporation, we shall
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, by reason of
the fact that he or she is or was or has agreed to become a director or officer
of our company or is serving at our request as a director or officer of another
entity or enterprise or by reason of actions alleged to have been taken or
omitted in such capacity or in any other capacity while serving as a director or
officer, to the fullest extent permitted by applicable law, against any and all
loss, liability and expenses, including attorneys’ fees, costs, damages,
judgments, fines, amounts paid in settlement, and ERISA excise taxes or
penalties, actually and reasonably incurred by such person in connection with
such action, suit or proceeding, including any appeal. This right to
indemnification shall continue for any person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, next of kin,
executors, administrators and legal representatives.
Article
XI of our Amended and Restated Articles of Incorporation also provides that we
shall pay the expenses of directors and officers incurred as a party to any
threatened, pending or completed action, suit or proceeding, as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, but, if applicable law so requires, only upon receipt by us of an
undertaking from the director or officer to repay the advanced amounts in the
event it is ultimately determined by a final decision, order or decree of a
court of competent jurisdiction that the director or officer is not entitled to
be indemnified for such expenses.
Section
8.1 of our Second Amended and Restated By-Laws requires us to indemnify and hold
harmless each person and his or her heirs and administrators who shall serve at
any time as a director or officer from and against any and all claims, judgments
and liabilities to which such persons shall become subject by any reason of his
or her having been a director or officer or by reason of any action alleged to
have been taken or omitted to have been taken by him or her as such director or
officer, and shall reimburse each such person for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or
liability, including power to defend such person from all suits as provided for
under the provisions of the Nevada Revised Statutes; provided, however, that no
such person shall be indemnified against, or be reimbursed for, any expense
incurred in connection with any claim or liability arising out of his or her own
negligence or willful misconduct. We, our directors, officers, employees and
agents shall be fully indemnified in taking any action or making any payment or
in refusing to do so in reasonable reliance upon the advice of
counsel.
Section
78.7502 of the Nevada Revised Statutes permits a corporation to indemnify a
present or former director, officer, employee or agent of the corporation, or of
another entity or enterprise for which such person is or was serving in such
capacity at the request of the corporation, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, except an action by or in the right of the corporation,
against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection therewith, arising
by reason of such person’s service in such capacity if such person (i) is not
liable pursuant to Section 78.138 of the Nevada Revised Statutes, or (ii) acted
in good faith and in a manner which he or she reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to a
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of actions brought by or in the right of the
corporation, however, no indemnification may be made for any claim, issue or
matter as to which such person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section
78.751 of the Nevada Revised Statutes permits any discretionary indemnification
under Section 78.7502 of the Nevada Revised Statutes, unless ordered by a court
or advanced to a director or officer by the corporation in accordance with the
Nevada Revised Statutes, to be made by a corporation only as authorized in each
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The determination of
indemnification must be made (1) by the stockholders, (2) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding, (3) if a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding
so orders, by independent legal counsel in a written opinion, or (4) if a quorum
consisting of directors who were not parties to the action, suit or proceeding
cannot be obtained, by independent legal counsel in a written
opinion.
We also
maintain directors and officers liability insurance with Carolina Casualty
Insurance Company and RSUI Indemnity Company with total liability limits of
$10,000,000 per occurrence and in the aggregate. With some exceptions (fraud and
Section 16(b) violations, for example) this coverage extends to most securities
law claims.
Item 15. Recent Sales of Unregistered
Securities.
In the
three years preceding the filing of this registration statement, we have sold
and issued the following unregistered securities:
On
October 26, 2007, we issued an 8% senior secured promissory note in the
principal amount of $3,000,000 and a warrant to purchase 30,000 shares of our
common stock at an exercise price of $22.80 to an investor. The warrant
was initially exercisable for 23,333 shares and the remaining 6,667 shares were
to vest if the note had remained outstanding on October 26, 2008. As of
June 30, 2008, the warrant for the remaining 6,667 shares was cancelled.
The note and warrant were issued in reliance upon an exemption from registration
as provided by Rule 506 of Regulation D.
On May
12, 2008, we entered into a binding commitment for a $3,000,000 equity line with
an investor, pursuant to which we could draw down on the equity line and repay
such funds in the form of shares of our common stock at the investor’s option,
which share repayment shall equal the amount of the drawdown divided by
$15.15. In addition, we issued a warrant to purchase 16,667 shares of our
common stock at an exercise price of $15.15 to the investor. No draw downs
were made on the equity line and the equity line has since been
withdrawn.
On June
30, 2008, we issued 7% convertible promissory notes to two investors for an
aggregate principal amount of $5,750,000. The notes may be repaid in
shares of our common stock, subject to certain exceptions, at the lesser of
$1.20 less than, or a price of 95% of, a five-day weighted average of the market
price of our common stock prior to the time of payment. In addition, the
notes are convertible into shares of our common stock, with $4,750,000
convertible at $30.00 per share on or before the due date and $1,000,000
convertible at $26.25 per share on or before December 31, 2008. On May 27,
2009, we issued 43,960 shares of common stock at a price of $3.45 per share to
the note holders in repayment of $150,000 principal amount plus interest.
On June 11, 2009, we issued 32,710 shares of common stock at a price of $3.45
per share to the note holders in repayment of $150,000 principal amount plus
interest. On July 23, 2009, we issued 125,559 shares of common stock a
price of $2.40 per share to the note holders in repayment of $300,000 principal
amount plus interest. On July 29, 2009, we issued 44,695 shares of common
stock at a price of $2.25 per share to the note holders in repayment of $100,000
principal amount plus interest. On September 16, 2009, we issued 157,915
shares of common stock at a price of $2.25 share to the note holders in
repayment of $350,000 principal amount plus interest. On October 14, 2009,
we issued 146,230 shares of common stock at a price of $2.40 per share to the
note holders in repayment of $350,000 principal amount plus interest. On
October 15, 2009, we issued 111,435 shares of common stock at a price of $2.25
per share to the note holders in repayment of $250,000 principal amount plus
interest. On November 10, 2009, we issued additional notes (the “November
Notes”) to the existing investors for an aggregate principal amount of $750,000
and also amended the existing notes such that the conversion price of $750,000
in principal amount of the notes changed from $30.00 per share to $2.10 per
share. On November 24, December 7, 9 and 14, 2009, we issued 361,319
shares of common stock to the note holders in repayment of $500,000, $125,000,
$35,000 and $90,000, respectively, for a total of $750,000 in principal amount
plus interest pursuant to the November 10, 2009 amendment to the existing
notes. On January 26, 2010, we issued 53,333 shares of common stock at a
price of $7.50 per share to the note holders in repayment of $397,988 principal
amount plus interest. The remaining balances outstanding on the existing
notes and the November Notes were repaid in full on March 15, 2010.
On
December 14, 2009, we entered into the merger agreement with Bio-Quant, Inc.
Pursuant to the agreement, at the effective time of the merger, each outstanding
share of common stock of Bio-Quant was cancelled and converted into the right to
receive 913.96 shares of our common stock as well as a promissory note in the
original principal amount of $2,771.37. In connection with the closing of
the merger, we issued an aggregate of 4,000,000 shares of common stock and
promissory notes in the aggregate original principal amount of $12,129,010 to
the shareholders of Bio-Quant. A portion of such shares of common stock
were placed in escrow to satisfy potential indemnification claims arising under
the merger agreement. The principal and accrued interest on the notes may
be payable in shares of our common stock valued at the fixed price of $2.52 per
share. On January 11, 2010, we issued 140,500 shares of common stock to
the note holders in repayment of $261,016 principal amount plus interest.
On March 17, 2010, we issued 862,710 shares of common stock to the note holders
in repayment of $1,969,185 principal amount plus interest. On June 21,
2010, the promissory notes were repaid in full with the issuance of 3,639,410
shares of our common stock to repay the remaining outstanding principal amount
of $10,159,825 plus interest. With respect to shareholders of Bio-Quant who were
not “U.S. persons,” as defined in Regulation S promulgated under the Securities
Act of 1933, as amended (the “Securities Act”), the shares and the notes were
issued in an offshore transaction exempt from registration under Regulation
S.
Commencing
January 22, 2010, we entered into subscription agreements for unsecured
promissory notes in an aggregate principal amount of approximately $2,300,000
with certain investors. The notes may be repaid in shares of our common
stock. The weighted average conversion price of the notes was $5.55 per
share, with the conversion prices ranging from $5.40 per share to $6.00 per
share. On March 17, 2010, the notes were repaid in full with the issuance
of 415,504 shares of our common stock.
On March
15, 2010, we issued 7% convertible promissory notes to three investors for an
aggregate principal amount of $4,000,000. The notes are convertible into
shares of our common stock at $8.70 per share, which may be subject to
adjustment, on or before the maturity date of December 31, 2012 at the holders’
option. The notes have a coupon rate of 7% per annum, which is payable in
shares of common stock if our net cash balance is less than $3 million at the
time of payment. If interest is paid in shares, then the price of the
stock issued will be the lesser of $1.20 below, or 95% of, the five-day weighted
average of the market price of our common stock prior to the time of
payment. On June 3, 2010, the conversion price of the notes was adjusted
to $8.58 per share. The notes were issued in reliance upon an exemption
from registration as provided by Rule 506 of Regulation D.
No
underwriters were used in the foregoing transactions. Unless otherwise
stated, the sales of securities described above were deemed to be exempt from
registration pursuant to Section 4(2) of the Securities Act as transactions by
an issuer not involving a public offering. All of the purchasers in these
transactions represented to us in connection with their purchase that they were
acquiring the securities for investment and not distribution, that they could
bear the risks of the investment and could hold the securities for an indefinite
period of time. Such purchasers received written disclosures that the
securities had not been registered under the Securities Act and that any resale
must be made pursuant to a registration or an available exemption from such
registration. All of the foregoing securities are deemed restricted securities
for the purposes of the Securities Act.
Item 16. Exhibits and Financial
Statement Schedules.
(a) Exhibits.
See the
Exhibit Index on the page immediately following the signature page for a
list of exhibits filed as part of this registration statement on Form S-1,
which Exhibit Index is incorporated herein by reference.
Item 17.
Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
(iii)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That,
for the purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 in a
primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the 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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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, as amended, 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 this 13th day of September, 2010.
|
APRICUS
BIOSCIENCES, INC.
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|||
|
By:
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/s/
Bassam Damaj
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||
|
Name:
|
Bassam
B. Damaj
|
||
|
Title:
|
President,
Chief Executive Officer and
Director
|
||
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
|||
|
President,
Chief Executive Officer and
|
September
13, 2010
|
||||
|
/s/
Bassam Damaj
|
Director
(Principal Executive Officer)
|
||||
|
Bassam
B. Damaj, Ph.D.
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|||||
|
Chief
Financial Officer (Principal Financial
|
September
13, 2010
|
||||
| /s/ Mark Westgate |
Officer
and Principal Accounting Officer)
|
||||
|
Mark
Westgate
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|||||
|
September
13, 2010
|
|||||
|
*
|
Director
|
||||
|
Roberto
Crea
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|||||
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September
13, 2010
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|||||
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*
|
Executive
Vice President and Director
|
||||
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Henry
J. Esber
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|||||
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September
13, 2010
|
|||||
| * |
Director
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||||
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Deirdre
Y. Gillespie
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|||||
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Executive
Vice President, Chairman and
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September
13, 2010
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||||
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*
|
Director
|
||||
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Vivian
H. Liu
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|||||
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September
13, 2010
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|||||
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*
|
Director
|
||||
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Leonard
A. Oppenheim
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|||||
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September
13, 2010
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|||||
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*
|
Director
|
||||
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Russell
Ray
|
|
|
|||
| * By: | /s/ Mark Westgate | ||||
| Mark Westgate | |||||
| (Attorney-in-fact) | |||||
EXHIBIT LIST
|
EXHIBITS
NO.
|
DESCRIPTION
|
|
|
2.1
|
Agreement
and Plan of Merger by and among the Company, BQ Acquisition Corp.,
Bio-Quant, Inc., and certain other parties listed therein, dated as of
November 20, 2009 (incorporated herein by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 23, 2009).
|
|
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3.1
|
Amended
and Restated Articles of Incorporation of the Company (incorporated herein
by reference to Exhibit 2.1 to the Company’s Registration Statement on
Form 10-SB filed with the Securities and Exchange Commission on March 14,
1997).
|
|
|
3.2
|
Certificate
of Amendment to Articles of Incorporation of the Company, dated June 22,
2000 (incorporated herein by reference to Exhibit 3.2 to the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 31, 2003).
|
|
|
3.3
|
Certificate
of Amendment to the Company’s Articles of Incorporation, dated June 14,
2005 (incorporated herein by reference to Exhibit 3.4 to the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 16, 2006).
|
|
|
3.4
|
Certificate
of Amendment to Amended and Restated Articles of Incorporation of the
Company, dated March 3, 2010 (incorporated herein by reference to Exhibit
3.6 to the Company’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 31, 2010).
|
|
|
3.5
|
Certificate
of Correction to Certificate of Amendment to Amended and Restated Articles
of Incorporation of the Company, dated March 3, 2010 (incorporated herein
by reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31,
2010).
|
|
|
3.6
|
Certificate
of Change filed with the Nevada Secretary of State (incorporated herein by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K with
the Securities Exchange Commission on June 17,
2010).
|
|
| 3.7 | Certificate of Amendment to Amended and Restated Articles of Incorporation of the Company, dated September 10, 2010 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2010). | |
| 3.8 | Third Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2010). | |
|
4.1
|
Form
of Common Stock Certificate (incorporated herein by reference to Exhibit
3.1 filed with the Company’s Registration Statement on Form 10-SB filed
with the Securities and Exchange Commission on March 14,
1997).
|
|
|
4.2
|
Form
of Warrant, dated November 30, 2006 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 4,
2006).
|
|
|
4.3
|
Form
of Warrant, dated December 20, 2006 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 21,
2006).
|
|
|
4.4
|
Form
of Warrant, dated October 26, 2007 (incorporated herein by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 31,
2007).
|
|
|
4.5
|
Form
of Warrant (incorporated herein by reference to Exhibit 4.4 to the
Company’s Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on July 29,
2008).
|
|
4.6
|
Form
of Warrant.
|
|
|
5.1
|
Opinion
of Brownstein Hyatt Farber Schreck, LLP (to be filed by
amendment).
|
|
|
10.1*
|
Amended
and Restated NexMed, Inc. Stock Option and Long-Term Incentive
Compensation Plan (incorporated herein by reference to Exhibit 10.1 filed
with the Company’s Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on May 15, 2001).
|
|
|
10.2*
|
The
NexMed, Inc. Recognition and Retention Stock Incentive Plan (incorporated
herein by reference to Exhibit 99.1 filed with the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
May 28, 2004).
|
|
|
10.3
|
License
Agreement dated March 22, 1999 between NexMed International Limited and
Vergemont International Limited (incorporated herein by reference to
Exhibit 10.7 of the Company’s Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on March 16,
2000).
|
|
|
10.4*
|
Employment
Agreement dated February 26, 2002 by and between the Company and Dr.
Y. Joseph Mo (incorporated herein by reference to Exhibit 10.7 of the
Company’s Form 10-K filed with the Securities and Exchange Commission on
March 29, 2002).
|
|
|
10.5*
|
Amendment
to Employment Agreement, dated September 26, 2003, by and between Dr. Y.
Joseph Mo and the Company (incorporated herein by reference to Exhibit
10.4 to the Company’s Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 12,
2003).
|
|
|
10.6*
|
Stock
Option Grant Agreement between the Company and Leonard A. Oppenheim dated
November 1, 2004 (incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 9, 2004).
|
|
|
10.7*
|
Form
of Stock Option Grant Agreement between the Company and its Directors
(incorporated herein by reference to Exhibit 10.29 to the Company’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
March 16, 2005).
|
|
|
10.8+
|
License
Agreement, dated September 13, 2005, by and among the Company, NexMed
International Limited and Novartis International Pharmaceutical Ltd.
(incorporated herein by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
September 15, 2005).
|
|
|
10.9*
|
Employment
Agreement, dated December 15, 2005, by and between the Company and Mark
Westgate (incorporated herein by reference to Exhibit 10.31 to the
Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 16, 2006).
|
|
|
10.10*
|
NexMed,
Inc. 2006 Stock Incentive Plan (incorporated herein by reference to Annex
A of the Company’s Definitive Proxy Statement filed with the Securities
and Exchange Commission on April 6, 2006).
|
|
|
10.11
|
Securities
Purchase Agreement, dated November 30, 2006, by and among the Company,
NexMed (U.S.A.), Inc. and Metronome LPC 1, Inc. (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on December 4,
2006).
|
|
|
10.12
|
Common
Stock and Warrant Purchase Agreement, dated December 20, 2006
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
December 21, 2006).
|
|
|
10.13
|
Amendment
to License Agreement, effective as of February 13, 2007, by and among
Novartis International Pharmaceutical Ltd., the Company and NexMed
International Limited (incorporated herein by reference to Exhibit 99.1 to
the Company’s Form 8-K filed with the Securities and Exchange Commission
on February 23,
2007).
|
|
10.14
+
|
License
Agreement, dated November 1, 2007, by and between the Company and Warner
Chilcott Company, Inc. (incorporated herein by reference to Exhibit 10.31
to the Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 12, 2008).
|
|
|
10.15
|
Purchase
Agreement, dated October 26, 2007, by and between the Company and Twin
Rivers Associates, LLC (incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 31, 2007).
|
|
|
10.16
|
Senior
Secured Note dated October 26, 2007, between NexMed, Inc. and Twin Rivers
Associates, LLC (incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report 8-K filed with the Securities and Exchange
Commission on October 31, 2007).
|
|
|
10.17
|
Side
Letter, dated June 26, 2008, to License Agreement by and among Novartis
International Pharmaceutical Ltd., the Company and NexMed International
Limited (incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 2008).
|
|
|
10.18*
|
NexMed,
Inc. Amendment to 2006 Stock Incentive Plan (incorporated by reference to
Appendix A of the Company’s Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 18,
2008).
|
|
|
10.19
|
Asset
Purchase Agreement, dated February 3, 2009, between Warner Chilcott
Company, Inc. and the Company (incorporated herein by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 5, 2009).
|
|
|
10.20
|
License
Agreement, dated February 3, 2009, between Warner Chilcott Company, Inc.
and the Company (incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 5, 2009).
|
|
|
10.21*
|
Amended
and Restated Employment Agreement, dated December 14, 2009, by and between
NexMed, Inc. and Vivian H. Liu (incorporated herein by reference to
Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31,
2010).
|
|
|
10.22*
|
Employment
Agreement, dated December 14, 2009, by and between NexMed, Inc. and Bassam
Damaj, Ph.D. (incorporated herein by reference to Exhibit 10.43 to the
Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 31, 2010).
|
|
|
10.23
|
Purchase
Agreement, dated March 15, 2010, by and between NexMed, Inc. and the
Purchasers named therein (incorporated herein by reference to Exhibit
10.44 to the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31,
2010).
|
|
|
10.24
|
Registration
Rights Agreement, dated March 15, 2010 (incorporated herein by reference
to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31,
2010).
|
|
|
10.25
|
Form
of 7% Convertible Note Due December 31, 2012 (incorporated herein by
reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31,
2010).
|
|
|
10.26
|
NexMed,
Inc. Subscription Agreement and Instructions (incorporated herein by
reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31,
2010).
|
|
|
10.27
|
Form
of Unsecured Promissory Note (incorporated herein by reference to Exhibit
10.48 to the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31,
2010).
|
|
|
10.28
|
Sales
Agreement, dated as of April 21, 2010, by and between the Company and
Brinson Patrick Securities Corporation (incorporated herein by reference
to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on April 21,
2010).
|
|
10.29
|
Engagement
Letter by and between the Company and Dawson James Securities, Inc. dated
as of August 16, 2010.
|
|
|
10.30
|
Form
of Warrant Agent Agreement (to be filed by
amendment).
|
|
| 10.31 | Form of Lock-Up Agreement. | |
|
21.1
|
Subsidiaries
(incorporated herein by reference to Exhibit 21 to the Company’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
March 31, 2010).
|
|
|
23.1
|
Consent
of Amper, Politziner & Mattia, LLP, independent registered
public accounting firm.
|
|
|
23.2
|
Consent
of Brownstein Hyatt Farber Schreck, LLP (included in Exhibit 5.1) (to be
filed by amendment).
|
|
|
24.1
|
Power
of Attorney (previously
filed).
|
|
*
|
Management
compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 15(c) of Form
10-K.
|
|
+
|
Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment with the Securities and Exchange Commission. Such portions have
been filed separately with the Securities and Exchange
Commission.
|
II-10