Attached files
file | filename |
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EX-3.1 - Arno Therapeutics, Inc | v201326_ex3-1.htm |
EX-3.3 - Arno Therapeutics, Inc | v201326_ex3-3.htm |
EX-4.5 - Arno Therapeutics, Inc | v201326_ex4-5.htm |
EX-5.1 - Arno Therapeutics, Inc | v201326_ex5-1.htm |
EX-4.3 - Arno Therapeutics, Inc | v201326_ex4-3.htm |
EX-4.4 - Arno Therapeutics, Inc | v201326_ex4-4.htm |
EX-23.1 - Arno Therapeutics, Inc | v201326_ex23-1.htm |
EX-23.2 - Arno Therapeutics, Inc | v201326_ex23-2.htm |
EX-10.11 - Arno Therapeutics, Inc | v201326_ex10-11.htm |
EX-10.13 - Arno Therapeutics, Inc | v201326_ex10-13.htm |
EX-10.14 - Arno Therapeutics, Inc | v201326_ex10-14.htm |
As filed with the Securities and Exchange
Commission on November 8, 2010
|
Registration No.
333-
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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ARNO THERAPEUTICS,
INC.
(Exact name of registrant as specified
in its charter)
Delaware
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2834
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52-2286452
|
||
(State
or other jurisdiction of incorporation or
organization)
|
(Primary
Standard Industrial Classification
Code
Number)
|
(I.R.S.
Employer
Identification
No.)
|
4
Campus Drive, 2nd
Floor
Parsippany,
New Jersey 07054
(862)
703-7170
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
David
M. Tanen
|
Copies
to:
|
President
|
Christopher
J. Melsha, Esq.
|
Arno
Therapeutics, Inc.
|
Sean
M. Nagle, Esq.
|
4
Campus Drive, 2nd Floor
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Fredrikson
& Byron, P.A.
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Parsippany,
NJ 07054
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200
South Sixth Street, Suite 4000
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(862)
703-7170
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Minneapolis,
MN 55402-1425
|
(Name,
address, including zip code, and telephone number,
|
Telephone:
(612) 492-7000
|
including
area code, of agent for service)
|
Facsimile:
(612) 492-7077
|
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this registration statement, as shall be determined by the
selling stockholders identified herein.
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, as
amended, check the following box. þ
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 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.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company þ
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
|
Amount
to be
Registered
(1)
|
Proposed
Maximum
Offering
Price
Per Share (2)
|
Proposed
Maximum
Aggregate
Offering
Price (2)
|
Amount
of
Registration
Fee
|
||||||||||||
Common
stock, par value $0.0001 per share
|
18,121,901 | $ | 0.51 | $ | 9,242,169.51 | $ | 658.97 | |||||||||
Common
stock, par value $0.0001 per share (3)
|
8,693,930 | $ | 0.51 | $ | 4,433,904.30 | $ | 316.14 | |||||||||
Total
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26,815,831 | $ | 13,676,073.81 | $ | 975.10 |
(1)
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There
is also being registered hereunder an indeterminate number of additional
shares of common stock as shall be issuable pursuant to Rule 416 to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.
|
(2)
|
Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457(c) of the Securities Act of 1933, as amended, based upon the
average of the high and low price of our common stock on April 9, 2010,
the most recent date on which shares were traded on the Pink
Sheets.
|
(3)
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Represents
shares of common stock issuable upon exercise of outstanding
warrants.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
Subject
to completion, dated November 8, 2010
OFFERING
PROSPECTUS
26,815,831
Shares
Common
Stock
The selling stockholders identified
beginning on page 20 of this prospectus are offering on a resale basis a total
of 26,815,831 shares of our common stock, of which 15,655,844 shares are
issuable upon the conversion of our outstanding Series A Convertible Preferred
Stock (including up to 381,844 shares of common stock that may be issuable as
payment of accrued dividends upon conversion of our Series A Convertible
Preferred Stock) and 8,693,930 shares are issuable upon the exercise of
outstanding warrants. We will not receive any proceeds from the sale of
these shares by the selling stockholders.
Our common stock is quoted on the
“Pink Sheets” quotation system under the symbol
“ARNI.PK.” On ,
2010, the last sale price of our common stock as reported on the Pink Sheets was
$ .
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 7.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined that this prospectus
is truthful or complete. A representation to the contrary is a criminal
offense.
The
date of this prospectus
is ,
2010.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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3
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RISK
FACTORS
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7
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NOTE
REGARDING FORWARD-LOOKING STATEMENTS
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19
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USE
OF PROCEEDS
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20
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SELLING
STOCKHOLDERS
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20
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PLAN
OF DISTRIBUTION
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24
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DESCRIPTION
OF CAPITAL STOCK
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27
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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28
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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30
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OUR
BUSINESS
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36
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MANAGEMENT
AND BOARD OF DIRECTORS
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52
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TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS
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62
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WHERE
YOU CAN FIND MORE INFORMATION
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62
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VALIDITY
OF COMMON STOCK
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62
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EXPERTS
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62
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TRANSFER
AGENT
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62
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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63
|
FINANCIAL
STATEMENTS
|
F-1
|
2
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it may not contain all of the information that is
important to you. Accordingly, you are urged to carefully review this
prospectus in its entirety, including the risks of investing in our securities
discussed under the caption “Risk Factors” and the financial statements and
other information that is contained in or incorporated by reference
into this prospectus or the registration statement of which this
prospectus is a part before making an investment decision. Unless the
context otherwise requires, hereafter in this prospectus the terms the
“Company,” “we,” “us,” or “our” refer to Arno Therapeutics, Inc., a Delaware
corporation.
Company
Overview
We are a development stage company
focused on developing innovative products for the treatment of cancer. We
currently have the exclusive worldwide rights to commercially develop three
oncology product candidates:
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·
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AR-12
– Our lead clinical product candidate is a potentially first-in-class,
orally available, targeted anti-cancer agent that inhibits
phosphoinositide dependent protein kinase-1, or PDK-1, a protein in the
PI3K/Akt pathway involved in the growth and proliferation of cells,
including cancer cells. We believe AR-12 may also cause cell death
through the induction of stress in the endoplasmic reticulum. In May 2009,
the FDA accepted our investigational new drug application, or IND, for
AR-12. We are currently conducting a multi-centered Phase I clinical
study of AR-12 in adult patients with advanced or recurrent solid tumors
or lymphoma. The Phase I study of AR-12 is being
conducted in two parts. The first part is a dose-escalating study,
which we refer to as the Escalation Phase, primarily designed to evaluate
the compound’s safety in order to identify the maximum tolerated dose, or
MTD, or a recommended dose, or RD, for future studies of AR-12. We
anticipate that the Escalation Phase will be completed by the third
quarter of 2011. Following the Escalation Phase, we plan to initiate
the second part of the study, which involves enrolling an expanded cohort
of additional patients at the MTD or RD in multiple tumor types. We
refer to this second part of the study as the Expansion Phase. The purpose
of the Expansion Phase is to further evaluate and confirm the PD effects,
potential anti-tumor activity, and safety of AR-12 at the MTD or RD.
We anticipate that the Expansion Phase will be fully enrolled within one
year.
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·
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AR-42
– We are also developing AR-42, an orally available, broad spectrum
inhibitor of both histone and non-histone deacetylation proteins, which
play an important role in the regulation of gene expression, cell growth
and survival. In preclinical studies, AR-42 has demonstrated greater
potency and activity in solid and liquid tumors when compared to
vorinostat (also known as SAHA and marketed as Zolinza® by
Merck) and other deacetylase inhibitors. These data demonstrate the potent
and differentiating activity of AR-42. Additionally, pre-clinical findings
presented at the 2009 American Society of Hematology Annual Meeting and
Exposition showed that AR-42 potently and selectively inhibits leukemic
stem cells in acute myeloid leukemia, or AML. AR-42 is currently
being studied in an investigator initiated Phase I/IIa clinical study in
adult patients with relapsed or refractory multiple myeloma, chronic
lymphocytic leukemia, or CLL, or lymphoma. Once the MTD is defined,
the study is designed so that additional patients can be added to
investigate efficacy in a particular disease and help guide future Phase
II programs. Up to an additional 10 patients may be enrolled at the
MTD dose in each of the multiple myeloma, CLL and
lymphoma.
|
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·
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AR-67
– We are also developing AR-67, a novel, third-generation campothecin
analogue that inhibits Topoisomerase I activity. In 2008, we completed a
multi-centered, ascending dose Phase I clinical trial of AR-67 in patients
with advanced solid tumors. AR-67 is currently being studied in a
Phase II clinical trial in patients with glioblastoma
multiforme, or GBM, a highly aggressive form of brain cancer. We
anticipate having interim data from this Phase II study by the second
quarter of 2011. Thereafter, if data permits, we may elect to
initiate larger Phase II studies or advance AR-67 into a
registration-enabling Phase III
study.
|
3
In June 2008, we were acquired by
Laurier International, Inc., a Delaware corporation, in a “reverse” merger
whereby a wholly-owned subsidiary of Laurier merged with and into Arno
Therapeutics, with Arno Therapeutics remaining as the surviving corporation and
a wholly-owned subsidiary of Laurier. In accordance with the terms of this
merger, stockholders of Arno Therapeutics exchanged all of their shares of
common stock of Arno Therapeutics for shares of Laurier common stock at a rate
of 1.99377 shares of Laurier common stock for each share of Arno Therapeutics
common stock. As a result of the issuance of the shares of Laurier common stock
to the former Arno Therapeutics stockholders, following the merger the former
stockholders of Arno Therapeutics held 95 percent of the outstanding common
stock of Laurier, assuming the issuance of all shares underlying outstanding
options and warrants. Upon completion of the merger, all of the former
officers and directors of Laurier resigned and were replaced by the officers and
directors of Arno Therapeutics. Additionally, following the merger Laurier
changed its name to Arno Therapeutics, Inc.
In May 2009, we voluntarily filed a
Form 15 with the Securities and Exchange Commission in order to terminate the
registration of our common stock under the Securities and Exchange Act of 1934,
as amended, or the Exchange Act. As a result, our obligation to file
periodic and other reports under the Exchange Act was suspended. Following
the effective date of the registration statement of which this prospectus forms
a part, we will again be required to file periodic and other reports under the
Exchange Act.
Our executive offices are located at 4
Campus Drive, 2nd Floor,
Parsippany, New Jersey 07054. Our telephone number is (862)
703-7170. Our website is www.arnothera.com.
Information contained in, or accessible through, our website does not constitute
a part of this prospectus.
Risk
Factors
As with most pharmaceutical product
candidates, the development of our product candidates is subject to
numerous risks, including the risk of delays in or discontinuation of
development from lack of financing, inability to obtain necessary regulatory
approvals to market the products, unforeseen safety issues relating to the
products and dependence on third party collaborators to conduct research and
development of the products. Because we are a development stage company
with a very limited history of operations, we are also subject to many risks
associated with early-stage companies. For a more detailed discussion of
some of the risks you should consider before purchasing shares of our common
stock, you are urged to carefully review and consider the section entitled “Risk
Factors” beginning on page 7 of this prospectus.
The
Offering
The selling stockholders identified
beginning on page 20 of this prospectus are offering on a resale basis a total
of 26,815,831 shares of our common stock, of which 15,655,844 shares are
issuable upon the conversion of our outstanding Series A Convertible Preferred
Stock (including up to 381,844 shares of common stock that may be issuable as
payment of accrued dividends upon conversion of our Series A Convertible
Preferred Stock) and 8,693,930 shares are issuable upon the exercise of
outstanding warrants.
Common
stock offered
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26,815,831
shares
|
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Common
stock outstanding before the offering(1)
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20,412,024
shares
|
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Common
stock outstanding after the offering(2)
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44,761,798
shares
|
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Use
of Proceeds
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We
will receive none of the proceeds from the sale of the shares by the
selling stockholders, except for the warrant exercise price upon exercise
of the warrants, which would be used for working capital and other general
corporate purposes
|
|
Pink
Sheets Symbol
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ARNI.PK
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(1)
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Based
on the number of shares outstanding as of October 31, 2010, not including
2,258,555 shares issuable upon exercise of various warrants and options to
purchase our common stock or any Shares of Series A Preferred Stock or
warrants to purchase Series A Preferred
Stock.
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4
(2)
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Assumes
the issuance of all shares offered hereby that are issuable upon the
conversion of our outstanding Series A Convertible Preferred Stock or upon
exercise of warrants. Also assumes six months of dividend accrual at
the rate of 5% per annum prior to the automatic conversion of the Series A
Convertible Preferred Stock into common stock upon the effectiveness of
the registration statement of which this prospectus is a part, and our
election to pay such accrued dividends in the form of additional shares of
common stock in lieu of cash. See “Description of Capital Stock –
Series A Convertible Preferred
Stock.”
|
Recent
Developments
On September 3, 2010, we entered into a
Securities Purchase and Registration Rights Agreement, or the Purchase
Agreement, with a number of institutional and accredited investors pursuant to
which we sold in a private placement an aggregate of 15,274,000 shares of our
newly-designated Series A Convertible Preferred Stock, par value $0.0001 per
share, or Series A Preferred Stock, at a per share purchase price of
$1.00. In accordance with the Purchase Agreement, we also issued to each
investor a two-and-one-half-year warrant to purchase a number of additional
shares of Series A Preferred Stock equal to 8% of the number of shares purchased
by such investor at an initial exercise price of $1.00 per share. We
collectively refer to these warrants as the Class A Warrants. In addition
to the Class A Warrants, each investor also received a five-year warrant to
purchase a number of additional shares of Series A Preferred Stock equal to 42%
of the number of shares purchased by such investor at an initial exercise price
of $1.15 per share, which we collectively refer to as the Class B
Warrants. Pursuant to the Purchase Agreement, we issued to the investors
Class A Warrants to purchase an aggregate of 1,221,920 shares of Series A
Preferred Stock, and Class B Warrants to purchase an aggregate of 6,415,080
shares of Series A Preferred Stock. The sale of the shares and warrants
resulted in aggregate gross proceeds of approximately $15.2 million, before
deducting expenses.
Pursuant to the terms of the Purchase
Agreement, we agreed to file a registration statement under the Securities Act
of 1933, as amended, covering the resale of the shares of our common stock
issuable upon conversion of the Series A Preferred Stock sold in the private
placement, including the shares issuable upon exercise of the Class A and Class
B Warrants. We further agreed to use our reasonable best efforts to cause
such registration statement to be declared effective within 180 days following
the initial closing under the Purchase Agreement, or by March 8, 2011. If
such registration statement is not declared effective by the SEC by such date,
we agreed to pay liquidated damages to the investors in the amount of 1% of each
investor’s aggregate investment amount for each 30-day period until the
registration statement is declared effective. The registration statement
of which this prospectus is a part registers the shares of our common stock
issuable upon conversion of the Series A Preferred Stock sold in the private
placement and upon exercise of the Class A and Class B Warrants following their
conversion into warrants to purchase shares of common stock. Upon the
effectiveness of such registration statement, all outstanding shares of Series A
Preferred Stock will automatically convert into shares of our common stock, and
all outstanding warrants to purchase shares of Series A Preferred Stock will
automatically convert into warrants to purchase shares of our common
stock.
In connection with the private
placement, we engaged Riverbank Capital Securities, Inc., or Riverbank, to serve
as placement agent. In consideration for its services, we paid Riverbank a
placement fee of $789,880, and we paid I-Bankers Securities, Inc., or I-Bankers,
Riverbank’s sub-agent, a placement fee of $267,050. In addition, we issued
to designees of Riverbank and I-Bankers five-year warrants to purchase an
aggregate of 664,880 and 392,050 shares, respectively, of Series A Preferred
Stock at an initial exercise price of $1.10 per share. The warrants issued to
Riverbank and I-Bankers are in substantially the same form as the Class A and
Class B Warrants issued to the investors, except that they do not include
certain anti-dilution provisions contained in the Class A and Class B
Warrants. David M. Tanen, our President, Secretary, and a member of our
Board of Directors, Peter M. Kash, also a member of our Board of Directors, and
Joshua A. Kazam, who served as a director until September 2010, are each
officers of and collectively control Riverbank.
5
The Purchase Agreement provides that
the three co-lead investors in the private placement each have the right to
designate one individual to be appointed to our board of directors.
Accordingly, following the completion of the private placement, we appointed
Tomer Kariv, Yacov Reizman, and Steven Ruchefsky to our board, each of whom was
designated by one of the three co-lead investors in the private placement.
6
RISK
FACTORS
Investment
in our common stock involves significant risk. You should carefully consider the
information described in the following risk factors, together with the other
information appearing elsewhere in this prospectus, before making an investment
decision regarding our common stock. If any of these risks actually occur, our
business, financial conditions, 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 a part of your investment in our common stock. Moreover, the risks
described below are not the only ones that we face. Additional risks not
presently known to us or that we currently deem immaterial may also affect our
business, operating results, prospects or financial condition.
Risks Relating to Our
Business
We currently have
no product revenues and will need to raise substantial additional capital to
operate our business.
To date,
we have generated no product revenues. Until, and unless, we
receive approval from the FDA and other regulatory authorities for our product
candidates, we cannot sell our drugs and will not have product revenues.
Currently, our only product candidates are AR-12, AR-42 and AR-67, and none of
these products are approved for sale by the FDA. Therefore, for the foreseeable
future, we will have to fund all of our operations and capital expenditures from
cash on hand and, potentially, future offerings. After giving effect to our
September 2010 private placement, we believe we have cash on hand to fund our
operations through 2011. We will require substantial additional funds in
addition to the proceeds from this offering to support our continued research
and development activities, and the anticipated costs of preclinical studies and
clinical trials, regulatory approvals and eventual commercialization. There can
be no assurance that such additional financing can be obtained on desirable
terms, if at all. In addition, changes may occur that would consume our
available capital before that time, including changes in and progress of our
development activities, acquisitions of additional product candidates and
changes in regulation. Accordingly, we will need additional capital to fund our
continuing operations. Since we do not generate any recurring revenue, the most
likely sources of such additional capital include private placements of our
equity securities, including our common stock, debt financing or funds from a
potential strategic licensing or collaboration transaction involving the rights
to one or more of our product candidates. To the extent that we raise additional
capital by issuing equity securities, our stockholders will likely experience
dilution, which may be significant depending on the number of shares we may
issue and the price per share. If we raise additional funds through
collaborations and licensing arrangements, it may be necessary to relinquish
some rights to our technologies, product candidates or products, or grant
licenses on terms that are not favorable to us. If we raise additional funds by
incurring debt, we could incur significant interest expense and become subject
to covenants in the related transaction documentation that could affect the
manner in which we conduct our business.
However,
we currently have no committed sources of additional capital and our access to
capital funding is always uncertain. This uncertainty is exacerbated due to the
current global economic turmoil, which has severely restricted access to the
U.S. and international capital markets, particularly for small biopharmaceutical
and biotechnology companies. Accordingly, despite our ability to secure adequate
capital in the past, there is no assurance that additional equity or debt
financing will be available to us when needed, on acceptable terms or even at
all. If we fail to obtain the necessary additional capital when needed, we may
be forced to significantly curtail our planned research and development
activities, which will cause a delay in our drug development programs and may
severely harm our business.
We are a
development stage company.
We have
not received any operating revenues to date and are in the development stage.
You should be aware of the problems, delays, expenses and difficulties
encountered by an enterprise in our stage of development, and particularly for
companies engaged in the development of new biotechnology or biopharmaceutical
product candidates, many of which may be beyond our control. These include, but
are not limited to, problems relating to product development, testing,
regulatory compliance, manufacturing, marketing, costs and expenses that may
exceed current estimates and competition. No assurance can be given that our
existing product candidates, or any technologies or products that we may acquire
in the future will be successfully developed, commercialized and accepted by the
marketplace or that sufficient funds will be available to support operations or
future research and development programs.
7
We
are not currently profitable and may never become profitable.
We expect
to incur substantial losses and negative operating cash flows for the
foreseeable future, and we may never achieve or maintain profitability. For the
years ended December 31, 2009 and 2008, we had a net loss of $6,936,705 and
$12,913,566, respectively, and for the period from our inception on August 1,
2005 through December 31, 2009, we had a net loss of $23,580,861. Even if
we succeed in developing and commercializing one or more of our product
candidates, we expect to incur substantial losses for the foreseeable future, as
we:
|
·
|
continue
to undertake pre-clinical development and clinical trials for our product
candidates;
|
|
·
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seek
regulatory approvals for our product
candidates;
|
|
·
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in-license
or otherwise acquire additional products or product
candidates;
|
|
·
|
seek
patent protection for our product
candidates;
|
|
·
|
implement
additional internal systems and infrastructure;
and
|
|
·
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hire
additional personnel.
|
Further,
for the years ended December 31, 2009 and 2008, we had negative cash flows from
operating activities of $7,310,308 and $8,883,956, respectively, and since
inception on August 1, 2005 through December 31, 2009, we have had negative cash
flows from operating activities of $18,370,053. We expect to continue to
experience negative cash flows for the foreseeable future as we fund our
operating losses and capital expenditures. As a result, we will need to generate
significant revenues in order to achieve and maintain profitability. We may not
be able to generate these revenues or achieve profitability in the future. Our
failure to achieve or maintain profitability could negatively impact the value
of our common stock.
We
have a limited operating history upon which to base an investment
decision.
We are a
development stage company and have not demonstrated our ability to perform the
functions necessary for the successful commercialization of any of our product
candidates. The successful commercialization of our product candidates will
require us to perform a variety of functions, including:
|
·
|
continuing
to undertake pre-clinical development and clinical trials for our product
candidates;
|
|
·
|
participating
in regulatory approval processes;
|
|
·
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formulating
and manufacturing products; and
|
|
·
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conducting
sales and marketing activities.
|
Our
operations have been limited to organizing our company, acquiring, developing
and securing our proprietary technologies and performing pre-clinical and
clinical trials of our product candidates. These operations provide a limited
basis for you to assess our ability to commercialize our product candidates and
the advisability of investing in our securities.
8
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources. To
manage this growth, we may need to expand our facilities, augment our
operational, financial and management systems and hire and train additional
qualified personnel. If we are unable to manage our growth effectively, our
business would be harmed.
The relationships
between Two River Consulting, Riverbank Capital Securities and certain of our
officers and directors may present potential conflicts of
interest.
Arie S.
Belldegrun and David M. Tanen, each of whom are currently directors of our
company, and Joshua A. Kazam, a co-founder and director of our company until
September 2010, are the managing members of Two River Consulting, LLC, or Two
River. Since June 2009, Mr. Tanen has also served as our President. In June
2009, we entered into a services agreement with Two River pursuant to which it
performs various management, clinical development, operational and
administrative activities and services for us. As consideration for these
services, we pay Two River a monthly cash fee of $55,000. Each of Messrs. Kazam
and Tanen, as well as Peter M. Kash, a director of our company, are also
officers and directors of Riverbank, a registered broker-dealer, which served as
placement agent in connection with our September 2010 private placement of
Series A Preferred Stock. Scott L. Navins, the Financial and Operations
Principal of Riverbank, serves as our Treasurer.
Generally,
Delaware corporate law requires that any transactions between us and any of our
affiliates be on terms that, when taken as a whole, are substantially as
favorable to us as those then reasonably obtainable from a person who is not an
affiliate in an arms-length transaction. We believe that the terms of the
agreements that we have entered into with Two River and Riverbank satisfy the
requirements of Delaware law, but in the event one or more parties challenges
the fairness of such terms we may have to expend substantial resources in
resolving such challenges and can make no guarantees of the result. Further,
none of our affiliates or Two River is obligated pursuant to any agreement or
understanding with us to make any additional products or technologies available
to us, nor can there be any assurance, and the investors should not expect, that
any biomedical or pharmaceutical product or technology identified by such
affiliates or Two River in the future will be made available to us. In addition,
certain of our current officers and directors or certain of any officers or
directors hereafter appointed may from time to time serve as officers or
directors of other biopharmaceutical or biotechnology companies. There can be no
assurance that such other companies will not have interests in conflict with our
own.
We are
substantially dependent on the services of Two River and other
consultants.
We have
only two employees. We currently rely heavily on Two River to render various
management, clinical development, regulatory, operational and administrative
activities and services for us. We also rely in substantial part, and for the
foreseeable future will continue to rely, on certain independent organizations
and consultants to provide other important services, including substantially all
aspects of regulatory approval, clinical management, and manufacturing. There
can be no assurance that the services of independent organizations, advisors and
consultants will continue to be available to us on a timely basis when needed,
or that we can find qualified replacements.
Our President
provides his services on a part-time basis and significant other services are
currently being rendered by outside consultants. If we are unable to hire
additional qualified personnel in the future, our ability to grow our business
may be harmed.
Although
we currently engage Two River to provide personnel to perform a variety of
management, clinical development and other services on our behalf on a
consulting basis, we expect to directly hire employees, including at the senior
management level, in the future as we further the development of our clinical
programs. In addition, David Tanen, our current President, provides his services
to us on a part-time, non-employee basis. As we further the development of our
product candidates, we intend to hire a full-time chief executive officer and
other employees to perform the services currently being rendered by Two River.
Accordingly, our ability to attract and retain qualified personnel will be
critical to managing and growing our business in the future, especially the
hiring and retention of key executive personnel and scientific staff. There is
intense competition and demand for qualified personnel in our area of business
and no assurances can be made that we will be able to retain the personnel
necessary for the development of our business on commercially reasonable terms,
if at all.
9
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of the
pharmaceutical products we develop, alone or with corporate collaborators. We
currently do not have product liability insurance, but do maintain clinical
trial insurance coverage. Even if our agreements with any future corporate
collaborators entitle us to indemnification against losses, such indemnification
may not be available or adequate should any claim arise.
We are controlled
by current directors and principal stockholders.
Our
executive officers, directors and principal stockholders, which include the
persons affiliated with Two River discussed above, beneficially own
approximately 70% of our outstanding voting securities. Accordingly, our
executive officers, directors, principal stockholders and certain of their
affiliates will have the ability to exert substantial influence over the
election of our board of directors and the outcome of issues submitted to our
stockholders.
We
may be required to implement additional finance and accounting systems,
procedures and controls in order to satisfy requirements under the securities
laws, including the Sarbanes-Oxley Act of 2002, which will increase our costs
and divert management’s time and attention.
We are in
a continuing process of further establishing and documenting controls and
procedures that will allow our management to report on, and our independent
registered public accounting firm to attest to, our internal controls over
financial reporting if and when required to do so under Section 404 of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. As a company with limited
capital and human resources, we anticipate that more of management’s time and
attention will be diverted from our business to ensure compliance with these
regulatory requirements than would be the case with a company that has well
established controls and procedures. This diversion of management’s time and
attention may have a material adverse effect on our business, financial
condition and results of operations.
In the
event we identify significant deficiencies or material weaknesses in our
internal controls over financial reporting that we cannot remediate in a timely
manner, investors and others may lose confidence in the reliability of our
financial statements. If this occurs, the trading price of our common stock, if
any, and our ability to obtain any necessary financing could suffer. In
addition, in the event that our independent registered public accounting firm is
unable to rely on our internal controls over financial reporting in connection
with its audit of our financial statements, and in the further event that it is
unable to devise alternative procedures in order to satisfy itself as to the
material accuracy of our financial statements and related disclosures, we may be
unable to file our Annual Reports on Form 10-K with the SEC. This would likely
have an adverse affect on the trading price of our common stock, if any, and our
ability to secure any necessary additional financing, and could result in the
delisting of our common stock if we are listed on an exchange in the future. In
such event, the liquidity of our common stock would be severely limited and the
market price of our common stock would likely decline
significantly.
10
We
will experience increased costs as a result of becoming subject to the reporting
requirements of federal securities laws.
Upon the
effectiveness of the registration statement of which this prospectus is a part,
we will again become subject to the reporting requirements of the Exchange Act,
including the requirements of the Sarbanes-Oxley Act of 2002. These requirements
may place a strain on our systems and resources. The Securities Exchange Act of
1934 requires that we file annual, quarterly and current reports with respect to
our business and financial condition. The Sarbanes-Oxley Act requires that we
maintain effective disclosure controls and procedures and internal controls over
financial reporting, which is discussed above. In order to maintain and improve
the effectiveness of our disclosure controls and procedures, significant
resources and management oversight will be required. We will continue to be
implementing additional procedures and processes for the purpose of addressing
the standards and requirements applicable to public companies. In addition,
sustaining our growth will also require us to commit additional management,
operational and financial resources to identify new professionals to join our
firm and to maintain appropriate operational and financial systems to adequately
support expansion. These activities may divert management's attention from other
business concerns, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows. We expect to incur
significant additional annual expenses related to these steps and, among other
things, additional directors and officers liability insurance, director fees,
reporting requirements of the SEC, transfer agent fees, hiring additional
accounting, legal and administrative personnel, increased auditing and legal
fees and similar expenses.
Risks
Relating to the Clinical Testing, Regulatory Approval,
Manufacturing
and
Commercialization of Our Product Candidates
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize our product candidates.
We will
need FDA approval to commercialize our product candidates in the U.S. and
approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize our product candidates in those jurisdictions. In
order to obtain FDA approval of any of our product candidates, we must submit to
the FDA a new drug application, or NDA, demonstrating that the product candidate
is safe for humans and effective for its intended use. This demonstration
requires significant research and animal tests, which are referred to as
pre-clinical studies, as well as human tests, which are referred to as clinical
trials. Satisfaction of the FDA’s regulatory requirements typically takes many
years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We
cannot predict whether our research and clinical approaches will result in drugs
that the FDA considers safe for humans and effective for indicated uses. The FDA
has substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes in
government regulation, future legislation or administrative action or changes in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:
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delay
commercialization of, and our ability to derive product revenues from, our
product candidates;
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impose
costly procedures on us; or
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diminish
any competitive advantages that we may otherwise
enjoy.
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Even if
we comply with all FDA requests, the FDA may ultimately reject one or more of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance for
our product candidates. Failure to obtain FDA approval of any of our product
candidates will severely undermine our business by reducing our number of
salable products and, therefore, corresponding product revenues.
In
foreign jurisdictions, we must receive approval from the appropriate regulatory
authorities before we can commercialize our drugs. Foreign regulatory approval
processes generally include all of the risks associated with the FDA approval
procedures described above. We cannot assure that we will receive the approvals
necessary to commercialize our product candidate for sale outside the
U.S.
11
All of our
product candidates are in early stages of clinical trials, which are very
expensive and time-consuming. Any failure or delay in completing clinical trials
for our product candidates could harm our business.
All three
of our current product candidates are in early stages of development and will
require extensive clinical and other testing and analysis before we will be in a
position to consider seeking regulatory approval to sell such product
candidates. Conducting clinical trials is a lengthy, time consuming and very
expensive process and the results are inherently uncertain. The duration of
clinical trials can vary substantially according to the type, complexity,
novelty and intended use of the product candidate. We estimate that clinical
trials of our product candidates will take at least several years to complete.
The completion of clinical trials for our product candidates may be delayed or
prevented by many factors, including without limitation:
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delays
in patient enrollment, and variability in the number and types of patients
available for clinical trials;
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difficulty
in maintaining contact with patients after treatment, resulting in
incomplete data;
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poor
effectiveness of product candidates during clinical
trials;
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safety
issues, side effects, or other adverse
events;
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results
that do not demonstrate the safety or effectiveness of the product
candidates;
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governmental
or regulatory delays and changes in regulatory requirements, policy and
guidelines; and
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varying
interpretation of data by the FDA.
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In
conducting clinical trials, we may fail to establish the effectiveness of a
compound for the targeted indication or discover that it is unsafe due to
unacceptable side effects or other reasons. Even if our clinical trials are
commenced and completed as planned, their results may not support our product
candidate claims. Further, failure of product candidate development can occur at
any stage of clinical trials, or even thereafter, and we could encounter
problems that cause us to abandon or repeat clinical trials. These problems
could interrupt, delay or halt clinical trials for our product candidates and
could result in FDA, or other regulatory authorities, delaying or declining
approval of our product candidates for any or all indications. The results from
pre-clinical testing and prior clinical trials may not be predictive of results
obtained in later or other larger clinical trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in clinical trials,
even in advanced clinical trials after showing promising results in earlier
clinical trials. Our failure to adequately demonstrate the safety and
effectiveness of any of our product candidates will prevent us from receiving
regulatory approval to market these product candidates and will negatively
impact our business. In addition, we or the FDA may suspend or curtail our
clinical trials at any time if it appears that we are exposing participants to
unacceptable health risks or if the FDA finds deficiencies in the conduct of
these clinical trials or in the composition, manufacture or administration of
the product candidates. Accordingly, we cannot predict with any certainty when
or if we will ever be in a position to submit a new drug application, or NDA,
for any of our product candidates, or whether any such NDA would ever be
approved.
Our
products use novel alternative technologies and therapeutic approaches, which
have not been widely studied.
Our
product development efforts focus on novel therapeutic approaches and
technologies that have not been widely studied. These approaches and
technologies may not be successful. We are applying these approaches and
technologies in our attempt to discover new treatments for conditions that are
also the subject of research and development efforts of many other
companies.
12
Physicians
and patients may not accept and use our drugs.
Even if
the FDA approves our product candidates, physicians and patients may not accept
and use them. Acceptance and use of our products will depend upon a number of
factors including:
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perceptions
by members of the health care community, including physicians, about the
safety and effectiveness of our
drugs;
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cost-effectiveness
of our products relative to competing
products;
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availability
of reimbursement for our products from government or other healthcare
payers; and
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effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
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Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of any of these drugs to find market acceptance would harm our business
and could require us to seek additional financing.
Because we are
dependent on clinical research institutions and other contractors for clinical
testing and for research and development activities, the results of our clinical
trials and such research activities are, to a certain extent, not within our
control.
We depend
upon independent investigators and collaborators, such as universities and
medical institutions, to conduct our pre-clinical and clinical trials under
agreements with us. These parties are not our employees and we cannot control
the amount or timing of resources that they devote to our programs. These
investigators may not assign as great a priority to our programs or pursue them
as diligently as we would if we were undertaking such programs ourselves. If
outside collaborators fail to devote sufficient time and resources to our drug
development programs, or if their performance is substandard, the approval of
our FDA applications, if any, and our introduction of new drugs, if any, will be
delayed. These collaborators may also have relationships with other commercial
entities, some of whom may compete with us. If our collaborators assist our
competitors at our expense, our competitive position would be
harmed.
Our reliance on
third parties to formulate and manufacture our product candidates exposes us to
a number of risks that may delay the development, regulatory approval and
commercialization of our products or result in higher product
costs.
We have
no experience in drug formulation or manufacturing and do not intend to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. Instead, we will
contract with one or more manufacturers to manufacture, supply, store and
distribute drug supplies for our clinical trials. If any of our product
candidates receive FDA approval, we will rely on one or more third-party
contractors to manufacture our drugs. Our anticipated future reliance on a
limited number of third-party manufacturers exposes us to the following
risks:
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We
may be unable to identify manufacturers on acceptable terms or at all
because the number of potential manufacturers is limited and the FDA must
approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer would
have to be educated in, or develop substantially equivalent processes for,
production of our products after receipt of FDA approval, if
any.
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Our
third-party manufacturers might be unable to formulate and manufacture our
drugs in the volume and of the quality required to meet our clinical
and/or commercial needs, if any.
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Our
future contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store and distribute our
products.
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Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA and corresponding state agencies to ensure strict compliance with
good manufacturing practice and other government regulations and
corresponding foreign standards. We do not have control over third-party
manufacturers’ compliance with these regulations and standards, but we
will be ultimately responsible for any of their
failures.
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If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the innovation. This may prohibit us from
seeking alternative or additional manufacturers for our
products.
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Each of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA, or the commercialization of our product
candidates or result in higher costs or deprive us of potential product
revenues.
We
have no experience selling, marketing or distributing products and no internal
capability to do so.
We
currently have no sales, marketing or distribution capabilities. We do not
anticipate having resources in the foreseeable future to allocate to the sales
and marketing of our proposed products. Our future success depends, in part, on
our ability to enter into and maintain sales and marketing collaborative
relationships, the collaborator’s strategic interest in the products under
development and such collaborator’s ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding the
sales and marketing of our products, however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements, or if
able to do so, that they will have effective sales forces. To the extent that we
decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of our proposed products, significant capital
expenditures, management resources and time will be required to establish and
develop an in-house marketing and sales force with technical expertise. There
can also be no assurance that we will be able to establish or maintain
relationships with third-party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, and there can be no assurance that such efforts will be
successful. In addition, there can also be no assurance that we will be able to
market and sell our product in the U.S. or overseas.
If
we cannot compete successfully for market share against other drug companies, we
may not achieve sufficient product revenues and our business will
suffer.
The
market for our product candidates is characterized by intense competition and
rapid technological advances. If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies
developed, manufactured and marketed by others. Existing or future competing
products may provide greater therapeutic convenience or clinical or other
benefits for a specific indication than our products, or may offer comparable
performance at a lower cost. If our products fail to capture and maintain market
share, we may not achieve sufficient product revenues and our business will
suffer.
We will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have technologies already approved or
in development. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs and have substantially greater financial resources than we do, as well
as significantly greater experience in:
14
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developing
drugs;
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undertaking
pre-clinical testing and human clinical
trials;
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obtaining
FDA and other regulatory approvals of
drugs;
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formulating
and manufacturing drugs; and
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launching,
marketing and selling drugs.
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Developments by
competitors may render our products or technologies obsolete or
non-competitive.
The
biotechnology and pharmaceutical industries are intensely competitive and
subject to rapid and significant technological change. The drugs that we are
attempting to develop will have to compete with existing therapies. In addition,
a large number of companies are pursuing the development of pharmaceuticals that
target the same diseases and conditions that we are targeting. We face
competition from pharmaceutical and biotechnology companies in the U.S. and
abroad. In addition, companies pursuing different but related fields represent
substantial competition. Many of these organizations competing with us have
substantially greater capital resources, larger research and development staffs
and facilities, longer drug development history in obtaining regulatory
approvals and greater manufacturing and marketing capabilities than we do. These
organizations also compete with us to attract qualified personnel and parties
for acquisitions, joint ventures or other collaborations.
Our
ability to generate product revenues will be diminished if our drugs sell for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend in
part on the extent to which reimbursement will be available from:
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government
and health administration
authorities;
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private
health maintenance organizations and health insurers;
and
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other
healthcare payers.
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Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available, and
reimbursement levels may be inadequate, to cover our drugs. If government and
other healthcare payers do not provide adequate coverage and reimbursement
levels for any of our products, once approved, market acceptance of our products
could be reduced.
We
may be exposed to liability claims associated with the use of hazardous
materials and chemicals.
Our
research and development activities may involve the controlled use of hazardous
materials and chemicals. Although we believe that our safety procedures for
using, storing, handling and disposing of these materials comply with federal,
state and local laws and regulations, we cannot completely eliminate the risk of
accidental injury or contamination from these materials. In the event of such an
accident, we could be held liable for any resulting damages and any liability
could materially adversely effect our business, financial condition and results
of operations. In addition, the federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous or
radioactive materials and waste products may require us to incur substantial
compliance costs that could materially adversely affect our business, financial
condition and results of operations.
15
Risks
Related to Our Intellectual Property
If
we fail to protect or enforce our intellectual property rights adequately or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
Our
success, competitive position and future revenues will depend in part on our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing upon the proprietary rights
of third parties. Additionally, if any third-party manufacturer makes
improvements in the manufacturing process for our products, we may not own, or
may have to share, the intellectual property rights to the
innovation.
To date,
we hold certain exclusive rights under U.S. patents and patent applications as
well as rights under foreign patent applications. We anticipate filing
additional patent applications both in the U.S. and in other countries, as
appropriate. However, we cannot predict:
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the
degree and range of protection any patents will afford us against
competitors including whether third parties will find ways to invalidate
or otherwise circumvent our
patents;
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if
and when patents will issue;
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whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications;
or
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whether
we will need to initiate litigation or administrative proceedings which
may be costly whether we win or
lose.
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If
any of our trade secrets, know-how or other proprietary information is
disclosed, the value of our trade secrets, know-how and other proprietary rights
would be significantly impaired and our business and competitive position would
suffer.
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, we require all of
our employees, consultants, advisors and contractors to enter into agreements
which prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business. These agreements may not provide
adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure or the lawful
development by others of such information. If any of our trade secrets, know-how
or other proprietary information is disclosed, the value of our trade secrets,
know-how and other proprietary rights would be significantly impaired and our
business and competitive position would suffer.
If
we infringe upon the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation.
If our
products, methods, processes and other technologies infringe upon the
proprietary rights of other parties, we could incur substantial costs and we may
have to:
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obtain
licenses, which may not be available on commercially reasonable terms, if
at all;
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redesign
our products or processes to avoid
infringement;
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stop
using the subject matter claimed in the patents held by
others;
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pay
damages; or
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defend
litigation or administrative proceedings which may be costly whether we
win or lose, and which could result in a substantial diversion of our
valuable management resources.
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If
requirements under our license agreements are not met, we could suffer
significant harm, including losing rights to our products.
We depend
on licensing agreements with third parties to maintain the intellectual property
rights to our products under development. Presently, we have licensed rights
from the University of Pittsburgh and The Ohio State University Research
Foundation. These agreements require us and our licensors to perform certain
obligations that affect our rights under these licensing agreements. All of
these agreements last either throughout the life of the patents, or with respect
to other licensed technology, for a number of years after the first commercial
sale of the relevant product.
In
addition, we are responsible for the cost of filing and prosecuting certain
patent applications and maintaining certain issued patents licensed to us. If we
do not meet our obligations under our license agreements in a timely manner, we
could lose the rights to our proprietary technology.
Finally,
we may be required to obtain licenses to patents or other proprietary rights of
third parties in connection with the development and use of our products and
technologies. Licenses required under any such patents or proprietary rights
might not be made available on terms acceptable to us, if at all.
Risks
Related to Our Securities
We
cannot assure you that our common stock will ever be listed on NASDAQ or any
other securities exchange.
Our
common stock is currently eligible for trading on the “Pink
Sheets.” Stocks traded on the Pink Sheets and other electronic
over-the-counter markets are often less liquid than stocks traded on national
securities exchanges. In fact, the historical trading of our common stock has
been extremely limited and sporadic. We plan to seek listing on NASDAQ or the
American Stock Exchange in the future, but we cannot assure you that we will be
able to meet the initial listing standards of either of those or any other stock
exchange, or that we will be able to maintain a listing of our common stock on
either of those or any other stock exchange. To the extent that our common stock
is not traded on a national securities exchange, such as NASDAQ, the decreased
liquidity of our common stock may make it more difficult to sell shares of our
common stock at desirable times and at prices.
Our
common stock is considered a “penny stock.”
The SEC
has adopted regulations which generally define a “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. Since trading of our common stock commenced, the market
price has been below $5.00 per share. Therefore, our common stock is deemed a
“penny stock” according to SEC rules. This designation requires any broker or
dealer selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to sell shares of our common
stock.
Because
we did not become public through an underwritten initial public offering, we may
not be able to attract the attention of major brokerage firms.
Additional
risks may exist since we did not become public through a an initial public
offering underwritten by an investment bank. Security analysts of major
brokerage firms may not provide coverage of us since there is no incentive to
brokerage firms to recommend the purchase of our common stock. No assurance can
be given that brokerage firms will want to conduct any secondary offerings on
behalf of our company in the future. The lack of such analyst coverage may
decrease the public demand for our common stock, making it more difficult for
you to resell your shares when you deem appropriate.
17
Because
we do not expect to pay dividends, you will not realize any income from an
investment in our common stock unless and until you sell your shares at
profit.
We have
never paid dividends on our common stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment in
our common stock if you require dividend income. Further, you will only realize
income on an investment in our shares in the event you sell or otherwise dispose
of your shares at a price higher than the price you paid for your shares. Such a
gain would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
There
may be issuances of shares of blank check preferred stock in the
future.
Our
amended and restated certificate of incorporation authorizes the issuance of up
to 35,000,000 shares of preferred stock, all of which are currently designated
as Series A Convertible Preferred Stock. Following the conversion of our
Series A Convertible Preferred Stock into common stock upon the effectiveness of
the registration statement of which this prospectus is a part, our board of
directors will again have the authority to fix and determine the relative rights
and preferences of up to 35,000,000 preferred shares, as well as the authority
to issue such shares, without further stockholder approval. As a result, our
board of directors could authorize the issuance of a series of preferred stock
that is senior to our common stock and that would grant to holders preferred
rights to our assets upon liquidation, the right to receive dividends,
additional registration rights, anti-dilution protection, the right to the
redemption to such shares, together with other rights, none of which will be
afforded holders of our common stock.
If our results do
not meet analysts’ forecasts and expectations, our stock price could
decline.
In the
future, analysts who cover our business and operations may provide valuations
regarding our stock price and make recommendations whether to buy, hold or sell
our stock. Our stock price may be dependent upon such valuations and
recommendations. Analysts’ valuations and recommendations are based primarily on
our reported results and their forecasts and expectations concerning our future
results regarding, for example, expenses, revenues, clinical trials, regulatory
marketing approvals and competition. Our future results are subject to
substantial uncertainty, and we may fail to meet or exceed analysts’ forecasts
and expectations as a result of a number of factors, including those discussed
above under the sections “Risks Related to Our
Business” and “Risks
Related to the Clinical Testing, Regulatory Approval, Manufacturing and
Commercialization of Our Product Candidates.” If our results do not meet
analysts’ forecasts and expectations, our stock price could decline as a result
of analysts lowering their valuations and recommendations or
otherwise.
We
are at risk of securities class action litigation.
In the
past, securities class action litigation has often been brought against a
company following a decline in the market price of its securities. This risk is
especially relevant for us because biotechnology companies have experienced
greater than average stock price volatility in recent years. If we faced such
litigation, it could result in substantial costs and a diversion of our
management’s attention and resources, which could harm our
business.
18
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act. The forward-looking statements are only predictions and
provide our current expectations or forecasts of future events and financial
performance and may be identified by the use of forward-looking terminology,
including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,”
“intends,” “may,” “will” or “should” or, in each case, their negative, or other
variations or comparable terminology, though the absence of these words does not
necessarily mean that a statement is not forward-looking. Forward-looking
statements include all matters that are not historical facts and include,
without limitation, statements concerning our business strategy, outlook,
objectives, future milestones, plans, intentions, goals, future financial
conditions, our research and development programs and planning for and timing of
any clinical trials, the possibility, timing and outcome of submitting
regulatory filings for our product candidates under development, research and
development of particular drug products, the development of financial, clinical,
manufacturing and marketing plans related to the potential approval and
commercialization of our drug products, and the period of time for which our
existing resources will enable us to fund our operations.
Forward-looking
statements are subject to many risks and uncertainties that could cause our
actual results to differ materially from any future results expressed or implied
by the forward-looking statements. Examples of the risks and uncertainties
include, but are not limited to:
|
·
|
the
risk that recurring losses, negative cash flows and the inability to raise
additional capital could threaten our ability to continue as a going
concern;
|
|
·
|
the
risk that we may not successfully develop and market our product
candidates, and even if we do, we may not become
profitable;
|
|
·
|
risks
relating to the progress of our research and
development;
|
|
·
|
risks
relating to significant, time-consuming and costly research and
development efforts, including pre-clinical studies, clinical trials and
testing, and the risk that clinical trials of our product candidates may
be delayed, halted or fail;
|
|
·
|
risks
relating to the rigorous regulatory approval process required for any
products that we may develop independently, with our development partners
or in connection with any collaboration
arrangements;
|
|
·
|
the
risk that changes in the national or international political and
regulatory environment may make it more difficult to gain FDA or other
regulatory approval of our drug product
candidates;
|
|
·
|
risks
that the FDA or other regulatory authorities may not accept any
applications we file;
|
|
·
|
risks
that the FDA or other regulatory authorities may withhold or delay
consideration of any applications that we file or limit such applications
to particular indications or apply other label
limitations;
|
|
·
|
risks
that, after acceptance and review of applications that we file, the FDA or
other regulatory authorities will not approve the marketing and sale of
our drug product candidates;
|
|
·
|
risks
relating to our drug manufacturing operations, including those of our
third-party suppliers and contract
manufacturers;
|
|
·
|
risks
relating to the ability of our development partners and third-party
suppliers of materials, drug substance and related components to provide
us with adequate supplies and expertise to support manufacture of drug
product for initiation and completion of our clinical
studies;
|
|
·
|
risks
relating to the transfer of our manufacturing technology to third-party
contract manufacturers; and
|
|
·
|
other
risks and uncertainties detailed in “Risk
Factors.”
|
Pharmaceutical
and biotechnology companies have suffered significant setbacks in advanced
clinical trials, even after obtaining promising earlier trial results.
Data obtained from such clinical trials are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval.
Except to the extent required by applicable laws or rules, we do not undertake
to update any forward-looking statements or to publicly announce revisions to
any of our forward-looking statements, whether resulting from new information,
future events or otherwise.
19
USE
OF PROCEEDS
We will
receive none of the proceeds from the sale of the shares by the selling
stockholders, except for the warrant exercise price upon exercise of the
warrants, which would be used for working capital and other general corporate
purposes.
SELLING
STOCKHOLDERS
This
prospectus covers the resale by the selling stockholders identified below of
26,815,831 shares of our common stock, as follows:
|
·
|
2,466,057
shares that are currently issued and
outstanding;
|
|
·
|
15,274,000
shares are issuable upon the conversion of our outstanding Series A
Preferred Stock,
|
|
·
|
Up
to 381,844 shares of our common stock that may be issued in payment of
accrued dividends upon the conversion of our Series A Preferred Stock;
and
|
|
·
|
8,693,930
shares are issuable upon the exercise of outstanding
warrants.
|
The
following table sets forth the number of shares of our common stock beneficially
owned by the selling stockholders as of October 31, 2010 and after giving effect
to this offering, except as otherwise referenced below.
Selling
Stockholder
|
Shares
beneficially
owned
before
offering
(1)(2)
|
Number
of
outstanding
shares
offered
by
selling
stockholder
|
Number
of shares
offered
by selling
stockholder
upon
conversion
of
preferred stock
(2)
|
Number
of shares
offered
by selling
stockholder
upon
exercise
of
warrants
|
Percentage
beneficial
ownership
after
offering(1)
|
|||||||||||||||
3071341
Canada Inc. (3)
|
79,402 | - | 25,625 | 12,500 | * | |||||||||||||||
6984321
Canada Inc. (4)
|
22,467 | - | 6,150 | 3,000 | * | |||||||||||||||
87111
Canada Limited (5)
|
100,041 | - | 25,625 | 12,500 | * | |||||||||||||||
Alan
T. Yuasa as Trustee of the Michael J. Shimoko Trust
|
152,500 | - | 102,500 | 50,000 | - | |||||||||||||||
Allan
Pantuck and Jodi Pantuck (JTWROS)
|
18,300 | - | 12,300 | 6,000 | - | |||||||||||||||
Allen
Rubin (6)
|
19,467 | - | 6,150 | 3,000 | * | |||||||||||||||
Alrac
Investments Inc. (7)
|
19,062 | - | 12,812 | 6,250 | - | |||||||||||||||
Arie
and Rebecka Belldegrun as Trustees of the Belldegrun Family Trust dated
February 18, 1994 (8)
|
1,358,675 | - | 128,125 | 62,500 | 1.3 | |||||||||||||||
Benjamin
Bernstein (9)
|
493,691 | - | - | 75,000 | * | |||||||||||||||
Canyon
Value Realization Fund (Cayman) Ltd. (10)
|
1,011,330 | 687,651 | - | - | - | |||||||||||||||
Canyon
Value Realization Fund, L.P. (10)
|
1,011,330 | 263,069 | - | - | - | |||||||||||||||
Canyon
Value Realization Mac-18 Ltd. (10)
|
1,011,330 | 60,610 | - | - | - | |||||||||||||||
Clal
Finance Underwriting Ltd. (11)
|
3,132,227 | 9,968 | - | - | - | |||||||||||||||
Clal
Insurance Company Ltd. – Profit Participating Policies
(11)
|
3,132,227 | 825,578 | 717,500 | 350,000 | - | |||||||||||||||
Clal
Pension & Provident Funds Ltd. – Sapir (11)
|
3,132,227 | 412,788 | 272,650 | 133,000 | - | |||||||||||||||
Clal
Pension & Provident Funds Ltd. – Yahalom (11)
|
3,132,227 | 206,393 | 137,350 | 67,000 | - | |||||||||||||||
3,355,000 | - | 2,255,000 | 1,100,000 | - |
20
Selling
Stockholder
|
Shares
beneficially
owned
before
offering
(1)(2)
|
Number
of
outstanding
shares
offered
by
selling
stockholder
|
Number
of shares
offered
by selling
stockholder
upon
conversion
of
preferred
stock (2)
|
Number
of shares
offered
by selling
stockholder
upon
exercise
of
warrants
|
Percentage
beneficial
ownership
after
offering(1)
|
|||||||||||||||
DAFNA
Life Science Ltd. (13)
|
152,500 | - | 24,600 | 12,000 | - | |||||||||||||||
DAFNA
Life Science Market Neutral Ltd. (13)
|
152,500 | - | 18,450 | 9,000 | - | |||||||||||||||
DAFNA
Life Science Select Ltd. (13)
|
152,500 | - | 59,450 | 29,000 | - | |||||||||||||||
David
M. Tanen (14)
|
1,634,345 | - | 66,625 | 99,618 | 3.3 | |||||||||||||||
Dikla
Insurance Company Ltd. (15)
|
28,620 | - | 9,528 | 4,648 | * | |||||||||||||||
Esperante
AB (16)
|
762,500 | - | 512,500 | 250,000 | - | |||||||||||||||
FCC
Ltd (17)
|
763,800 | - | 307,500 | 456,300 | - | |||||||||||||||
Genesis
Capital Advisors, LLC (18)
|
2,135,000 | - | 153,750 | 75,000 | - | |||||||||||||||
Genesis
Opportunity Fund, LP (18)
|
2,135,000 | - | 1,281,250 | 625,000 | - | |||||||||||||||
Georgette
Pagano
|
38,125 | - | 25,625 | 12,500 | - | |||||||||||||||
Hank
C.K. Wuh
|
38,125 | - | 25,625 | 12,500 | - | |||||||||||||||
Harel
Insurance Company Ltd. (19)
|
821,010 | - | 208,446 | 101,681 | * | |||||||||||||||
Harel
Pension Fund Management Company Ltd. (19)
|
821,010 | - | 53,531 | 26,113 | * | |||||||||||||||
Harel
Provident Funds Ltd. (19)
|
821,010 | - | 35,993 | 17,558 | * | |||||||||||||||
I-Bankers
Securities, Inc. (20)
|
207,750 | - | 82,000 | 40,000 | - | |||||||||||||||
IBS
Securities Ltd. (20)
|
207,750 | - | - | 85,750 | - | |||||||||||||||
Ira
Kalfus
|
53,375 | - | 35,875 | 17,500 | - | |||||||||||||||
Isaac
Kier (21)
|
275,627 | - | 51,250 | 25,000 | * | |||||||||||||||
Jill
Wallace
|
2,500 | - | - | 2,500 | - | |||||||||||||||
Joia
Kazam and Joshua Kazam (JTWROS) (22)
|
2,059,301 | - | 256,250 | 125,000 | 3.6 | |||||||||||||||
Joshua
Kazam (22)
|
2,059,301 | - | - | 80,728 | 3.6 | |||||||||||||||
Kappa
Investors LLC (23)
|
3,896,788 | - | 172,210 | 84,005 | 4.5 | |||||||||||||||
Kardan
Israel Ltd. (24)
|
1,525,000 | - | 1,025,000 | 500,000 | - | |||||||||||||||
Kenzo
Kosuda
|
76,250 | - | 51,250 | 25,000 | - | |||||||||||||||
Leumi
Overseas Trust Corporation Limited as Trustee of the BTL Trust
(8)
|
1,358,675 | - | 256,250 | 125,000 | 1.3 | |||||||||||||||
MDRB
Partnership, L.P. (8)
|
1,358,675 | - | 128,125 | 62,500 | 1.3 | |||||||||||||||
Nazy
Zomorodian
|
45,750 | - | 30,750 | 15,000 | - | |||||||||||||||
Ogier
Employee Benefit Trust Limited as Trustees of the MBES Employee Benefit
Trust – JD Sub Trust (25)
|
152,500 | - | 102,500 | 50,000 | - | |||||||||||||||
Peter
Kash (26)
|
2,034,921 | - | - | 189,534 | 3.8 | |||||||||||||||
Peter
Kash and Donna Kash (JTWROS) (26)
|
2,034,921 | - | 102,500 | 50,000 | 3.8 | |||||||||||||||
Pontifax
(Cayman) II L.P. (27)
|
4,574,998 | - | 1,503,174 | 733,256 | - | |||||||||||||||
Pontifax
(Israel) II - Individual Investors L.P. (27)
|
4,574,998 | - | 439,540 | 214,410 | - | |||||||||||||||
Pontifax
(Israel) II L.P. (27)
|
4,574,998 | - | 1,132,284 | 552,334 | - | |||||||||||||||
Primafides
(Suisse) SA as Trustees of the Sirius Trust (28)
|
694,306 | - | 102,500 | 50,000 | 1.2 | |||||||||||||||
Ricardo
de la Guardia
|
38,125 | - | 25,625 | 12,500 | - | |||||||||||||||
Robert
I. Falk (29)
|
397,722 | - | 102,500 | 50,000 | * | |||||||||||||||
Sabrinco
Inc. (30)
|
39,699 | 12,812 | 6,250 | * |
21
Selling
Stockholder
|
Shares
beneficially
owned
before
offering
(1)(2)
|
Number
of
outstanding
shares
offered
by
selling
stockholder
|
Number
of shares
offered
by selling
stockholder
upon
conversion
of
preferred stock
(2)
|
Number
of shares
offered
by selling
stockholder
upon
exercise
of
warrants
|
Percentage
beneficial
ownership
after
offering(1)
|
|||||||||||||||
Scott
Navins (31)
|
249,532 | - | - | 100,000 | * | |||||||||||||||
Sherry
Hyon
|
5,000 | - | - | 5,000 | - | |||||||||||||||
Steven
Blum (32)
|
164,875 | - | - | 125,000 | * | |||||||||||||||
Susumu
Maeda
|
76,250 | - | 51,250 | 25,000 | - | |||||||||||||||
Taichi
Wakabayashi
|
76,250 | - | 51,250 | 25,000 | - | |||||||||||||||
UTA
Capital LLC (33)
|
3,050,000 | - | 2,050,000 | 1,000,000 | - | |||||||||||||||
Uzi
Zucker
|
457,500 | - | 307,500 | 150,000 | - | |||||||||||||||
3,896,788 | - | 1,098,789 | 535,995 | 4.5 | ||||||||||||||||
Yu
Yeung (34)
|
39,937 | - | - | 20,000 | * | |||||||||||||||
TOTAL
|
2,466,057 | 15,655,844 | 8,693,930 |
* denotes less than
1%
(1)
|
Beneficial
ownership is determined in accordance with Rule 13d-3 under the Securities
Act, and includes any shares as to which the security or stockholder has
sole or shared voting power or investment power, and also any shares which
the security or stockholder has the right to acquire within 60 days of the
date hereof, whether through the exercise or conversion of any stock
option, convertible security, warrant or other right. The indication
herein that shares are beneficially owned is not an admission on the part
of the security or stockholder that he, she or it is a direct or indirect
beneficial owner of those shares. Percentage of shares beneficially owned
after the resale of all the shares offered by this prospectus assumes
there are outstanding 44,761,798 shares of common stock, including all
shares offered hereby that are issuable upon the conversion of our
outstanding Series A Preferred Stock or upon the exercise of
warrants.
|
(2)
|
Assumes
six months of dividend accrual at the rate of 5% per annum prior to the
automatic conversion of the Series A Preferred Stock into common stock
upon the effectiveness of the registration statement of which this
prospectus is a part, and our election to pay such accrued dividends in
the form of additional shares of common stock in lieu of cash. See
“Description of Capital
Stock – Series A Convertible Preferred
Stock.”
|
(3)
|
Ruth
Hornstein is the president and sole owner of the selling
stockholder. In addition to the shares offered hereby, the selling
stockholder beneficially owns 41,277 shares of our common
stock.
|
(4)
|
Danny
Ritter is the president of the selling stockholder. In addition to
the shares offered hereby, beneficial ownership includes 10,317 shares of
our common stock held by Mr.
Ritter.
|
(5)
|
Hershie
Schachter, president of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling stockholder.
In addition to the shares offered hereby, the selling stockholder
beneficially owns 61,916 shares of our common
stock.
|
(6)
|
In
addition to the shares offered hereby, the selling stockholder
beneficially owns 10,317 shares of our common
stock.
|
(7)
|
Lawrence
Stein is the director of the selling
stockholder.
|
(8)
|
Beneficial
ownership includes: (i) 128,125 shares of our common stock that are
issuable upon the conversion of our outstanding Series A Preferred Stock
and 62,500 shares issuable upon the exercise of warrants held by Arie and
Rebecka Belldegrun as Trustees of the Belldegrun Family Trust dated
February 18, 1994; (ii) 256,250 shares of our common stock that are
issuable upon the conversion of our outstanding Series A Preferred Stock,
125,000 shares issuable upon the exercise of warrants and 61,916 shares of
our common stock held by Leumi Overseas Trust Corporation Limited as
Trustee of the BTL Trust; (iii) 128,125 shares of our common stock that
are issuable upon the conversion of our outstanding Series A Preferred
Stock and 62,500 shares issuable upon the exercise of warrants held by
MDRB Partnership, L.P. (“MDRB”); and (iv) 24,922 shares of our common
stock and 509,337 shares issuable upon the exercise of stock options held
by Arie Belldegrun, M.D. Dr. Belldegrun, who serves as Chairman of
our Board of Directors, is a beneficiary of the BTL Trust and is the
managing partner of MDRB. Richard J. Guillaume and Christopher R.P.
Lees, directors of Leumi Overseas Trust Corporation Limited (“Leumi”),
hold voting and/or dispositive power over the shares held by Leumi as
trustee of the BTL Trust.
|
(9)
|
In
addition to the shares offered hereby, the selling stockholder
beneficially owns 418,691 shares of our common
stock.
|
22
(10)
|
John
Simpson, Joshua S. Friedman, Mitchell R. Julius and John P. Plaga have
voting and/or dispositive power over the shares held by the selling
stockholder. The selling stockholder has informed us that it is affiliated
with a broker-dealer, and has represented to us that it purchased the
shares in the ordinary course of business with no agreement or
understanding, directly or indirectly, with any persons regarding the
distribution of the shares.
|
(11)
|
Beneficial
ownership includes: (i) 825,578 shares of our common stock held by Clal
Insurance Company Ltd. – Profit Participating Policies; (ii)
412,788 shares of our common stock held by Clal Pension & Provident
Funds Ltd. – Sapir (“Sapir”); (iii) 206,393 shares of our common stock
held by Clal Pension & Provident Funds Ltd. – Yahalom (“Yahalom”); and
(iv) 9,968 shares of our common stock held by Clal Finance Underwriting
Ltd. Yossi Dori holds voting and/or dispositive power over the shares held
by Sapir and Yahalom. Nir Moroz holds voting and/or dispositive power over
the shares held by Clal Insurance Company Ltd. – Profit
Participating Policies.
|
(12)
|
Steven
Ruchefsky, President of Commercial Street Capital, LLC, is a director of
Arno.
|
(13)
|
Fariba
Ghodsian is the managing member of the selling
stockholder.
|
(14)
|
Mr.
Tanen is our President and a member of our board of directors.
Shares listed as beneficially owned by Mr. Tanen include 149,532 shares of
our common stock held by Mr. Tanen’s wife as custodian for the benefit of
their minor children under the Uniform Gift to Minors Act (UGMA), for
which Mr. Tanen disclaims any beneficial ownership. In addition to
the shares offered hereby, beneficial ownership also includes 1,307,334
shares of our common stock and 11,236 shares issuable upon the exercise of
options and warrants held by Mr.
Tanen.
|
(15)
|
Alfred
Rosenfeld and Ofer Nargassi hold voting and/or dispositive power over the
shares held by the selling stockholder. In addition to the shares
offered hereby, beneficial ownership includes: (i) 4,127 shares of our
common stock held by Dikla Insurance Company Ltd. – Nostro; and (ii)
10,317 shares of our common stock held by Dikla Insurance Company Ltd. –
Siudi.
|
(16)
|
Dean
Slagel, director of the selling stockholder, holds voting and/or
dispositive power over the shares held by the selling
stockholder.
|
(17)
|
Yacov
Reizman, chairman and chief executive officer of the selling stockholder,
and Rivka Reizman, president of the selling stockholder, hold voting
and/or dispositive power over the shares held by the selling
stockholder. Mr. Reizman is a director of
Arno.
|
(18)
|
Jaime
Hartman is the managing member of the selling
stockholder.
|
(19)
|
Ronen
Agassi and Ofer Nargassi hold voting and/or dispositive power over the
shares held by the selling stockholder. In addition to the shares
offered hereby, beneficial ownership includes: (i) 20,637 shares of our
common stock held by Harel Insurance Company Ltd. – Clali; (ii) 115,580
shares of our common stock held by Harel Insurance Company Ltd. –
Mishtatefet; (iii) 45,406 shares of our common stock held by Harel
Insurance Company Ltd. – Nostro; (iv) 41,277 shares of our common stock
held by Harel Pension Fund Management Company Ltd. – Harel Pensia; (v)
28,893 shares of our common stock held by Harel Provident Funds Ltd. –
Taoz; (vi) 10,317 shares of our common stock held by Harel Provident
Funds, Ltd. – Hishtalmut; (vii) 8,254 shares of our common stock held by
Harel Provident Funds, Ltd. – Gmisha; and (viii) 107,324 shares of our
common stock held by Harel Provident Funds, Ltd. –
Otzma.
|
(20)
|
Shelley
Gluck holds voting and/or dispositive power over the shares held by the
selling stockholder. I-Bankers Securities, Inc. (“I-Bankers”) is a
registered broker-dealer and the shares offered by I-Bankers are issuable
upon the exercise of warrants received as compensation for placement agent
services in connection with our September 2010 private placement.
IBS Securities Ltd. (“IBS”) is an affiliate of I-Bankers and acquired the
shares offered hereby in the ordinary course of its
business.
|
(21)
|
In
addition to the shares offered hereby, the selling stockholder
beneficially owns 199,377 shares of our common
stock.
|
(22)
|
Shares
listed as beneficially owned by the selling stockholders include, in
addition to the shares offered hereby, (i) 1,129,759 shares of our common
stock and 14,946 shares issuable upon the exercise of options and warrants
held by Mr. Kazam; (ii) 99,688 shares of our common stock held by Mrs.
Kazam as custodian for the benefit of their minor daughter under the UGMA;
(iii) 332,293 shares of our common stock held by the Kazam
Family Trust; and (iv) 20,637 shares of our common stock held by the
Joshua Kazam Trust.
|
(23)
|
In
addition to the shares offered hereby, beneficial ownership includes: (i)
247,345 shares of our common stock held by Kappa Investors LLC (“Kappa”);
(ii) a warrant held by Kappa to purchase 24,732 shares of our common stock
that is exercisable at $2.42 per share; and (iii) 1,733,712 shares of our
common stock held by Wexford Spectrum Investors LLC (“Wexford
Spectrum”). Wexford Capital LP, a Delaware partnership (“Wexford
Capital”), is a registered Investment Advisor and also serves as an
investment advisor or sub-advisor to the members of Kappa and Wexford
Spectrum. Wexford GP LLC (“Wexford GP”) is the general partner of
Wexford Capital. Mr. Charles E. Davidson and Mr. Joseph M. Jacobs
are managing and controlling members of Wexford
GP.
|
(24)
|
Eytan
Rechter is chief executive officer and a director of the selling
stockholder and Asher Elmoznino is chief financial officer of the selling
stockholder.
|
23
(25)
|
Tania
Bearryman and Donna Laverty hold voting and/or dispositive power over the
shares held by the selling
stockholder.
|
(26)
|
Peter
Kash is a member of our board of directors. Shares listed as
beneficially owned by Mr. Kash include 358,876 shares of our common stock
held by Mr. Kash’s wife as custodian for the benefit of their minor
children under the UGMA, for which Mr. Kash disclaims any beneficial
ownership. In addition to the shares offered hereby, beneficial
ownership also includes 1,327,629 shares of our common stock and 12,472
shares issuable upon the exercise of options and warrants held by Mr.
Kash.
|
(27)
|
Tomer
Kariv and Ran Nussbaum hold voting and/or dispositive power over the
shares held by the selling stockholder. Mr. Kariv is a director of
Arno.
|
(28)
|
Ari
Tatos, Nigel Mifsud, Magali Garcia-Baudin, David Moran, Phillippe De Salis
and Ewald Scherrer are directors of Primafides (Suisse) SA, the trustee of
the Sirius Trust, and share voting and/or dispositive power over the
shares held by the selling stockholder. In addition to the shares
offered hereby, the selling stockholder beneficially owns 541,806 shares
of our common stock.
|
(29)
|
In
addition to the shares offered hereby, beneficial ownership includes: (i)
49,844 shares of our common stock and warrants to purchase 4,946 shares of
our common stock at an exercise price of $2.42 per share held by Falk
Family Partners, LP, of which Mr. Falk is General Partner; and (ii) 90,744
shares of our common stock and vested options held by Mr. Falk to purchase
99,688 shares of our common stock at an exercise price of $2.42 per
share.
|
(30)
|
Samuel
Gewurz is the president and sole owner of the selling stockholder.
In addition to the shares offered hereby, the selling stockholder
beneficially owns 20,637 shares of our common
stock.
|
(31)
|
In
addition to the shares offered hereby, Mr. Navins, who serves as Arno’s
Treasurer, beneficially owns 149,532 shares of our common
stock.
|
(32)
|
In
addition to the shares offered hereby, the selling stockholder
beneficially owns 39,875 shares of our common
stock.
|
(33)
|
YZT
Management LLC (“YZT”) is the managing member of the selling
stockholder. Udi Toledano is the managing member of YZT and holds
voting and/or dispositive power over the shares held by the selling
stockholder.
|
(34)
|
In
addition to the shares offered hereby, the selling stockholder
beneficially owns 19,937 shares of our common
stock.
|
PLAN
OF DISTRIBUTION
We are
registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein includes
donees, pledgees, transferees or other successors-in-interest selling shares of
common stock or interests in shares of common stock received after the date of
this prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions
may be at fixed prices, at prevailing market prices at the time of sale, at
prices related to the prevailing market price, at varying prices determined at
the time of sale, or at negotiated prices. To the extent any of the
selling stockholders gift, pledge or otherwise transfer the shares offered
hereby, such transferees may offer and sell the shares from time to time under
this prospectus, provided that this prospectus has been amended under Rule
424(b)(3) or other applicable provision of the Securities Act to include the
name of such transferee in the list of selling stockholders under this
prospectus.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
24
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right
to accept and, together with their agents from time to time, to reject, in whole
or in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
Upon any exercise of the warrants by payment of cash, however, we will receive
the exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders might be, and any broker-dealers that act in connection
with the sale of securities will be, deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the securities sold by them
while acting as principals will be deemed to be underwriting discounts or
commissions under the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
25
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not
be sold unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In addition,
we will make copies of this prospectus (as it may be supplemented or amended
from time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
We have agreed with the selling
stockholders to keep the registration statement that includes this prospectus
effective until the earlier of (1) such time as all of the shares covered by
this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold without
restriction pursuant to Rule 144 of the Securities Act.
Shares Eligible For Future
Sale
Upon
completion of this offering and assuming the issuance of all shares offered
hereby that are issuable upon the conversion of our outstanding Series A
Preferred Stock or upon exercise of warrants, there will be 44,584,906 shares of
our common stock issued and outstanding. The shares purchased in this
offering will be freely tradable without registration or other restriction under
the Securities Act, except for any shares purchased by an “affiliate” of our
company (as defined in the Securities Act).
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of such Rule. Rule
144 governs resale of “restricted securities” for the account of any person
(other than us), and restricted and unrestricted securities for the account of
an “affiliate” of ours. Restricted securities generally include any
securities acquired directly or indirectly from us or our affiliates, which were
not issued or sold in connection with a public offering registered under the
Securities Act. An affiliate of ours is any person who directly or
indirectly controls us, is controlled by us, or is under common control with
us. Our affiliates may include our directors, executive officers, and
persons directly or indirectly owing 10% or more of our outstanding common
stock. In general, under Rule 144, a person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of ours at the time of,
or at any time during the three months preceding, a sale, and who has
beneficially owned restricted securities for at least six months would be
entitled to sell those shares, subject to the requirements of Rule 144 regarding
publicly available information about us. Affiliates may only sell in any
three month period that number of shares that does not exceed the greater of 1
percent of the then-outstanding shares of our common stock or the average weekly
trading volume of our shares of common stock in the over-the-counter market
during the four calendar weeks preceding the sale. However, because we
were formerly a “shell company,” in order for the holders of our restricted
securities to resell their shares in reliance upon Rule 144, we are required to
have been subject to the public reporting requirements of the Exchange Act for
at least 90 days, and to have filed all reports required to be filed during the
12 months preceding such sale (or such shorter period that we were required to
file such reports). Further, Rule 144 will not be available to the selling
stockholders until one year has elapsed from the date we have filed “Form 10
information” with the SEC, which generally consists of all the information and
disclosures concerning our business, financial information, management and other
information that is required to be included in a registration statement filed
under the Exchange Act. Accordingly, the shares held by the selling
stockholders will become eligible for sale under Rule 144 one year after the
filing of the registration statement of which this prospectus is a
part.
26
Following
the date of this prospectus, we cannot predict the effect, if any, that sales of
our common stock or the availability of our common stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales by
existing stockholders of substantial amounts of our common stock could adversely
affect prevailing market prices for our stock.
DESCRIPTION
OF CAPITAL STOCK
General
Our
amended and restated certificate of incorporation authorizes us to issue
115,000,000 shares of capital stock, par value $0.0001 per share, comprised of
80,000,000 shares of common stock, and 35,000,000 million shares of preferred
stock.
As of the date of this prospectus, we
have issued and outstanding approximately:
|
·
|
20,412,024
shares of our common stock,
|
|
·
|
15,274,000
shares of our Series A Preferred
Stock,
|
|
·
|
warrants
to purchase 8,693,930 shares of Series A Preferred
Stock,
|
|
·
|
options
to purchase 1,763,303 shares of our common stock at exercise prices
ranging from $0.25 to $3.00 per share,
and
|
|
·
|
warrants
to purchase 495,252 shares of our common stock at exercise prices ranging
from $1.00 to $2.42 per share.
|
Common
Stock
The
holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
cumulative voting rights. Upon our liquidation, dissolution or winding
down, holders of our common stock will be entitled to share ratably in all of
our assets that are legally available for distribution, after payment of all
debts and other liabilities. The holders of our common stock have no
preemptive, subscription, redemption or conversion rights.
Holders
of our common stock are entitled to receive such dividends, as the board of
directors may from time to time declare out of funds legally available for the
payment of dividends. We seek growth and expansion of our business through
the reinvestment of profits, if any, and do not anticipate that we will pay
dividends in the foreseeable future.
Series
A Convertible Preferred Stock
The terms, conditions, privileges,
rights and preferences of our Series A Convertible Preferred Stock are described
in a Certificate of Designation filed with the Secretary of State of Delaware on
September 3, 2010. The following provides only a brief summary of certain
of the terms of our Series A Preferred Stock.
Conversion. Each share of our Series A
Preferred Stock is initially convertible at the holder’s election into one share
of our common stock. Upon the effective date of the registration statement
of which this prospectus is a part, each share of Series A Preferred Stock will
automatically convert into one share of common stock.
27
Voting.
Along with the holders of our common stock, the holders of our Series A
Preferred Stock are entitled to one vote on all matters submitted to the holders
of common stock for each share of common stock into which the Series A Preferred
Stock would be converted as of the record date for such vote based on the
conversion ratio then in effect. In addition, the holders of the Series A
Preferred Stock are entitled to vote as a separate class with respect to any
change in the rights of the Series A Preferred Stock, any amendment to our
certificate of incorporation, any increase in the number of shares of Series A
Preferred Stock, or the authorization, creation or issuance of any class or
series of capital stock ranking senior to or of equal seniority with the Series
A Preferred Stock.
Dividends.
The holders of our Series A Preferred Stock are entitled to an annual per share
cumulative dividend equal to 5% of the original issuance price of $1.00 per
share, which dividends are payable upon the conversion of the Series A Preferred
Stock into common stock, and which we may elect to pay in the form of additional
shares of common stock in lieu of cash. Solely as an example of the
foregoing, if the registration statement of which this prospectus is a part is
declared effective by the SEC after the Series A Preferred Stock has been issued
and outstanding for six months, the total accrued dividend preference on the
15,274,000 shares of Series A Preferred Stock issued in our September 2010
private placement would be $381,850, which we could elect to pay by issuing
approximately an additional 381,850 shares of common stock upon the automatic
conversion of the Series A Preferred Stock into common stock. The holders
of our Series A Preferred Stock are entitled to payment of all accrued dividends
prior to the payment of any dividends to the holders of our common stock.
Following payment of such accrued dividends, the holders of our Series A
Preferred Stock are entitled to participate with the holders of our common stock
in any other dividend payment on an as-converted basis.
Liquidation.
Upon the liquidation, dissolution or winding up of our company, whether
voluntary or involuntary, the holders of our Series A Preferred Stock are
entitled to be paid, prior to any payments to the holders of our common stock,
an amount per share equal to the sum of (i) 1.5 times the original issuance
price of $1.00 per share, plus (ii) any accrued but unpaid dividends on the
Series A Preferred Stock.
Authority to Issue Stock
Our board
of directors has the authority to issue the authorized but unissued shares of
our common stock without action by the shareholders. The issuance of such
shares would reduce the percentage ownership held by current
shareholders.
Our
amended and restated certificate of incorporation authorizes the issuance of up
to 35,000,000 shares of preferred stock, all of which are currently designated
as Series A Convertible Preferred Stock. Following the conversion of our
Series A Preferred Stock into common stock, our board of directors will again
have the authority to fix and determine the relative rights and preferences of
up to 35,000,000 preferred shares, as well as the authority to issue such
shares, without further stockholder approval. As a result, our board of
directors could authorize the issuance of a series of preferred stock that is
senior to our common stock and that would grant to holders preferred rights to
our assets upon liquidation, the right to receive dividends, additional
registration rights, anti-dilution protection, the right to the redemption to
such shares, together with other rights, none of which will be afforded holders
of our common stock.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is currently eligible for trading on the “Pink Sheets,” however,
there has been only one trade in our common stock since we filed an application
to deregister our common stock in May 2009. The historical trading of our common
stock has been extremely limited and sporadic. Accordingly, there is not
an established public trading market for our common stock.
Prior to
May 2009, our common stock traded on the OTC Bulletin Board, or the OTCBB,
where the first trade was reported in June 2008. Until July 16, 2008, our
common stock traded under the symbol “LRRI.OB.” Following our merger
with Laurier completed on June 3, 2008, our trading symbol changed to “ARNI.OB”
on July 17, 2008. Set forth below are the high and low sales prices for
our common stock during each quarter within the last two fiscal years, and
during each of the first two quarters of fiscal 2010, as reported by the Pink
Sheets or the OTCBB, as applicable. The quotations reflect inter-dealer prices,
without retail markup, markdown, or commission, and may not represent actual
transactions. Consequently, the information provided below may not be indicative
of our common stock price under different conditions.
28
Quarter
Ended
|
High
|
Low
|
||||||
March
31, 2008
|
$ | - | $ | - | ||||
June
30, 2008
|
$ | 2.00 | $ | 2.00 | ||||
September
30, 2008
|
$ | 3.50 | $ | 1.80 | ||||
December
31, 2008
|
$ | 3.25 | $ | 1.95 | ||||
March
31, 2009
|
$ | 1.90 | $ | 1.90 | ||||
June
30, 2009
|
$ | 1.50 | $ | 1.00 | ||||
September
30, 2009
|
$ | - | $ | - | ||||
December
31, 2009
|
$ | - | $ | - | ||||
March
31, 2010
|
$ | - | $ | - | ||||
June
30, 2010
|
$ | 0.51 | $ | 0.51 | ||||
September
30, 2010
|
$ | - | $ | - |
Stockholders
According
to the records of our transfer agent, American Stock Transfer & Trust
Company, as of October 31, 2010, we had approximately 275 holders of record of
common stock, not including those held in “street name.”
Dividends
We have
never declared or paid a dividend on our common stock and do not anticipate
paying any cash dividends in the foreseeable future.
Securities
Authorized for Issuance under Equity Compensation Plans
We grant
stock options and other equity incentive awards pursuant to our Amended and
Restated 2005 Stock Option Plan, which has been approved by our stockholders.
The following table sets forth certain information as of December 31, 2009
with respect to our Amended and Restated 2005 Stock Option Plan:
Plan
category
|
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options
(A)
|
Weighted-Average
Exercise Price
of
Outstanding
Options
(B)
|
Number
of Securities
Remaining
Available for
Future
Issuance Under
Equity
Compensation Plans
(Excluding
Securities
Reflected in Column
(A))
(C)
|
|||||||||
Equity
compensation plans approved by security holders:
|
||||||||||||
2005
Stock Option Plan
|
1,913,241 | $ | 1.76 | 1,057,414 | ||||||||
Equity
compensation plans not approved by stockholders:
|
||||||||||||
None
|
— | — | — | |||||||||
Total
|
1,913,241 | $ | 1.76 | 1,057,414 |
29
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and plan of operations should be read in conjunction with
the financial statements and the notes to those statements included in this
prospectus. This discussion includes forward-looking statements that
involve risk and uncertainties. As a result of many factors, such as those
set forth in this prospectus under “Risk Factors,” actual results may differ
materially from those anticipated in these forward-looking
statements.
Company
Overview
We are a
development stage company focused on developing innovative products for the
treatment of cancer. We currently have the exclusive worldwide rights to
commercially develop three oncology product candidates:
|
·
|
AR-12
– Our lead clinical product candidate is a potentially first-in-class,
orally available, targeted anti-cancer agent that inhibits
phosphoinositide dependent protein kinase-1, or PDK-1, a protein in the
PI3K/Akt pathway involved in the growth and proliferation of cells,
including cancer cells. We believe AR-12 may also cause cell death
through the induction of stress in the endoplasmic reticulum. In May 2009,
the FDA accepted our investigational new drug application, or IND, for
AR-12. We are currently conducting a multi-centered Phase I clinical
study of AR-12 in adult patients with advanced or recurrent solid tumors
or lymphoma. The Phase I study of AR-12 is being
conducted in two parts. The first part is a dose-escalating study,
which we refer to as the Escalation Phase, primarily designed to evaluate
the compound’s safety in order to identify the maximum tolerated dose, or
MTD, or a recommended dose, or RD, for future studies of AR-12. We
anticipate that the Escalation Phase will be completed by the third
quarter of 2011. Following the Escalation Phase, we plan to initiate
the second part of the study, which involves enrolling an expanded cohort
of additional patients at the MTD or RD in multiple tumor types. We
refer to this second part of the study as the Expansion Phase. The purpose
of the Expansion Phase is to further evaluate and confirm the PD effects,
potential anti-tumor activity, and safety of AR-12 at the MTD or RD.
We anticipate that the Expansion Phase will be fully enrolled within one
year.
|
|
·
|
AR-42
– We are also developing AR-42, an orally available, broad spectrum
inhibitor of both histone and non-histone deacetylation proteins, which
play an important role in the regulation of gene expression, cell growth
and survival. In preclinical studies, AR-42 has demonstrated greater
potency and activity in solid and liquid tumors when compared to
vorinostat (also known as SAHA and marketed as Zolinza® by
Merck) and other deacetylase inhibitors. These data demonstrate the potent
and differentiating activity of AR-42. Additionally, pre-clinical findings
presented at the 2009 American Society of Hematology Annual Meeting and
Exposition showed that AR-42 potently and selectively inhibits leukemic
stem cells in acute myeloid leukemia, or AML. AR-42 is currently
being studied in an investigator initiated Phase I/IIa clinical study in
adult patients with relapsed or refractory multiple myeloma, chronic
lymphocytic leukemia, or CLL, or lymphoma. Once the MTD is defined,
the study is designed so that additional patients can be added to
investigate efficacy in a particular disease and help guide future Phase
II programs. Up to an additional 10 patients may be enrolled at the
MTD dose in each of the multiple myeloma, CLL and
lymphoma.
|
|
·
|
AR-67
– We are also developing AR-67, a novel, third-generation campothecin
analogue that inhibits Topoisomerase I activity. In 2008, we completed a
multi-centered, ascending dose Phase I clinical trial of AR-67 in patients
with advanced solid tumors. AR-67 is currently being studied in a
Phase II clinical trial in patients with glioblastoma
multiforme, or GBM, a highly aggressive form of brain cancer. We
anticipate having interim data from this Phase II study by the second
quarter of 2011. Thereafter, if data permits, we may elect to
initiate larger Phase II studies or advance AR-67 into a
registration-enabling Phase III
study.
|
30
We have no product sales to date and we
will not generate any product revenue until we receive approval from the U.S.
Food and Drug Administration, or the FDA, or equivalent foreign regulatory
bodies to begin selling our pharmaceutical product candidates. Developing
pharmaceutical products is a lengthy and very expensive process. Assuming we do
not encounter any unforeseen safety or other issues during the course of
developing our product candidates, we do not expect to complete the development
of a product candidate for several years, if ever. To date, a significant amount
of our development expenses have related to our lead product candidate, AR-12.
As we proceed with the clinical development of AR-12 and as we further develop
our other product candidates, AR-42 and AR-67, our research and development
expenses will further increase. To the extent we are successful in acquiring
additional product candidates for our development pipeline, our need to finance
further research and development will continue increasing. Accordingly, our
success depends not only on the safety and efficacy of our product candidates,
but also on our ability to finance the development of the products. To date, our
major sources of working capital have been proceeds from private and public
sales of our common stock, and debt financings.
Research
and development, or R&D, expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers for
pre-clinical, clinical, and manufacturing development, legal expenses resulting
from intellectual property prosecution, costs related to obtaining and
maintaining our product license agreements, contractual review, and other
expenses relating to the design, development, testing, and enhancement of our
product candidates. We expense our R&D costs as they are
incurred.
General
and administrative, or G&A, expenses consist primarily of salaries and
related expenses for executive, finance and other administrative personnel,
personnel recruiting fees, accounting, legal and other professional fees,
business development expenses, rent, business insurance and other corporate
expenses.
Our
results include non-cash compensation expense as a result of the issuance of
stock, stock options and warrants. We expense the fair value of stock options
and warrants over the vesting period. When more precise pricing data is
unavailable, we determine the fair value of stock options using the
Black-Scholes option-pricing model. The terms and vesting schedules for
share-based awards vary by type of grant and the employment status of the
grantee. Generally, the awards vest based upon time-based or performance-based
conditions. Performance-based conditions generally include the attainment of
goals related to our financial performance and product development. Stock-based
compensation expense is included in the respective categories of expense in the
statements of operations. We expect to record additional non-cash compensation
expense in the future, which may be significant.
Results
of Operations
General and Administrative
Expenses. G&A expenses for the three months ended June 30, 2010 and
2009 were approximately $0.2 million and $0.1 million, respectively. The
increase of approximately $0.1 million over 2009 is primarily due to Board of
Directors compensation in 2009 versus none in 2008. G&A expenses for the six
months ended June 30, 2010 and 2009 were approximately $0.3 million and $0.6
million, respectively. The decrease of approximately $0.3 million over
2009 is primarily due to a reduction in employee headcount from three to
zero. G&A expenses for the years ended December 31, 2009 and 2008 were
approximately $1.5 million and $2.3 million, respectively. The decrease of
approximately $0.8 million over 2008 is primarily due to costs incurred during
2008 related to our June 2008 reverse merger, becoming a publicly traded company
and a reduction in employee compensation costs, including stock compensation
costs, resulting from the reduced headcount from three to one employee.
These reductions in 2009 over 2008 were partially offset by Board of Directors
compensation of approximately $0.2 million for 2009 not incurred in 2008 and
increased office rent expense.
Research and Development
Expenses. R&D expenses for the three months ended June 30, 2010
and 2009 were approximately $1.1 million and $1.2 million, respectively.
The decrease of approximately $0.1 million over the three month period in 2009
is due primarily to reduced employee compensation costs from a reduced headcount
with one less employee and from a reduction in clinical trial costs related to
AR-67 of approximately $0.1 million offset by an increase in manufacturing costs
for AR-12 of approximately $0.1 million. R&D expenses for the six months
ended June 30, 2010 and 2009 were approximately $2.1 million and $3.2 million,
respectively. The decrease of approximately $1.1 million over the six
month period in 2009 was primarily due to reductions in AR-67 clinical,
manufacturing, and contractual costs as well as reductions in employee
compensation costs due to reduced headcount. Additionally, costs related to
AR-42 manufacturing and preclinical activities were reduced by approximately
$0.3 million over 2009. R&D expenses for the years ended December 31, 2009
and 2008 were approximately $5.4 million and $9.8 million, respectively.
The decrease of approximately $4.4 million over 2008 was primarily due to
reduced manufacturing, clinical and nonclinical activities for AR-67 of
approximately $1.7 million and reduced nonclinical and contractual activities
for AR-42 of approximately $1.7 million. Additional decreases resulted
from reduced manufacturing, nonclinical and contractual activities for AR-12 of
approximately $0.8 million.
31
The
following table summarizes our R&D expenses incurred for preclinical
support, contract manufacturing for clinical supplies, clinical trial services
provided by third parties and milestone payments for in-licensed technology for
each of our product candidates for the three months ended June 30, 2010 and
2009, the six months ended June 30, 2010 and 2009, the years ended
December 31, 2009 and 2008, as well as the cumulative amounts since we
began development of each product candidate through June 30, 2010. The table
also summarizes unallocated costs, which consist of personnel, facilities and
other costs not directly allocable to development programs:
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
Years
Ended December 31,
|
Cummulative
|
|||||||||||||||||||||||||
amounts during
|
||||||||||||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2009
|
2008
|
development
|
||||||||||||||||||||||
AR-12
|
$ | 383,148 | $ | 271,489 | $ | 1,120,981 | $ | 1,036,443 | $ | 1,999,469 | $ | 2,820,442 | $ | 5,974,269 | ||||||||||||||
AR-67
|
276,876 | 369,120 | 201,129 | 727,819 | 1,075,141 | 2,801,368 | 6,827,847 | |||||||||||||||||||||
AR-42
|
23,081 | 50,677 | 37,438 | 321,697 | 541,066 | 2,263,440 | 2,866,763 | |||||||||||||||||||||
Unallocated
R&D
|
384,565 | 469,226 | 770,415 | 1,150,938 | 1,828,526 | 1,883,139 | 4,938,772 | |||||||||||||||||||||
Total
|
$ | 1,067,670 | $ | 1,160,512 | $ | 2,129,963 | $ | 3,236,897 | $ | 5,444,202 | $ | 9,768,389 | $ | 20,607,651 |
AR-12. Our lead clinical
product candidate is a potentially first-in-class, orally available, targeted
anti-cancer agent that inhibits phosphoinositide dependent protein kinase-1, or
PDK-1, a protein in the PI3K/Akt pathway, and may also cause cell death through
the induction of endoplasmic reticulum stress. In May 2009, the FDA accepted our
investigational new drug application, or IND, for AR-12. We are currently
conducting a multi-centered Phase I clinical study of AR-12 in adult patients
with advanced or recurrent solid tumors or lymphoma. We expect to complete
the Escalation Phase of the study in the first quarter of 2011; however, the
Expansion Phase of the study may not be completed until the end of 2011. We then
expect to begin Phase II development of AR-12 by the first half of 2012.
Based on our current development plans for AR-12, we anticipate spending
approximately $1.1 million on external development costs during the second half
of 2010.
AR-42. We are also developing
AR-42, an orally available, broad spectrum inhibitor of both histone and
non-histone deacetylation proteins. AR-42 is currently being studied in an
investigator sponsored Phase I/IIa clinical study in adult patients with
relapsed or refractory multiple myeloma, chronic lymphocytic leukemia or
lymphoma. In preclinical studies, AR-42 has demonstrated greater potency and
activity in solid and liquid tumors when compared to vorinostat (also known as
SAHA and marketed as Zolinza® by
Merck) and other deacetylase inhibitors. These data demonstrate the potent and
differentiating activity of AR-42. Additionally, pre-clinical findings presented
at the 2009 American Society of Hematology Annual Meeting and Exposition showed
that AR-42 potently and selectively inhibits leukemic stem cells in acute
myeloid leukemia. Based on our current development plans for AR-42, we
anticipate spending approximately $0.1 million on external development costs
during the second half of
2010.
AR-67. We are also developing
AR-67, a novel, third-generation camptothecin analogue that inhibits
Topoisomerase I activity. In late 2008, we completed a multi-centered, ascending
dose Phase I clinical trial of AR-67 in patients with advanced solid
tumors. AR-67 is currently being studied in a Phase II
clinical in patients with glioblastoma multiforme, or GBM, a highly
aggressive form of brain cancer. We anticipate having interim Phase II
data from each study by the second quarter of 2011, at which point we may elect
to initiate larger Phase II studies or advance AR-67 into a
registration-enabling Phase III study. If the data is positive and we elect to
initiate a larger new trial, we may spend significant additional amounts to
conduct such a study. Based on our current development plans for
AR-67, we anticipate spending approximately $0.5 million on external development
costs during the second half of 2010.
32
Our expenditures on current and
future clinical development programs are expected to be substantial,
particularly in relation to our available capital resources, and to
increase. However, these planned expenditures are subject to many
uncertainties, including the results of clinical trials and whether we develop
any of our drug candidates with a partner or independently. As a result of such
uncertainties, we cannot predict the duration and completion costs of our
research and development projects or whether, when and to what extent we will
generate revenues from the commercialization and sale of any of our product
candidates. The duration and cost of clinical trials may vary significantly over
the life of a project as a result of unanticipated events arising during
clinical development and a variety of factors, including:
|
·
|
the
number of trials and studies in a clinical
program;
|
|
·
|
the
number of patients who participate in the
trials;
|
|
·
|
the
number of sites included in the
trials;
|
|
·
|
the
rates of patient recruitment and
enrollment;
|
|
·
|
the
duration of patient treatment and
follow-up;
|
|
·
|
the
costs and timing of manufacturing our drug candidates;
and
|
|
·
|
the
costs, requirements, timing of, and the ability to secure regulatory
approvals.
|
Interest Income. Interest
income for the three and six months ended June 30, 2010 and 2009 was $1,925,
$3,417, $1,066 and $26,197, respectively. Interest income for the years
ended December 31, 2009 and 2008 was $28,145 and $206,054. The decrease in
interest income over the earlier period is due to lower interest rates earned on
cash in bank accounts, and lower average cash balances levels.
Liquidity
and Capital Resources
The
following tables summarize our liquidity and capital resources as of June 30,
2010, December 31, 2009 and June 30, 2009 and our net decrease in cash and cash
equivalents for the six months ended June 30, 2010 and 2009 and for the year
ended December 31, 2009 (the amounts stated are expressed in
thousands):
Liquidity
and capital resources
|
June 30, 2010
|
December 31, 2009
|
June 30, 2009
|
|||||||||
Cash
and cash equivalents
|
$ | 709 | $ | 3,087 | $ | 5,633 | ||||||
Working
capital
|
$ | (536 | ) | $ | 1,506 | $ | 4,128 | |||||
Stockholders'
(deficit) equity
|
$ | (472 | ) | $ | 1,576 | $ | 4,207 |
Six
Months Ended June 30,
|
Year
Ended
|
|||||||||||
Cash
flow data
|
2010
|
2009
|
December 31, 2009
|
|||||||||
Cash
provided by (used in):
|
||||||||||||
Operating
activities
|
$ | (2,379 | ) | $ | (4,762 | ) | $ | (7,310 | ) | |||
Investing
activities
|
- | - | - | |||||||||
Financing
activities
|
- | - | 3 | |||||||||
Net
decrease in cash and cash equivalents
|
$ | (2,379 | ) | $ | (4,762 | ) | $ | (7,307 | ) |
Our total
cash resources as of June 30, 2010 were approximately $0.7 million compared to
$3.1 million as of December 31, 2009 and $5.6 million as of June 30, 2009.
As of June 30, 2010, we had approximately $1.4 million in liabilities, and
$(0.5) million in net working capital. We incurred a net loss of $2.1
million and had negative cash flow from operating activities of $2.4 million for
the six months ended June 30, 2010. Since August 1, 2005 (inception)
through June 30, 2010, we have incurred an aggregate net loss of approximately
$25.7 million, while negative cash flow from operating activities has amounted
to $20.8 million. As we continue to develop our product candidates, we
expect to continue to incur substantial and increasing losses, which will
continue to generate negative net cash flows from operating activities as we
expand our technology portfolio and engage in further research and development
activities, particularly the conducting of pre-clinical studies and clinical
trials.
33
From
inception through June 30, 2010, we have financed our operations through private
sales of our equity and debt securities. As we have not generated any
revenue from operations to date, and we do not expect to generate revenue for
several years, if ever, we will need to raise substantial additional capital in
order to continue to fund our research and development, including our long-term
plans for clinical trials and new product development, as well as to fund
operations generally. We may seek to raise additional funds through
various potential sources, such as equity and debt financings, or through
strategic collaborations and license agreements. We can give no assurances
that we will be able to secure such additional sources of funds to support or
operations, or if such funds are available to us, that such additional financing
will be sufficient to meet our needs.
During
September 2010, we completed a private placement of our Series A Preferred Stock
resulting in net proceeds of approximately $13.9 million after cash issuance
costs.
Based on
our resources at June 30, 2010, and together with the net proceeds from our
September 2010 financing, we believe that we have sufficient capital to fund our
operations through to the second half of 2012. However, based on the various
options for future clinical studies of AR-12 yet to be determined and pending
results of our soon to be completed Phase II clinical trial of AR-67, our
projected cash needs is difficult to predict. In addition, there are other
factor which may also cause our actual cash requirements to vary materially,
including the changes in the focus and direction of our research and development
programs, including the acquisition and pursuit of development of new product
candidates; competitive and technical advances; costs of commercializing any of
the product candidates; and costs of filing, prosecuting, defending and
enforcing any patent claims and any other intellectual property rights. If
we are unable to raise additional funds when needed, we may not be able to
market our products as planned or continue development and regulatory approval
of our products, we could be required to delay, scale back or eliminate some or
all our research and development programs and we may need to wind down our
operations altogether. Each of these alternatives would likely have a
material adverse effect on our business.
The
actual amount of funds we will need to operate is subject to many factors, some
of which are beyond our control. These factors include the
following:
|
·
|
the
progress of our research
activities;
|
|
·
|
the
number and scope of our research
programs;
|
|
·
|
the
progress of our pre-clinical and clinical development
activities;
|
|
·
|
the
costs and timing of manufacturing our drug
candidates;
|
|
·
|
the
progress of the development efforts of parties with whom we have entered
into research and development
agreements;
|
|
·
|
our
ability to maintain current research and development programs and to
establish new research and development and licensing arrangements;
and
|
|
·
|
the
cost involved in prosecuting and enforcing patent claims and other
intellectual property rights; and the cost and timing of regulatory
approvals.
|
34
We have
based our estimates on assumptions that may prove to be wrong. We may need to
obtain additional funds sooner than planned or in greater amounts than we
currently anticipate. Potential sources of financing include strategic
relationships, public or private sales of equity or debt and other sources. We
may seek to access the public or private equity markets when conditions are
favorable due to our long-term capital requirements. We do not have any
committed sources of financing at this time, and it is uncertain whether
additional funding will be available when we need it on terms that will be
acceptable to us, or at all. If we raise funds by selling additional shares of
common stock or other securities convertible into common stock, the ownership
interests of our existing stockholders will be diluted. If we are not able to
obtain financing when needed, we may be unable to carry out our business plan.
As a result, we may have to significantly limit our operations and our business,
financial condition and results of operations would be materially harmed. In
such an event, we will be required to undertake a thorough review of our
programs and the opportunities presented by such programs and allocate our
resources in the manner most prudent.
To the
extent that we raise additional funds by issuing equity or convertible or
non-convertible debt securities, our stockholders may experience additional
significant dilution and such financing may involve restrictive covenants. To
the extent that we raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our technologies
or our product candidates, or grant licenses on terms that may not be favorable
to us. These things may have a material adverse effect on our
business.
The
continuation of our business beyond the second half of 2012 is dependent upon
obtaining further long-term financing, the successful development of our drug
product candidates and related technologies, the successful and sufficient
market acceptance of any product offerings that we may introduce, and, finally,
the achievement of a profitable level of operations. The issuance of additional
equity securities by us may result in a significant dilution in the equity
interests of current stockholders. Obtaining commercial loans, assuming those
loans would be available, on acceptable terms or even at all, will increase our
liabilities and future cash commitments.
35
OUR
BUSINESS
Overview
We are a development stage company
focused on developing innovative products for the treatment of cancer. We
currently have the exclusive worldwide rights to commercially develop three
oncology product candidates. The following table summarizes our product
development pipeline:
Product
Candidate
|
Indications
|
Commercial
Rights
|
Ongoing Studies / Status
|
|||
AR-12
|
Solid
tumors and hematological cancers
|
Arno
|
A
two part, multi-centered Phase I clinical trial of AR-12 is ongoing in
patients with solid tumors and lymphoma is ongoing who have progressed
despite treatment with other therapies.
|
|||
AR-42
|
Hematological
cancers
|
Arno
|
Investigator
initiated Phase I/IIa clinical study of AR-42 is ongoing at The James
Cancer Center at The Ohio State University in patients with advanced or
recurrent hematological cancers for which no treatment is
available.
|
|||
AR-67
|
Glioblastoma
multiforme (GBM)
|
Arno
|
A
two-cohort, multi-center Phase II clinical trial is ongoing in patients
with GBM that have progressed with other therapies. The first cohort
will enroll up to 26 patients who experienced rapid progression after
treatment with bevacizumab (Avastin®,Roche). The second cohort will
enroll up to 32 patients who have not been treated with Avastin within the
last 90 days.
|
Corporate
History; Merger Transactions
On June 2, 2008, we were acquired by
Laurier International, Inc., a Delaware corporation, in a “reverse” merger
whereby a wholly-owned subsidiary of Laurier merged with and into Arno
Therapeutics, with Arno Therapeutics remaining as the surviving corporation and
a wholly-owned subsidiary of Laurier. In accordance with the terms of this
merger, stockholders of Arno Therapeutics exchanged all of their shares of
common stock of Arno Therapeutics for shares of Laurier common stock at a rate
of 1.99377 shares of Laurier common stock for each share of Arno Therapeutics
common stock. As a result of the issuance of the shares of Laurier common stock
to the former Arno Therapeutics stockholders, following the merger the former
stockholders of Arno Therapeutics held 95 percent of the outstanding common
stock of Laurier, assuming the issuance of all shares underlying outstanding
options and warrants. Upon completion of the merger, all of the former
officers and directors of Laurier resigned and were replaced by the officers and
directors of Arno Therapeutics. Additionally, following the merger Laurier
changed its name to Arno Therapeutics, Inc.
Oncology
Overview
Cancer is
the second leading cause of death in the United States, surpassed only by heart
disease. Since 1990, over 18 million new cancer cases have been diagnosed.
According to a 2009 report by the American Cancer Society, the National
Institutes of Health estimate direct costs for medical care for cancer related
treatments in the United States in 2007 were $93.0 billion. With a 66% 5-year
relative survival rate for all cancers from 1996-2004, oncology remains a
significant unmet medical need.
36
Pharmaceutical
treatments are widely used to combat cancer and are often used alongside surgery
or radiation, when possible. Different types of cancers respond in unique
ways to different drugs, and some tumors may not respond at all to particular
therapies. In many cases, these treatments extend life by slowing the
progression of the disease but become less effective over time as the cancer
cells become resistant to a given therapy or a class of compounds with a
particular mechanism of action. For this reason, there is a need to
develop new agents, particularly those with novel mechanisms that can be added
to the current arsenal of treatment options.
Many
types of drugs are presently used to treat cancer, including cytotoxics,
targeted agents, hormones, and biologics. According to an October 2008
report by Cowen & Co., the global cancer market was roughly $63.0 billion in
2007, of which cytotoxics and targeted agents each accounted for 33%, or $21.0
billion.
Cytotoxics
interfere with essential cellular processes in order to kill rapidly dividing
cells, an effective approach for destroying cancer cells that remains prevalent
despite the fact that these compounds can have significant side effects,
particularly in rapidly dividing normal tissues such as those found in bone
marrow and the gastrointestinal tract. By contrast, targeted agents attack
cellular processes that are more prevalent in cancer cells than in normal
tissues, and thus aim to simultaneously reduce side effects and improve
efficacy.
Although
there are many agents available to treat cancer, a number of factors contribute
to determining which particular agent is administered to a patient. There
is a considerable amount of overlap in the mechanisms of action of approved
therapies, and in many cases, multiple drugs in a class are approved and in
clinical use. The choice of a particular agent or class of agents is
generally based on the results of empirical clinical trials in specific cancer
indications, and a desire to treat the disease aggressively is balanced with
considerations for the patient’s comfort and quality of life. These
considerations highlight the need to develop therapies that not only improve
anti-cancer efficacy but also improve patient convenience and reduce side
effects.
Product
Development Pipeline
AR-12
Overview
We are developing AR-12, a potentially
first-in-class, orally available cancer treatment that is currently enrolling
patients in a Phase I clinical study. AR-12 is an inhibitor of phosphoinositide
dependent protein kinase-1, or PDK-1, that targets the Akt pathway, while also
possessing activity in the endoplasmic reticulum stress pathway and other
pathways targeting apoptosis. In pre-clinical studies, AR-12 has demonstrated
activity in a wide range of tumor types and synergistic effects with several
widely used anti-cancer agents, enhancing activity or overcoming drug-resistance
when used in combination with Avastin®
(Genentech), Herceptin®
(Genentech), Gleevec®
(Novartis), Tarceva® (Genentech)
and tamoxifen. We are currently enrolling patients with advanced or recurrent
solid tumors or lymphoma in a Phase I clinical study of AR-12.
Mechanism
of Action
AR-12 is an inhibitor of a protein
known as PDK-1, a novel target in an important cell growth and proliferation
pathway. This pathway has been validated by the approval of therapeutics
that target proteins both upstream and downstream of PDK-1. Receptor
tyrosine kinases, or RTK, are cell-surface receptors that are involved in cell
growth and are upstream of PDK-1. Members of the RTK class are targeted by
some of the most successful and widely used targeted oncology agents, including
Avastin®
(Genentech), Herceptin®
(Genentech), Gleevec® (Novartis),
Tarceva ® (Genentech), Iressa® (AstraZeneca), Nexavar® (Bayer/Onyx) and
tamoxifen. Downstream of PDK-1 is the mammalian target of rapamycin, or
mTOR protein. The mTOR inhibitors temsirolimus (Torisel®, Wyeth)
and everolimus (Afinitor®,
Novartis) are FDA approved for the treatment of renal cancer, and additional
studies are being conducted with mTOR inhibitors in various clinical trials as
anti-cancer agents.
37
Although FDA-approved drugs that target
the Akt pathway have shown efficacy in treating cancer, some tumors either do
not respond to these drugs or eventually become resistant to therapy.
Scientists hypothesize that a combination of drugs that inhibit different
targets in this pathway could provide synergistic or additive benefits to
increase efficacy and potentially overcome drug resistance. For this
reason, there has been particular interest within the biopharmaceutical industry
in developing inhibitors of PI3K, PDK-1, and Akt.
PDK-1 can transform normal human cells
and may be involved in the invasion and metastasis process. PDK-1 and its
downstream target, the protein Akt, are frequently activated in multiple cancer
types, and inhibiting PDK-1 facilitates the dephosphorylation and subsequent
inactivation of Akt. Activation of the PDK-1/Akt pathway confers
resistance to cell death signaling and the apoptotic activity of other cytotoxic
agents. Additionally, recent research has demonstrated the importance of
PDK-1 in oncology that is independent of its Akt modulation. The
inhibition of the PDK-1/Akt pathway in cancer cells where this pathway was
previously active has been shown to decrease cell proliferation and increase
programmed cell death, which is known as apoptosis. Preclinical data
suggests that AR-12 inhibits PDK-1 and data collected from preclinical
toxicology studies and tumor distribution studies indicate that AR-12 would be
expected to exceed therapeutic concentrations in vivo.
AR-12 has also demonstrated an ability
to induce the ER stress mediated apoptosis pathway, which contribute to its
unique profile in vitro
and in vivo. The
ER stress pathway is a cellular mechanism that can either induce cellular
protection or apoptosis. AR-12, through the induction of PKR-like
Endoplasmic Reticulum Kinase, or PERK, seems to selectively induce the
pro-apoptotic response and appears to have a preferential effect on cancer
cells.
Potential
Advantages of AR-12
We
believe AR-12’s unique mechanisms and ability to improve the efficacy of other
approved agents may enable it to become a first-in-class agent with broad
applications in oncology and significant sales in the market. In
preclinical studies, AR-12 has shown efficacy in a wide range of tumor types,
including breast, lung, prostate, pancreatic, brain, and hematological cancers,
as both a single-agent as well as in combination with leading oncology
therapeutics. AR-12 demonstrated synergy or additive benefit or overcome
drug-resistance when used in combination with Avastin® ,
Herceptin® ,
Gleevec® ,
Tarceva® ,
Iressa® ,
Nexavar
® and tamoxifen, all of which are widely-prescribed,
FDA-approved oncology therapeutics that represented approximately $10 billion in
sales in 2008.
We
believe AR-12 is a potentially first-in-class molecule and the only PDK-1
inhibitor currently in human clinical development. We also believe that
PDK-1 may prove to be highly desirable target for oncology; therapeutic
strategies to modulate the Akt pathway are of great scientific, clinical, and
financial interest, and there are a few molecules in development that seek to
target Akt through the inhibition a protein known as PI3K. PDK-1 is
downstream of PI3K and thus may be more likely to impact the desired molecular
targets further downstream and less likely to result in off-target
toxicity. Inhibition of PDK-1 also seems to be able to regulate other
important oncology targets that are not be mediated by PI3K. In addition
to targeting PDK-1, we believe that AR-12 also has the ability to induce ER
stress and has the potential to become an important agent in a range of cancer
indications.
Clinical
Development
We are currently enrolling subjects in
a multi-site Phase I clinical trial of AR-12 in patients with solid tumors or
lymphomas who have progressed despite treatment with other therapies.
Subjects in this Phase I study receive an oral daily dose of AR-12. The
Phase I study is being conducted at three clinical sites, including The Ohio
State University (Columbus, Ohio), Scottsdale Healthcare (Phoenix, Arizona), and
The Royal Marsden (London, UK).
38
Our current Phase I study of AR-12 is
being conducted in two parts. The first part is a dose-escalating study,
which we refer to as the Escalation Phase, that is primarily designed to
evaluate the safety of AR-12 and to identify the maximum tolerated dose, or MTD,
or a recommended dose, RD, for future clinical studies of AR-12. The study
is also designed to utilize biomarkers and functional imaging to examine the
pharmacodynamic effects of AR-12 in modulating certain targets within the PI3K
pathway. Secondary objectives for the Escalation Phase include
characterizing the phamacokinetics of AR-12 (i.e., how AR-12 is absorbed,
distributed, released and eliminated in and from the body) and measuring tumor
response. We also anticipate the determination of an RD or MTD with the
conclusion of the Escalation Phase in the third quarter of 2011. Following
the Escalation Phase, we plan to initiate the second part of the study, which we
refer to as the Expansion Phase. We expect that the Expansion Phase will
involve enrolling an expanded cohort of additional patients at the MTD or RD for
the purpose of further evaluating and confirming the pharmacodynamic effects,
potential anti-tumor activity and safety of AR-12 at the MTD or RD. We
anticipate that the Expansion Phase will be fully enrolled within one
year.
The biomarker selection and evaluation
is being led by Johann de Bono, M.D., Ph.D. of The Royal Marsden in
London. Dr. de Bono is a prominent researcher in oncology drug development
and has been involved in the successful development of novel targeted therapies
and compounds in the PI3K/Akt pathway.
We believe that the data generated from
the current Phase I study will provide important information to direct future
studies, both in terms of safety and exposure and potential efficacy. We
also believe that the biomarkers and pharmacodynamic assays planned for the
Phase I study may provide deeper understanding of the molecular actions of AR-12
and validate the preclinical hypothesis about AR-12’s activity in a clinical
setting. The information generated in these studies will also help to
guide the Phase II development of AR-12. Arno expects to begin Phase II
studies with AR-12 in the first half of 2012, subject to the completion and
results of the ongoing Phase I study.
AR-42
We also have exclusive rights to
develop and commercialize AR-42, a novel oral cancer therapy in currently in
early clinical development. AR-42 is a broad spectrum deacetylase
inhibitor of both histone and non-histone proteins, which has demonstrated
greater potency and activity in solid and liquid tumors when compared in
preclinical studies to vorinostat (also known as “SAHA” or Zolinza®), the
first of only two marketed compound in the class. AR-42 may possess
additional histone-independent mechanisms, which may contribute to its superior
profile in vitro and
in vivo. An
investigator-initiated Phase I/IIa trial of AR-42 in patients with hematological
cancers commenced in June 2010 at The Ohio State University.
Background
of HDAC Inhibitors
Histones
are proteins that play an important role in the regulation of genes.
Histone modification is a key regulator of gene expression, and improper histone
acetylation is among the modifications that are linked to expression of a
cancerous phenotype. These changes can lead to improper cell growth
resulting from altering the expression of important genes involved in cell cycle
progression, proliferation, and survival. Histone deacetylases, or HDACs,
are a class of enzymes that participate in this form of regulation and have been
linked to both solid and hematologic malignancies and thus represent a target
for cancer therapy.
HDAC
inhibitors are a large emerging class of drug compounds that have demonstrated
efficacy primarily in hematological malignancies, also called blood cancers, but
are currently being developed in solid tumors as well. It is believed that HDAC
inhibitors induce histone hyperacetylation and can cause cell death. The
first drug in this class to gain approval is SAHA, which is approved to treat
cutaneous T-cell lymphoma, or CTCL, in patients that have failed two previous
therapies. Another HDAC inhibitor, romidepsin (Celgene Corporation) was
also recently approved in CTCL. These two compounds and other HDACs are
currently in late stage development for both hematological malignancies as well
as solid tumors. In preclinical studies, AR-42 has demonstrated activity against
a broad spectrum of deacetylase targets and increased potency compared to
SAHA.
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Potential
Advantages of AR-42
AR-42 is
a broad spectrum inhibitor of histone and non-histone deacetylase targets that
we believe may have advantages over currently approved HDAC inhibitors,
including SAHA. As a result, many of our preclinical data compare AR-42 to
SAHA. In preclinical models, AR-42 has shown to be more potent or
effective than SAHA in various cancer types, including chronic lymphocyte
leukemia, or CLL, B-cell lymphoma, prostate and ovarian cancers.
Further, preclinical studies suggest that AR-42 has anti-cancer
activities that are independent of histone acetylation and include Akt
dephosphorylation, Bcl-xL and survivin suppression, and Ku70 acetylation, all of
which disrupt the growth and proliferation of cancer cells. We believe
that this combination of activity and potency could make AR-42 a more effective
treatment for hematological malignancies than currently available HDAC
inhibitors.
In
addition to its broad activity against hematological malignancies, pre-clinical
data presented at the 2009 American Society of Hematology Annual Meeting and
Exposition showed that AR-42 potently and selectively inhibits leukemic stem
cells in acute myeloid leukemia.
Clinical
Development
We are
collaborating with The Ohio State University, which commenced an
investigator-initiated Phase I/IIa study for AR-42 in June 2010 in patients with
advanced or recurrent hematological malignancies for which no treatment is
available. The primary goal is to evaluate the safety and tolerability of
AR-42 given orally three times per week. Secondary endpoints include
characterizing AR-42’s pharmacokinetics and its pharmacodynamic profile through
the measurement of biomarkers and evaluation of clinical response.
Once the
MTD is defined, the study is designed so that additional patients can be added
to investigate efficacy in a particular disease and help guide future Phase II
programs. Up to an additional 10 patients may be enrolled at the MTD dose
in each of the following disease cohorts: CLL/small lymphocytic lymphoma,
multiple myeloma, and lymphoma. Cohorts for other indications may be added
at this dose with an appropriate protocol amendment.
AR-67
Background
on Camptothecins
Camptothecin
and its analogues, together referred to as camptothecins, are a class of drugs
widely used to treat certain types of cancers, with worldwide annual sales
exceeding $660 million. Camptothecins treat cancer by disrupting cell division
through the inhibition of topoisomerase I, a critical enzyme in DNA replication.
Through this inhibition and additional mechanisms of action, camptothecins
target cancer cells preferentially to normal tissues, making them a promising
class of drugs in this indication.
All
clinically relevant camptothecins react with water and exist in two forms under
physiologic conditions: a biologically active “lactone” form and a largely
inactive but toxic “carboxylate” form. In human blood, chemical equilibrium
converts the active lactone form to the inactive and toxic
carboxylate form. Maintaining a therapeutic level of the lactone form in vivo has proven to be a
significant challenge in the development of the class.
Second-generation
camptothecin analogues focused on improving lactone stability by increasing
lipophilicity and modifying binding profiles between the compound and blood
proteins. Two second generation therapies, topotecan (Hycamtin®,
Glaxo-Smith-Kline) and irinotecan (also known as CPT-11 and marketed as
Camptostar® by
Pfizer), are approved by the FDA. Topotecan, the first camptothecin to receive
marketing approval in the United States, is used as a second-line intravenous
therapy in several tumor types including ovarian, small cell lung cancer, and
cervical cancers. Irinotecan is a largely inactive intravenous pro-drug for
SN-38, a potent but insoluble camptothecin analogue. Irinotecan is used as a
front-line and second-line therapy for colorectal cancer and is by far the
leading drug in the class with roughly $400 million in worldwide annual sales in
2009. While these drugs represent a marked improvement compared with the parent
compound, their in vivo
stability profiles remain suboptimal. Exposure to the active lactone form can be
measured by lactone: total area under the curve ratio, or AUC ratio, which
measures the ratio of the drug forms over the course of drug exposure. Lactone
AUC ratios are 30-40% for topotecan, 40-45% for CPT-11, and 50-75% for
SN-38.
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AR-67 is
a novel, third-generation camptothecin analogue that has demonstrated high
potency in pre-clinical studies and improved pharmacokinetic properties in
humans as compared with first and second-generation products. In the Phase I
study of AR-67, which was completed in 2008, pharmacokinetic data suggest a
lactone AUC ratio of approximately 85%.
We
believe that this unique profile may translate into superior efficacy in the
treatment of a variety of cancers. We believe these advantages could allow AR-67
to become a leading product in the camptothecin market.
Potential
Advantages of AR-67
AR-67 has
demonstrated potent topoisomerase I inhibition and greatly improved in vivo stability of the
active lactone form when compared with topotecan and irinotecan. Structural
characteristics make AR-67 highly lipophilic, with pre-clinical evaluation
showing 10-fold and 250-fold increases in lipophilicity over SN-38 and
topotecan, respectively. Favorable plasma protein binding characteristics also
contribute to AR-67’s superior lactone AUC ratio compared with marketed
camptothecins. In the Phase I study, pharmacokinetic data demonstrated that
approximately 85% of AR-67 was present in the lactone form, compared with 30-40%
for topotecan, 40-45% for irinotecan, and 50-75% for SN-38. Additionally,
gastrointestinal toxicities that are commonly seen with other camptothecins,
such as nausea, vomiting and diarrhea, were not observed with AR-67 treatment,
an important differentiator when compared to irinotecan.
Pre-clinical
studies with AR-67 have demonstrated a unique anti-cancer profile, with in vitro cytotoxicity
comparable to topotecan and SN-38 in several tumor lines, including
non-small-cell lung and central nervous system cancers. AR-67 was used in
pre-clinical xenograft studies and showed particular promise in brain cancers,
where the drug significantly inhibited tumor growth and elicited complete
responses in subcutaneous and intracranial glioma models. We believe that the
pre-clinical evidence of AR-67’s potency combined with the preliminary
pharmacokinetic data observed in the Phase I study may lead to a superior
therapeutic profile.
Clinical
Development Program
AR-67 is
currently being studied in a Phase II clinical trial in patients with
glioblastoma multiforme, or GBM, a highly aggressive form of brain
cancer.
GBM is
the most prevalent and deadly form of brain cancer. In preclinical in vivo studies, AR-67 has
shown significant tumor growth inhibition, including complete tumor
regression. Pre-clinical evidence suggests that AR-67’s high lipophilicity
may promote blood-brain-barrier penetration of therapeutic levels of the lactone
form and increase activity relative to other drugs in the class. Arno is
currently enrolling patients in a two-cohort Phase II study of AR-67 as a
treatment for patients with GBM that have progressed on other therapies. The
first cohort will enroll up to 26 patients who have progressed rapidly (within
90 days) after treatment with Avastin, a drug recently approved in this
indication. These patients’ cancer normally progresses quite aggressively,
and the endpoint for this cohort is two months of progression-free
survival. The second cohort will enroll up to 32 patients who have not
received Avastin treatment in the past 90 days and will look for six months of
progression free survival. This multi-centered study includes leading
centers from the United States and Canada and will be led by James J.
Vrendenburgh, M.D. from Duke University.
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While there can be no assurances,
demonstrated efficacy in GBM, which is an orphan indication, may provide an
accelerated path to approval, increased market protection and expanded sales
potential.
Competition
We
compete primarily in the segment of the biopharmaceutical market that addresses
cancer therapeutics, which is highly competitive. We face significant
competition from many pharmaceutical, biopharmaceutical and biotechnology
companies that are researching and selling products designed to address the
cancer market. Many of our competitors have significantly greater financial,
manufacturing, marketing and drug development resources than we do. Large
pharmaceutical companies in particular have extensive experience in clinical
testing and in obtaining regulatory approvals for drugs. These companies also
have significantly greater research capabilities than we do. In addition, many
universities and private and public research institutes are active in cancer
research. We also compete with commercial biotechnology companies for the rights
to product candidates developed by public and private research institutes.
Smaller or early-stage companies are also significant competitors, particularly
those with collaborative arrangements with large and established companies. In
addition to the factors described above under “Risk Factors,” our ability to
compete in the cancer therapeutics market depends on the following
factors:
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our
ability to develop novel compounds with attractive pharmaceutical
properties and to secure and protect intellectual property rights based on
our innovations;
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the
efficacy, safety and reliability of our drug
candidates;
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the
speed at which we develop our drug
candidates;
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our
ability to design and successfully complete appropriate clinical
trials;
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our
ability to maintain a good relationship with regulatory
authorities;
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the
timing and scope of regulatory
approvals;
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our
ability to manufacture and sell commercial quantities of future products
to the market; and
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acceptance
of future products by physicians and other healthcare
providers.
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AR-12
AR-12 is
believed to target PDK-1, which is in the PI3K/Akt pathway. Targeting the
PI3K/Akt pathway has been of great interest to the pharmaceutical industry,
particularly compounds that target PI3K. The approaches for targeting PI3K
are either general inhibition or the specific inhibition of the alpha, beta,
gamma, or delta subunit of this kinase. Some of these molecules also
combine PI3K inhibition with activity against the mammalian target of rapamycin
(“mTOR”), a target that is believed to also play a role in the PI3K/Akt
pathway. Other approaches to this pathway include targeting Akt
directly. Additionally, companies such as Wyeth, Vernalis,
GlaxoSmithKline, and Novartis have published data on their preclinical discovery
programs to target PDK-1.
Compounds
that inhibit PI3K have been the foundation of several recent licensing,
acquisition, and financing activities. Despite the great deal of activity
in the space, Arno believes that AR-12 can differentiate itself and become an
important agent in the treatment of cancer. In multiple preclinical
studies, AR-12 has demonstrated the ability to inhibit PDK-1 as well as induce
ER stress, a combination that could provide a unique therapeutic profile and
differentiate AR-12 from other molecules being developed to inhibit the PI3K/Akt
pathway. Arno also believes that AR-12 is the first PDK-1 inhibitor to
reach clinical development, which could provide the significant advantage of
being first-in-class as well as distinguishing AR-12 from PI3K
inhibitors.
AR-42
If
approved, AR-42 would compete with other HDAC inhibitors. HDAC inhibitors have
displayed efficacy in a broad range of settings as single agents and in
combination with other therapeutics. The first HDAC inhibitor to obtain
approval is vorinostat (“SAHA,” or Zolinza®), which
is approved for the treatment of recurrent cutaneous T-cell lymphoma
(“CTCL”). Additionally, in November 2009 Gloucester Pharmaceuticals
received FDA approval for its novel HDAC inhibitor, romidepsin, to treat CTCL
before being acquired by Celgene Corp. in December 2009. Other compounds
are in Phase II and Phase III trials, primarily in hematological malignancies,
but also in solid tumors as both single agents and in combination with other
oncology therapies.
42
We
believe that AR-42 has a therapeutic profile that will allow it to compete
successfully in the crowded class of what are broadly known as HDAC
inhibitors. AR-42 is a pan-DAC inhibitor that has demonstrated preclinical
activity that compares favorably with SAHA, as well as potentially
differentiating activity in targeting cancer stem cells. Additionally,
based on AR-42’s preclinical toxicology package and dosing schedule, we believe
that there is a relatively low risk of cardiac toxicity or fatigue. We
also believe that AR-42’s potential to selectively target leukemic stem cells in
AML may sufficiently differentiate AR-42 from other agents in the class to
become an important member of the emerging class of deacetylase
inhibitors.
AR-67
If
approved, we expect that AR-67 would compete in a class of chemotherapeutic
agents known as camptothecins. The annual worldwide sales of camptothecins,
which have been used for many years, collectively exceed $660 million. The
leading camtothecins on the market today include Hycamitin (topotecan), marketed
by GlaxoSmithKline, and Camptostar (irinotecan or CPT-11), which is marketed by
Pfizer. If approved, our product candidates may also compete with other
cytotoxic, or anticancer, therapies.
We
believe that AR-67 can compete successfully with currently available
camptothecin derivates as well as those currently in development. Many of the
compounds that are currently marketed and in clinical development have
experienced limited efficacy. We believe that AR-67’s potent topoisomerase I
inhibition and greatly improved lactone stability may enable the compound to
demonstrate broad clinical utility and future commercial success.
License
Agreements and Intellectual Property
General
Our goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights of
other parties, both in the United States and in other countries. Our policy is
to actively seek to obtain, where appropriate, the broadest intellectual
property protection possible for our current product candidates and any future
product candidates, proprietary information and proprietary technology through a
combination of contractual arrangements and patents, both in the U.S. and
abroad. However, even patent protection may not always afford us with complete
protection against competitors who seek to circumvent our patents. If we fail to
adequately protect or enforce our intellectual property rights or secure rights
to patents of others, the value of our intellectual property rights would
diminish. See “Risk Factors –
Risks Related to Our Intellectual Property.”
We will
continue to depend upon the skills, knowledge and experience of our scientific
and technical personnel, as well as that of our advisors, consultants and other
contractors, none of which is patentable. To help protect our proprietary
know-how, which is not patentable, and for inventions for which patents may be
difficult to enforce, we currently rely and will in the future rely on trade
secret protection and confidentiality agreements to protect our interests. To
this end, we require all of our employees, consultants, advisors and other
contractors to enter into confidentiality agreements that prohibit the
disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions
important to our business.
AR-12
and AR-42 License Agreements
Our
rights to AR-12 and AR-42 are governed by separate license agreements with The
Ohio State University Research Foundation, or Ohio State, entered into in
January 2008. Pursuant to each of these agreements, we have exclusive,
worldwide, royalty-bearing licenses to commercialize certain patent
applications, know-how and improvements relating to AR-12 and AR-42 for all
therapeutic uses.
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Pursuant
to our license agreements for AR-12 and AR-42, we made one-time cash payments to
Ohio State in the aggregate amount of $450,000 and reimbursed it for past patent
expenses. Additionally, we are required to make performance-based cash payments
upon successful completion of clinical and regulatory milestones relating to
AR-12 and AR-42 in the U.S., Europe and Japan. In July 2010, we paid Ohio State
a milestone payment upon the commencement of the Phase I clinical
study of AR-12. The first milestone payment for AR-42 will be due when the
first patient is dosed in the first company-sponsored Phase I clinical trial. To
the extent we enter into a sublicensing agreement relating to either or both of
AR-12 or AR-42, we will be required to pay Ohio State a portion of all
non-royalty income received from such sublicensee.
The
license agreements with Ohio State further provide that we will indemnify Ohio
State from any and all claims arising out of the death of or injury to any
person or persons or out of any damage to property, or resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of
either AR-12 or AR-42, except to the extent that any such claim arises out of
the gross negligence or willful misconduct of Ohio State. The license agreements
for AR-12 and AR-42, respectively, expire on the later of (i) the expiration of
the last valid claim contained in any licensed patent and (ii) 20 years after
the effective date of the license. Ohio State will generally be able to
terminate either license upon our breach of the terms of the license the extent
we fail to cure any such breach within 90 days after receiving notice of such
breach or our bankruptcy. We may terminate either license upon 90 days’ prior
written notice.
AR-67
License Agreement
Our
rights to AR-67 are governed by an October 2006 license agreement with the
University of Pittsburgh, or Pitt. Under this agreement, we hold an exclusive,
worldwide, royalty-bearing license for the rights to commercialize technologies
embodied by certain issued patents, patent applications and know-how relating to
AR-67 for all therapeutic uses. We have expanded, and intend to continue to
expand, our patent portfolio by filing additional patents covering expanded uses
for this technology.
Under the
terms of our license agreement with Pitt, we made a one-time cash payment of
$350,000 to Pitt and reimbursed it for past patent expenses. Additionally, Pitt
will receive performance-based cash payments upon successful completion of
clinical and regulatory milestones relating to AR-67. We will make the first
milestone payment to Pitt following the filing of the first New Drug
Application, or NDA, filed with the FDA for AR-67. We are also required to pay
to Pitt an annual maintenance fee on each anniversary of the license agreement,
and to pay Pitt a royalty equal to a percentage of net sales of AR-67. To the
extent we enter into a sublicensing agreement relating to AR-67, we will pay
Pitt a portion of all non-royalty income received from such
sublicensee.
Under the
license agreement with Pitt, we also agreed to indemnify and hold Pitt and its
affiliates harmless from any and all claims, actions, demands, judgments,
losses, costs, expenses, damages and liabilities (including reasonable
attorneys’ fees) arising out of or in connection with (i) the production,
manufacture, sale, use, lease, consumption or advertisement of AR-67, (ii) the
practice by us or any affiliate or sublicensee of the licensed patent; or (iii)
any obligation of us under the license agreement unless any such claim is
determined to have arisen out of the gross negligence, recklessness or willful
misconduct of Pitt. The license agreement will terminate upon the expiration of
the last patent relating to AR-67. Pitt may generally terminate the agreement at
any time upon a material breach by us to the extent we fail to cure any such
breach within 60 days after receiving notice of such breach or in the event we
file for bankruptcy. We may terminate the agreement for any reason upon 90 days’
prior written notice.
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Government Regulation and Product
Approval
The FDA
and comparable regulatory agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon the testing (pre-clinical
and clinical), manufacturing, labeling, storage, recordkeeping, advertising,
promotion, import, export, marketing and distribution, among other things, of
drugs and drug product candidates. If we do not comply with applicable
requirements, we may be fined, the regulatory agencies may refuse to approve our
marketing applications or allow us to manufacture or market our products, and we
may be criminally prosecuted. We and our manufacturers may also be subject to
regulations under other United States federal, state, and local
laws.
United States Government
Regulation
In the
United States, the FDA regulates drugs under the Food, Drug and Cosmetic Act, or
FDCA, and implementing regulations. The process required by the FDA before our
drug candidates may be marketed in the United States generally involves the
following (although the FDA is given wide discretion to impose different or more
stringent requirements on a case-by-case basis):
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completion
of extensive pre-clinical laboratory tests, pre-clinical animal studies
and formulation studies, all performed in accordance with the FDA’s good
laboratory practice regulations and other
regulations;
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submission
to the FDA of an IND application, which must become effective before
clinical trials may begin;
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performance
of multiple adequate and well-controlled clinical trials meeting FDA
requirements to establish the safety and efficacy of the product candidate
for each proposed indication;
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submission
of a new drug application, or NDA, to the
FDA;
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satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facilities at which the product candidate is produced, and potentially
other involved facilities as well, to assess compliance with current good
manufacturing practice, or cGMP, regulations and other applicable
regulations; and
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FDA
review and approval of the NDA prior to any commercial marketing, sale or
shipment of the drug.
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The testing and approval process
requires substantial time, effort and financial resources, and we cannot be
certain that any approvals for our drug candidates will be granted on a timely
basis, if at all. Risks to us related to these regulations are described above
under the caption entitled “Risk Factors – Risks Relating to the
Clinical Testing, Regulatory Approval, Manufacturing and Commercialization of
Our Product Candidates.”
Pre-clinical
tests may include laboratory evaluation of product chemistry, formulation and
stability, as well as studies to evaluate toxicity and other effects in animals.
The results of pre-clinical tests, together with manufacturing information and
analytical data, among other information, are submitted to the FDA as part of an
IND application. Subject to certain exceptions, an IND becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, issues a clinical hold to delay a proposed clinical investigation due to
concerns or questions about the conduct of the clinical trial, including
concerns that human research subjects will be exposed to unreasonable health
risks. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. Our submission of an IND, or those
of our collaboration partners, may not result in the FDA authorization to
commence a clinical trial. A separate submission to an existing IND must also be
made for each successive clinical trial conducted during product development.
The FDA must also approve changes to an existing IND. Further, an independent
institutional review board, or IRB, for each medical center proposing to conduct
the clinical trial must review and approve the plan for any clinical trial
before it commences at that center and it must monitor the study until
completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any
time on various grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk. Clinical testing also must satisfy
extensive Good Clinical Practice requirements and regulations for informed
consent.
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Clinical
Trials
For
purposes of NDA submission and approval, clinical trials are typically conducted
in the following three sequential phases, which may overlap (although additional
or different trials may be required by the FDA as well):
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Phase I clinical trials
are initially conducted in a limited population to test the drug
candidate for safety, dose tolerance, absorption, metabolism, distribution
and excretion in healthy humans or, on occasion, in patients, such as
cancer patients. In some cases, particularly in cancer trials, a sponsor
may decide to conduct what is referred to as a “Phase Ib” evaluation,
which is a second safety-focused Phase I clinical trial typically designed
to evaluate the impact of the drug candidate in combination with currently
FDA-approved drugs or in a particular patient
population.
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Phase II clinical trials
are generally conducted in a limited patient population to identify
possible adverse effects and safety risks, to determine the efficacy of
the drug candidate for specific targeted indications and to determine dose
tolerance and optimal dosage. Multiple Phase II clinical trials may be
conducted by the sponsor to obtain information prior to beginning larger
and more expensive Phase III clinical trials. In some cases, a sponsor may
decide to conduct what is referred to as a “Phase IIb” evaluation, which
is a second, confirmatory Phase II clinical trial that could, if accepted
by the FDA, serve as a pivotal clinical trial in the approval of a drug
candidate.
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Phase III clinical trials
are commonly referred to as pivotal trials. When Phase II clinical
trials demonstrate that a dose range of the drug candidate is effective
and has an acceptable safety profile, Phase III clinical trials are
undertaken in large patient populations to further evaluate dosage, to
provide substantial evidence of clinical efficacy and to further test for
safety in an expanded and diverse patient population at multiple,
geographically dispersed clinical trial
sites.
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In
some cases, the FDA may condition continued approval of an NDA on the sponsor’s
agreement to conduct additional clinical trials with due diligence. In other
cases, the sponsor and the FDA may agree that additional safety and/or efficacy
data should be provided; however, continued approval of the NDA may not always
depend on timely submission of such information. Such post-approval studies are
typically referred to as Phase IV studies.
New Drug
Application
The
results of drug candidate development, pre-clinical testing and clinical trials,
together with, among other things, detailed information on the manufacture and
composition of the product and proposed labeling, and the payment of a user fee,
are submitted to the FDA as part of an NDA. The FDA reviews all NDAs submitted
before it accepts them for filing and may request additional information rather
than accepting an NDA for filing. Once an NDA is accepted for filing, the FDA
begins an in-depth review of the application.
During
its review of an NDA, the FDA may refer the application to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved. The FDA may refuse to approve an NDA and issue a not approvable
letter if the applicable regulatory criteria are not satisfied, or it may
require additional clinical or other data, including one or more additional
pivotal Phase III clinical trials. Even if such data are submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval. Data
from clinical trials are not always conclusive and the FDA may interpret data
differently than we or our collaboration partners interpret data. If the FDA’s
evaluations of the NDA and the clinical and manufacturing procedures and
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which contains the conditions that must be met in order to
secure final approval of the NDA. If and when those conditions have been met to
the FDA’s satisfaction, the FDA will issue an approval letter, authorizing
commercial marketing of the drug for certain indications. The FDA may withdraw
drug approval if ongoing regulatory requirements are not met or if safety
problems occur after the drug reaches the market. In addition, the FDA may
require testing, including Phase IV clinical trials, and surveillance programs
to monitor the effect of approved products that have been commercialized, and
the FDA has the power to prevent or limit further marketing of a drug based on
the results of these post-marketing programs. Drugs may be marketed only for the
FDA-approved indications and in accordance with the FDA-approved label. Further,
if there are any modifications to the drug, including changes in indications,
other labeling changes, or manufacturing processes or facilities, we may be
required to submit and obtain FDA approval of a new NDA or NDA supplement, which
may require us to develop additional data or conduct additional pre-clinical
studies and clinical trials.
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The Hatch-Waxman Act
Under
the Hatch-Waxman Act, newly-approved drugs and new conditions of use may benefit
from a statutory period of non-patent marketing exclusivity. The Hatch-Waxman
Act provides five-year marketing exclusivity to the first applicant to gain
approval of an NDA for a new chemical entity, meaning that the FDA has not
previously approved any other new drug containing the same active entity. The
Hatch-Waxman Act prohibits the submission of an abbreviated NDA, or ANDA, or a
Section 505(b)(2) NDA for another version of such drug during the five-year
exclusive period; however, submission of a Section 505(b)(2) NDA or an ANDA
for a generic version of a previously-approved drug containing a paragraph IV
certification is permitted after four years, which may trigger a 30-month stay
of approval of the ANDA or Section 505(b)(2) NDA. Protection under the
Hatch-Waxman Act does not prevent the submission or approval of another “full”
505(b)(1) NDA; however, the applicant would be required to conduct its own
pre-clinical and adequate and well-controlled clinical trials to demonstrate
safety and effectiveness. The Hatch-Waxman Act also provides three years of
marketing exclusivity for the approval of new and supplemental NDAs, including
Section 505(b)(2) NDAs, for, among other things, new indications, dosages, or
strengths of an existing drug, if new clinical investigations that were
conducted or sponsored by the applicant are essential to the approval of the
application. Some of our product candidates may qualify for Hatch-Waxman
non-patent marketing exclusivity.
In
addition to non-patent marketing exclusivity, the Hatch-Waxman Act amended the
FDCA to require each NDA sponsor to submit with its application information on
any patent that claims the drug for which the applicant submitted the NDA or
that claims a method of using such drug and with respect to which a claim of
patent infringement could reasonably be asserted if a person not licensed by the
owner engaged in the manufacture, use, or sale of the drug. Generic applicants
that wish to rely on the approval of a drug listed in the Orange Book must
certify to each listed patent, as discussed above. We intend to submit for
Orange Book listing all relevant patents for our product
candidates.
Finally,
the Hatch-Waxman Act amended the patent laws so that certain patents related to
products regulated by the FDA are eligible for a patent term extension if patent
life was lost during a period when the product was undergoing regulatory review,
and if certain criteria are met. We intend to seek patent term extensions,
provided our patents and products, if they are approved, meet applicable
eligibility requirements.
Pediatric Studies and
Exclusivity
The
FDA provides an additional six months of non-patent marketing exclusivity and
patent protection for any such protections listed in the Orange Book for new or
marketed drugs if a sponsor conducts specific pediatric studies at the written
request of the FDA. The Pediatric Research Equity Act of 2003, or PREA,
authorizes the FDA to require pediatric studies for drugs to ensure the drugs’
safety and efficacy in children. PREA requires that certain new NDAs or NDA
supplements contain data assessing the safety and effectiveness for the claimed
indication in all relevant pediatric subpopulations. Dosing and administration
must be supported for each pediatric subpopulation for which the drug is safe
and effective. The FDA may also require this data for approved drugs that are
used in pediatric patients for the labeled indication, or where there may be
therapeutic benefits over existing products. The FDA may grant deferrals for
submission of data, or full or partial waivers from PREA. PREA pediatric
assessments may qualify for pediatric exclusivity. Unless otherwise required by
regulation, PREA does not apply to any drug for an indication with orphan
designation.
47
Orphan Drug Designation and
Exclusivity
The
FDA may grant orphan drug designation to drugs intended to treat a rare disease
or condition, which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process. If
a product which has an orphan drug designation subsequently receives the first
FDA approval for the indication for which it has such designation, the product
is entitled to seven years of orphan drug exclusivity, meaning that the FDA may
not approve any other applications to market the same drug for the same
indication for a period of seven years, except in limited circumstances, such as
a showing of clinical superiority to the product with orphan exclusivity
(superior efficacy, safety, or a major contribution to patient care). Orphan
drug designation does not prevent competitors from developing or marketing
different drugs for that indication. We may seek orphan drug designation for
AR-67 for the treatment of GBM and potentially for certain uses of AR-12 and
AR-42.
Under
European Union medicines laws, the criteria for designating a product as an
“orphan medicine” are similar but somewhat different from those in the United
States. A drug is designated as an orphan drug if the sponsor can establish that
the drug is intended for a life-threatening or chronically debilitating
condition affecting no more than five in 10,000 persons in the European Union or
that is unlikely to be profitable, and if there is no approved satisfactory
treatment or if the drug would be a significant benefit to those persons with
the condition. Orphan medicines are entitled to ten years of marketing
exclusivity, except under certain limited circumstances comparable to United
States law. During this period of marketing exclusivity, no “similar” product,
whether or not supported by full safety and efficacy data, will be approved
unless a second applicant can establish that its product is safer, more
effective or otherwise clinically superior. This period may be reduced to six
years if the conditions that originally justified orphan designation change or
the sponsor makes excessive profits.
Fast Track
Designation
The
FDA’s fast track program is intended to facilitate the development and to
expedite the review of drugs that are intended for the treatment of a serious or
life-threatening condition and that demonstrate the potential to address unmet
medical needs. Under the fast track program, applicants may seek traditional
approval for a product based on data demonstrating an effect on a clinically
meaningful endpoint, or approval based on a well-established surrogate endpoint.
The sponsor of a new drug candidate may request the FDA to designate the drug
candidate for a specific indication as a fast track drug at the time of original
submission of its IND, or at any time thereafter prior to receiving marketing
approval of a marketing application. The FDA will determine if the drug
candidate qualifies for fast track designation within 60 days of receipt of
the sponsor’s request.
If
the FDA grants fast track designation, it may initiate review of sections of an
NDA before the application is complete. This so-called “rolling review” is
available if the applicant provides and the FDA approves a schedule for the
submission of the remaining information and the applicant has paid applicable
user fees. The FDA’s review clock for both a standard and priority NDA for a
fast track product does not begin until the complete application is submitted.
Additionally, fast track designation may be withdrawn by the FDA if it believes
that the designation is no longer supported by emerging data, or if the
designated drug development program is no longer being pursued.
In
some cases, a fast track designated drug candidate may also qualify for one or
more of the following programs:
|
·
|
Priority Review. As
explained above, a drug candidate may be eligible for a six-month priority
review. The FDA assigns priority review status to an application if the
drug candidate provides a significant improvement compared to marketed
drugs in the treatment, diagnosis or prevention of a disease. A fast track
drug would ordinarily meet the FDA’s criteria for priority review, but may
also be assigned a standard review. We do not know whether any of our drug
candidates will be assigned priority review status or, if priority review
status is assigned, whether that review or approval will be faster than
conventional FDA procedures, or that the FDA will ultimately approve the
drug.
|
48
|
·
|
Accelerated Approval.
Under the FDA’s accelerated approval regulations, the FDA is
authorized to approve drug candidates that have been studied for their
safety and efficacy in treating serious or life-threatening illnesses and
that provide meaningful therapeutic benefit to patients over existing
treatments based upon either a surrogate endpoint that is reasonably
likely to predict clinical benefit or on the basis of an effect on a
clinical endpoint other than patient survival or irreversible morbidity.
In clinical trials, surrogate endpoints are alternative measurements of
the symptoms of a disease or condition that are substituted for
measurements of observable clinical symptoms. A drug candidate approved on
this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase IV or post-approval clinical trials to
validate the surrogate endpoint or confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies with due
diligence, or to validate a surrogate endpoint or confirm a clinical
benefit during post-marketing studies, may cause the FDA to seek to
withdraw the drug from the market on an expedited basis. All promotional
materials for drug candidates approved under accelerated regulations are
subject to prior review by the FDA.
|
When
appropriate, we and/or our collaboration partners intend to seek fast track
designation, accelerated approval or priority review for our drug candidates. We
cannot predict whether any of our drug candidates will obtain fast track,
accelerated approval, or priority review designation, or the ultimate impact, if
any, of these expedited review mechanisms on the timing or likelihood of the FDA
approval of any of our drug candidates.
Satisfaction
of the FDA regulations and approval requirements or similar requirements of
foreign regulatory agencies typically takes several years, and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. Typically, if a drug candidate is intended to treat a
chronic disease, as is the case with some of the drug candidates we are
developing, safety and efficacy data must be gathered over an extended period of
time. Government regulation may delay or prevent marketing of drug candidates
for a considerable period of time and impose costly procedures upon our
activities. The FDA or any other regulatory agency may not grant approvals for
changes in dosage form or new indications for our drug candidates on a timely
basis, or at all. Even if a drug candidate receives regulatory approval, the
approval may be significantly limited to specific disease states, patient
populations and dosages. Further, even after regulatory approval is obtained,
later discovery of previously unknown problems with a drug may result in
restrictions on the drug or even complete withdrawal of the drug from the
market. Delays in obtaining, or failures to obtain, regulatory approvals for any
of our drug candidates would harm our business. In addition, we cannot predict
what adverse governmental regulations may arise from future United States or
foreign governmental action.
Special Protocol
Assessment
The
FDCA directs the FDA to meet with sponsors, pursuant to a sponsor’s written
request, for the purpose of reaching agreement on the design and size of
clinical trials intended to form the primary basis of an efficacy claim in an
NDA. If an agreement is reached, the FDA will reduce the agreement to writing
and make it part of the administrative record. This agreement is called a
special protocol assessment, or SPA. While the FDA’s guidance on SPAs states
that documented SPAs should be considered binding on the review division, the
FDA has the latitude to change its assessment if certain exceptions apply.
Exceptions include identification of a substantial scientific issue essential to
safety or efficacy testing that later comes to light, a sponsor’s failure to
follow the protocol agreed upon, or the FDA’s reliance on data, assumptions or
information that are determined to be wrong.
49
Other Regulatory
Requirements
Any
drugs manufactured or distributed by us or our collaboration partners pursuant
to future FDA approvals are subject to continuing regulation by the FDA,
including recordkeeping requirements and reporting of adverse experiences
associated with the drug. Drug manufacturers and their subcontractors are
required to register with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with ongoing regulatory requirements, including cGMP, which impose
certain procedural and documentation requirements upon us and our third-party
manufacturers. Failure to comply with the statutory and regulatory requirements
can subject a manufacturer to possible legal or regulatory action, such as
warning letters, suspension of manufacturing, sales or use, seizure of product,
injunctive action or possible civil penalties. We cannot be certain that we or
our present or future third-party manufacturers or suppliers will be able to
comply with the cGMP regulations and other ongoing FDA regulatory requirements.
If our present or future third-party manufacturers or suppliers are not able to
comply with these requirements, the FDA may halt our clinical trials, require us
to recall a drug from distribution, or withdraw approval of the NDA for that
drug.
The
FDA closely regulates the post-approval marketing and promotion of drugs,
including standards and regulations for direct-to-consumer advertising,
off-label promotion, industry-sponsored scientific and educational activities
and promotional activities involving the Internet. A company can make only those
claims relating to safety and efficacy that are approved by the FDA. Failure to
comply with these requirements can result in adverse publicity, warning and/or
untitled letters, corrective advertising and potential civil and criminal
penalties.
Foreign
Regulation
In
addition to regulations in the United States, we will be subject to a variety of
foreign regulations governing clinical trials and commercial sales and
distribution of our products. Whether or not we obtain FDA approval for a
product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for
FDA approval. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to
country.
Under
European Union regulatory systems, marketing authorizations may be submitted
either under a centralized or mutual recognition procedure. The centralized
procedure provides for the grant of a single marketing authorization that is
valid for all European Union member states. The mutual recognition procedure
provides for mutual recognition of national approval decisions. Under this
procedure, the holder of a national marketing authorization may submit an
application to the remaining member states. Within 90 days of receiving the
applications and assessment report, each member state must decide whether to
recognize approval.
In
addition to regulations in Europe and the United States, we will be subject to a
variety of foreign regulations governing clinical trials and commercial
distribution of our future products.
Manufacturing
We do not
currently have our own manufacturing facilities. We intend to continue to use
our financial resources to accelerate development of our product candidates
rather than diverting resources to establish our own manufacturing facilities.
We meet our pre-clinical and clinical trial manufacturing requirements by
establishing relationships with third-party manufacturers and other service
providers to perform these services for us. We rely on individual proposals and
purchase orders to meet our needs and typically rely on terms and conditions
proposed by the third party or us to govern our rights and obligations under
each order (including provisions with respect to intellectual property, if any).
We do not have any long-term agreements or commitments for these services.
Likewise, we do not have any long-term agreements or commitments with vendors to
supply the underlying component materials of our product candidates, some of
which are available from only a single supplier.
Should
any of our product candidates obtain marketing approval, we anticipate
establishing relationships with third-party manufacturers and other service
providers in connection with the commercial production of our products. We have
some flexibility in securing other manufacturers to produce our product
candidates; however, our alternatives may be limited due to proprietary
technologies or methods used in the manufacture of some of our product
candidates.
50
Research
and Development Expenses
We spent
approximately $5.4 million in fiscal year 2009 and $9.8 million in fiscal year
2008 on research and development activities. These expenses include cash and
non-cash expenses relating to the development of our clinical and pre-clinical
programs.
Employees
As of the
date of this prospectus, we have two full-time employees, none of whom are
covered by a collective bargaining agreement. We believe our relations with our
employees are satisfactory.
We
utilize clinical research organizations and third parties to perform our
pre-clinical studies, clinical studies, and manufacturing. We may hire
additional research and development staff, as required, to support our product
development.
Legal
Proceedings
We are
not involved in any pending legal proceedings and are not aware of any
threatened legal proceedings against us.
Description
of Property
Our
principal offices are located at 4 Campus Drive, 2nd Floor, Parsippany, New
Jersey 07054, where we occupy approximately 5,390 square feet of office space
pursuant to the terms of a lease agreement dated October 20, 2008. The
lease commencement date was November 14, 2008, with lease payments beginning on
January 1, 2009. The lease expiration date is 5 years from the rent
commencement date. We provided a security deposit of $44,018, or four
months base rent, in the form of a letter of credit. The letter of credit
may be reduced by $11,005 on January 1, 2011 and by an additional $11,005 on
January 1, 2013, provided we maintain certain conditions described in the lease
agreement. We have an early termination option, which provides us the
option to terminate the lease on the third anniversary, upon providing the
landlord nine months written notice prior to the third anniversary of the
lease. If we exercise our termination option, we would be obligated to pay
a fee of no more than $53,641 which consists of unamortized costs and expenses
incurred by the landlord in connection with the lease. We also have an
option to extend the term of the lease for a period of five additional years,
provided we give notice to the landlord no later than twelve months prior to the
original expiration of the term. We are also responsible for payment of
our share of certain charges such as operating costs and taxes in excess of the
base year and additional rent. We believe our current facilities in Parsippany,
New Jersey will be adequate to meet our needs for the foreseeable
future.
51
MANAGEMENT
AND BOARD OF DIRECTORS
Directors
and Executive Officers
The following table lists our executive
officers, directors and key employees and their respective ages and positions as
of the date of this prospectus:
Name
|
Age
|
Positions
|
||
Arie
S. Belldegrun, M.D.
|
60
|
Chairman
of the Board
|
||
David
M. Tanen
|
39
|
President,
Secretary and Director
|
||
J.
Chris Houchins
|
47
|
Chief
Operating Officer
|
||
Scott
L. Navins
|
39
|
Treasurer
|
||
Stefan
Proniuk, Ph.D.
|
40
|
Senior
Director of Product Development
|
||
William
F. Hamilton, Ph.D.
|
70
|
Director
|
||
49
|
Director
|
|||
Peter
M. Kash
|
49
|
Director
|
||
Yacov
Reizman
|
59
|
Director
|
||
Steven
B. Ruchefsky
|
|
48
|
|
Director
|
Arie S.
Belldegrun, M.D., FACS has served as the chairman of Arno’s board of
directors since March 2008. He is currently the Chairman of Two River Group
Management, LLC, the managing member of Two River Group Holdings, LLC, and the
chairman of the managing member of Two River Consulting, LLC, an organization
that provides management, consulting and operational services for development
stage biotechnology companies, including Arno. See “Certain Relationships and
Related Party Transactions.” Dr. Belldegrun is Professor and Chief of
Urologic Oncology at the David Geffen School of Medicine at the University of
California, Los Angeles, where he holds the Carol and Roy Doumani Chair in
Urologic Oncology. He received his medical degree at the Hebrew University
Hadassah Medical School, and conducted his post-doctoral studies at the Weizmann
Institute of Science in Israel. He completed his Urologic Surgery
residency at Harvard Medical School in 1985 and his Surgical Oncology fellowship
at the National Cancer Institute/National Institute of Health in 1988. He is
certified by the American Board of Urology and is a Fellow of the American
College of Surgeons and the American Association of Genitourinary Surgeons. Dr.
Belldegrun is also the founder and founding chairman of Agensys Inc., a
privately held biotechnology company developing fully human antibody cancer
therapeutics based on novel and clinically relevant targets. In December
2007, Agensys was acquired by Astellas Pharma, Inc. in a deal valued at $537
million. Dr. Belldegrun served as Vice-Chairman of the Board of Directors and
Chairman of the Scientific Advisory Board of Cougar Biotechnology, an
oncology-focused biopharmaceutical company, until its sale to Johnson &
Johnson in July 2009. Since October 2009, Dr. Belldegrun has served as a
director of Nile Therapeutics, Inc., a publicly-held company focused on the
development of biopharmaceutical products for the treatment of cardiovascular
diseases. Dr. Belldegrun is on the scientific boards of several biotechnology
and pharmaceutical companies and is a reviewer for many medical journals and
granting organizations. He served as Chairman of the Molecular and Biological
Technology Committee of the American Urological Association and member of its
Technology Assessment Council, as a member of the Governor’s council on
Bioscience for the State of California, and as a biotechnology group leader and
member of The Los Angeles Economy and Jobs Committee established in October 2006
by Mayor Antonio Villaraigosa. He is the author of several books on prostate and
kidney cancers, holds several biopharmaceutical patents, and has written over
400 scientific publications with an emphasis on urologic oncology.
David M.
Tanen co-founded Arno and has been a director and its secretary since its
inception and has served as Arno’s President since June 2009. In September
2004, Mr. Tanen co-founded Two River Group Holdings, LLC, a venture capital firm
that specializes in the creation of new companies that acquire rights to
commercially develop biotechnology products, and currently serves as Vice
President and Director of Two River’s managing member, Two River Group
Management, LLC. Mr. Tanen also serves as an Officer and Director of Riverbank
Capital Securities, Inc., a broker dealer registered with FINRA (“Riverbank”),
which provided placement agent services for Arno. Mr. Tanen also serves as
an officer of the managing member of Two River Consulting, LLC, which provides
management, operational and other services for Arno. See “Certain Relationships
and Related Party Transactions.” Prior to founding Two River,
from October 1996 to September 2004, Mr. Tanen was a Director of Paramount
BioCapital Investments, LLC, a biotechnology focused venture capital company.
Mr. Tanen also served as a member of the General Partner of the Orion Biomedical
Fund, LP. Mr. Tanen received his B.A. from The George Washington
University and his J.D. from Fordham University School of Law.
52
J. Chris
Houchins has been employed by Arno since September 2007 and has over 16
years of clinical operations and drug development experience focusing in
oncology. From 2004 to 2006, Mr. Houchins was the Director of Specialty
Care - Clinical Project Management at Schering-Plough, where he was involved
with the FDA and European submissions and approvals of Temozolomide, the
standard of care for patients with GBM. From 1999 to 2004, Mr. Houchins
was on the Searle Celebrex Oncology Team that received FDA approval for familial
adenomatous polyposis (“FAP”), a new indication in oncology. After the merger of
Searle and Pharmacia & Upjohn, he oversaw the development and clinical
operations for the Global Celebrex Oncology Program that grew to over 300
clinical and preclinical trials world-wide within 2 years. When Pfizer,
Inc acquired Pharmacia Corp., Mr. Houchins was selected as Director – Team
Leader of Oncology Clinical Operations overseeing all eight oncology compounds
(Camptosar®,
Aromasin®,
Ellence®,
Celebrex®,
Emcyt®,
Zavedos®,
Trelstar® and
Zinecard®)
encompassing over 500 clinical and preclinical studies. In addition, he
was appointed to the Pfizer Global Oncology Advisory Board. Mr. Houchins
also has six years of experience as a Clinical Research Manager at The RUSH
Cancer Institute in Chicago where he managed clinical trials across all tumor
types including Ovarian Cancer using Topotecan. He is certified by
examination through SoCRA and ACRP as a Certified Clinical Research Associate,
Coordinator and Professional and holds a BS in Economics from Northern Illinois
University.
Stefan Proniuk,
Ph.D., M.B.A. has over 12 years of experience in formulation and product
development. Prior to joining Arno, he was the Sr. Manager of Pharmaceutical
Technologies at Neurocrine Biosciences (2002-2008) where he was responsible for
overseeing development programs from Phase I to III. His group was also
responsible for the preformulation of NCEs. Prior to his work at
Neurocrine, Dr. Proniuk worked as a scientist at Cima Labs (2001-2002) on the
development and scale-up of fast dissolving tablet formulations (OraSolv®,
DuraSolv®). Throughout his career he has worked on 2 NDAs, 8 INDs, 1 IMPD,
1 CTA, and 3 marketed products. Dr. Proniuk holds a Ph.D. degree in
Pharmaceutical Sciences from the University of Arizona, a MBA with emphasis in
Entrepreneurship from San Diego State University and a Diplom (FH) in Chemical
Engineering from the Polytechnical University Isny in Germany. He is
also certified in Intellectual Property Law from the University of California
San Diego.
William F.
Hamilton, Ph.D. was appointed to Arno’s board of directors in October
2008. Dr. Hamilton has served on the University of Pennsylvania faculty
since 1967, and is the Landau Professor of Management and Technology, and
Director of the Jerome Fisher Program in Management and Technology at The
Wharton School and the School of Engineering and Applied Science. He serves as a
director of Neose Technologies, Inc. and NovaDel Pharma Inc., both
publicly-traded biotechnology companies. Dr. Hamilton also serves on the boards
of directors of Yaupon Therapeutics, Inc., a privately-held specialty
pharmaceutical company that develops small molecule pharmaceuticals licensed
from academic laboratories, Avid Radiopharmaceuticals, Inc., a privately-held
clinical-stage product-focused molecular imaging company and Neuro Diagnostic
Devices Inc., a privately-held development-stage medical device company. Dr.
Hamilton received his B.S. and M.S. in chemical engineering and his MBA from the
University of Pennsylvania, and his Ph.D. in applied economics from the London
School of Economics.
Tomer Kariv
is the Chief Executive Officer of Pontifax Fund, an Israeli based fund
that specializes in investing in development stage companies in the
pharmaceutical and life sciences industries, and a significant stockholder in
Arno. For the past 10 years, Mr. Kariv has played a key role in investing,
managing and nurturing technology driven companies and startups. Prior to
joining Pontifax, Mr. Kariv served in many senior management positions at top
Israeli financial institutions, including STI Ventures, Shrem Fudim Kelner
Investment House, and Polaris I, one of Israel's top venture capital performers.
Mr. Kariv was also a co-founder of Polaris II (currently Pitango), Israel’s
largest venture capital fund. Mr. Kariv practiced law with Sullivan &
Cromwell, a leading corporate law firm in New York City, and holds a B.A. in
Economics from Harvard University and a J.D. from Harvard Law
School.
53
Peter M.
Kash co-founded Arno and has been a director since its inception.
In September
2004, Mr. Kash co-founded Two River. Mr. Kash is also the President and
Chairman of Riverbank. From 1992 until 2004, Mr. Kash was a Senior
Managing Director of Paramount BioCapital, Inc., a FINRA member broker dealer,
and Paramount BioCapital Investments, LLC, a biotechnology focused venture
capital company. Mr. Kash also served as Director of Paramount Capital
Asset Management, Inc., the general partner of several biotechnology-related
hedge funds (the Paramount companies are collectively referred to as Paramount),
and as member of the General Partner of the Orion Biomedical Fund, LP, a private
equity fund. Mr. Kash currently serves as a member of Board of Directors
of Nile Therapeutics, Inc. (NASDAQ:NLTX), as well as several privately held
biotechnology companies. Mr. Kash received his B.S. in Management Science
from SUNY Binghamton and his M.B.A. in Banking and International Finance from
Pace University. Mr. Kash is currently seeking his doctorate in Jewish
education at Yeshiva University.
Yacov
Reizman has been the Chairman and Chief Executive Officer of FCC Ltd., a
private investment company that he founded in 1987. Over the past decade FCC has
invested directly in over 50 publicly traded and privately held companies in a
diverse range of industries including: infrastructure; shipping; healthcare; and
financial services. FCC also specializes in corporate finance and
structured investments. Mr. Reizman was also co-founder and co-CEO of Azimuth
Ltd., which traded on the TASE. Previously Mr. Reizman served in the
Israeli Air Force (IAF) as a fighter pilot (Major) and led large-scale high-tech
projects for the IAF, including joint projects with Israeli and U.S. defense
industries. Mr. Reizman holds a B.A. in economics and in psychology from Tel
Aviv University.
Steven
Ruchefsky is President of Commercial Street Capital LLC, a private
investment company and significant stockholder in Arno. For the last decade, Mr.
Ruchefsky has been working as an investment manager for the founder and CEO of a
multi-billion dollar hedge fund. Mr. Ruchefsky began his career at a prominent
New York City law firm where he became a partner, member of management and chair
of a specialized litigation group. Upon leaving his law firm and prior to his
current employment, Mr. Ruchefsky was a principal of an early stage venture
capital operation. Mr. Ruchefsky currently sits on the boards of several public
and private companies, including National Investment Managers Inc. (NIVM:OB);
Evogene (TASE:EVGN); and Itamar Medical (TASE: ITMR). Mr. Ruchefsky is a
graduate of The George Washington University Law School
Scott L.
Navins has served as Arno’s Treasurer since its inception, and has been
responsible for all of our accounting and financial reporting services since the
departure of our former Chief Financial Officer in February 2010. He is
also the Vice President of Finance at Two River Group Holdings, LLC and Two
River Consulting, LLC, where he is responsible for all accounting, finance and
control activities. Mr. Navins joined Two River in 2005. Prior to joining Two
River, from 2004 to 2005 Mr. Navins was the Senior Controller at Westbrook
Partners, where he managed the accounting for a $560 million real estate private
equity fund, including financial and partner reporting, tax coordination,
maintaining internal controls and overseeing a $300 million credit facility,
among other things. Before that, from 2002 to 2004 Mr. Navins was a Senior
Manager at Morgan Stanley, where he managed the accounting for a $2.4 billion
real estate private equity fund. Prior to that Mr. Navins was an Associate in
the Finance Group at BlackRock, Inc. and the controller for a high-tech venture
capital fund. Mr. Navins also serves as the Financial and Operations
Principal of Riverbank Capital Securities (member FINRA/SIPC) and has served as
Treasurer of Nile Therapeutics, Inc., a publicly-held biopharmaceutical company,
since 2005. Mr. Navins graduated with honors from The George Washington
University in 1993, where he earned a Bachelor of Accountancy degree. Mr.
Navins passed the Uniform Certified Public Accounting examination in
1993.
54
Experience,
Qualifications, Attributes and Skills of Directors
We look to our directors to lead us
through our continued growth as an early-stage public biopharmaceutical
company. We believe our directors bring their leadership experience from a
variety of life science companies and professional backgrounds which we require
to continue to grow and bring value to our stockholders. Messrs. Kariv, Kash,
Reizman, Ruchefsky and Tanen have venture capital or investment banking
backgrounds and offer expertise in financing and growing small companies,
particularly small biopharma and life science companies. Each of Drs.
Belldegrun and Hamilton and Messrs. Kash and Tanen have significant experience
with early stage private and public companies and bring depth of knowledge in
building stockholder value, growing a company from inception and navigating
significant corporate transactions and the public company process. Dr.
Belldegrun’s medical background and experience serving as an investigator in
clinical trials of oncology drug candidates allows him to contribute significant
medical and scientific expertise. Mr. Tanen’s current position as our
President also allows him to provide a unique insight into our development and
growth. As a result of his academic experience and his prior service on
the audit committees of several publicly-traded life sciences companies, Dr.
Hamilton also bring extensive finance, accounting and risk management knowledge
to us.
Independence
of the Board of Directors
In determining whether the members of
our board of directors and its committees are independent, we have elected to
use the definition of “independence” set forth in the listing standards of the
NASDAQ Stock Market. After considering all relevant relationships and
transactions, our board of directors, in consultation with legal counsel, has
determined that Messrs. Kariv, Reizman, Ruchefsky and Dr. Hamilton are
“independent” within the meaning of the applicable listing standard of the
NASDAQ Stock Market. Messrs. Kash, Tanen and Dr. Belldegrun are not independent,
as defined by applicable NASDAQ listing standards.
Board
Committees
The Board of Directors has established
three standing committees: an Audit Committee, a Compensation Committee and a
Nominating & Corporate Governance Committee. The following table provides
membership for each of the Board committees:
Committee
|
Membership
|
|
Audit
|
Dr.
Hamilton (Chair) and Mr. Ruchefsky
|
|
Compensation
|
Dr.
Belldegrun, Mr. Kariv, Mr. Reizman and Mr. Ruchefsky
|
|
Nominating
& Governance
|
Dr.
Hamilton, Mr. Reizman and Mr.
Ruchefsky
|
55
The
following table sets forth all of the compensation awarded to, earned by or paid
to (i) each individual serving as our principal executive officer during the
fiscal year ended December 31, 2009; (ii) two other individuals that served as
executive officers at the conclusion of the fiscal year ended December 31, 2009
and who received in excess of $100,000 in total compensation during such fiscal
year; and one additional individual who received in excess of $100,000 in total
compensation during the fiscal year ended December 31, 2009 but who did not
serve as an executive officer at the conclusion of such fiscal year. We refer to
these individuals as our named executives.
Summary
Compensation Table
Name and
Principal Position
|
Year
|
Salary
|
Bonus
|
Option
Awards (1)
|
All Other
Compensation(2)
|
Total
|
||||||||||||||||
David
M. Tanen (3)
|
2009
|
$ | – | $ | – | $ | – | $ | – | $ | – | |||||||||||
President
|
||||||||||||||||||||||
J.
Chris Houchins
|
2009
|
$ | 207,573 | $ | 50,000 | $ | 182,300 | $ | - | $ | 439,873 | |||||||||||
Senior
VP of Clinical Operations
|
||||||||||||||||||||||
Roger
G. Berlin, M.D. (4)
|
2009
|
$ | 156,250 | $ | 76,923 | $ | - | $ | 62,500 | $ | 295,673 | |||||||||||
Former
Chief Executive Officer
|
2008
|
122,356 | - | 2,025,400 | 4,330 | 2,152,086 | ||||||||||||||||
Scott
Z. Fields, M.D. (5)
|
2009
|
$ | 142,974 | $ | 100,000 | $ | 21,900 | $ | - | $ | 264,874 | |||||||||||
Former
President, Chief Medical Officer
|
2008
|
340,000 | 125,000 | - | 4,244 | 469,244 | ||||||||||||||||
Brian
Lenz (6)
|
2009
|
$ | 200,000 | $ | 28,000 | $ | 0 | $ | - | $ | 228,000 | |||||||||||
Former
Chief Financial Officer
|
2008
|
91,667 | 25,000 | 830,500 | 645 | 947,812 |
(1)
|
Amounts
reflect the grant date fair value of awards granted under the Company’s
2005 Stock Option Plan, computed pursuant to Financial Accounting
Standards Board’s Accounting Standards Codification 718 “Compensation
– Stock Compensation”. Assumptions used in the calculation of these
amounts are included in Note 10 of the Notes to Audited Financial
Statements included in this
prospectus.
|
(2)
|
Except
as otherwise noted, amounts reflect premiums paid for life
insurance.
|
(3)
|
Mr.
Tanen was appointed President on June 8, 2009. Mr. Tanen, who also serves
as a director, does not receive compensation for his service as President,
but does receive compensation for his service as a director in accordance
with the terms of our non-employee director compensation plan. See
“—Director Compensation.”
|
(4)
|
Dr.
Berlin’s employment terminated on May 31, 2009. In
connection with such termination, we continued to pay to Dr. Berlin his
annualized base salary through July 31, 2009, which amount totaled
$62,500.
|
(5)
|
Dr.
Fields’ employment terminated on June 1,
2009.
|
(6)
|
Mr.
Lenz’s employment terminated on February 15,
2010.
|
Employment
Agreements, Termination of Employment and Change-in-Control
Arrangements
J.
Chris Houchins
Chief
Operating Officer
Mr. Houchins’ employment with us is
governed by a letter agreement dated September 12, 2007, as amended on August
26, 2010. The letter agreement provides for Mr. Houchins’ employment
as our Senior Vice President of Clinical Operations on an at-will basis.
Under the letter agreement, Mr. Houchins is entitled to an annual base salary of
$180,000, which base salary was subsequently increased to $182,000 on January 1,
2008, to $200,000 on August 1, 2008 and to $207,500 on January 1, 2009. In
addition, Mr. Houchins is eligible to receive an annual performance bonus of up
to 25% of his base salary upon the successful completion of annual corporate and
individual milestones. The letter agreement also provides for the awarding
of certain stock options to Mr. Houchins, referred to as Employment
Options. On September 17, 2007, Mr. Houchins was granted ten-year
Employment Options to purchase 99,689 shares of our common stock at an exercise
price of $1.00, with one-fourth vesting after one year and the remainder vesting
in 36 equal monthly installments thereafter. On September 29, 2009, Mr.
Houchins was granted ten-year Employment Options to purchase 200,000 shares of
our common stock at an exercise price of $1.00, which vest in three equal annual
installments commencing on the first anniversary of the grant date. Mr.
Houchins is also entitled to participate in Arno’s employee benefits plans, and
to receive other customary benefits. In November 2010, Mr. Houchins was
appointed as our Chief Operating Officer.
56
Roger
G. Berlin, M.D.
Former
Chief Executive Officer
Dr. Berlin’s employment with us was
governed by an employment agreement dated August 19, 2008. The employment
agreement provided for Dr. Berlin’s employment as Chief Executive Officer for a
two-year term commencing on September 3, 2008, and for Dr. Berlin’s appointment
to our board of directors. The agreement provided for an initial annual
base salary of $375,000. In addition, Dr. Berlin was eligible to receive
an annual performance bonus of up to 50% of his base salary upon the successful
completion of annual corporate and individual milestones. The agreement
also provided for the awarding of certain stock options to Dr. Berlin, referred
to as Employment Options, Performance Options, and Technology Options. Dr.
Berlin was also entitled to participate in Arno’s employee benefits plans, and
to receive other customary benefits.
Dr. Berlin’s employment with us
terminated on May 31, 2009, pursuant to the terms of a separation
agreement. Pursuant to the terms of the separation agreement, we continued
to pay Dr. Berlin’s annualized base salary and provide health and dental
insurance coverage through July 31, 2009. The separation agreement also
provides for the extension of the exercise period of Performance Options
relating to 71,667 shares of our common stock at an exercise price of $3.00,
which vested on December 31, 2008, until May 31, 2014, at which time all
unexercised Performance Options shall automatically expire. As of the
separation date, Dr. Berlin also held unvested Employment Options relating to
430,000 shares of our common stock, and unvested Performance Options relating to
358,333 shares of our common stock, in both cases at an exercise price of $3.00
per share, all of which automatically terminated as of the separation
date. Dr. Berlin was not awarded any Technology Options during his
employment with us.
Scott
Z. Fields, M.D.
Former
President and Chief Medical Officer
Dr. Fields’ employment with us was
governed by an employment agreement dated June 1, 2007. The employment
agreement provided for Dr. Fields’ employment as President and Chief Medical
Officer for a two-year term commencing on June 1, 2007. The agreement
provided for an initial annual base salary of $340,000. In addition, Dr.
Fields was eligible to receive an annual performance-based bonus of up to
$150,000 upon the successful completion of annual corporate and individual
milestones at an exemplary metric (e.g., ahead of schedule, under budget,
etc.). The agreement also provided for the awarding of certain stock
options to Dr. Fields, referred to as Employment Options, Performance Options,
and Technology Options. Dr. Fields was also entitled to participate in
Arno’s employee benefits plans, and to receive other customary
benefits.
In February 2009, Dr. Fields informed
us that he would not be continuing his employment with us when the term of his
employment agreement expired on June 1, 2007. As of his separation date,
Dr. Fields held vested Employment Options to purchase 199,377 shares of our
common stock and vested Performance Options to purchase 199,377 shares of our
common stock, in both cases at an exercise price of $1.00 per share.
Pursuant to his employment agreement, Dr. Fields’ vested stock options
remained exercisable until their termination 12 months after his separation date
and his unvested stock options automatically terminated as of his separation
date. On September 29, 2009, Dr. Fields and Arno entered into a Scientific
Advisory and Consulting Agreement, or the SAB Agreement. As partial
consideration for entering into the SAB Agreement Arno agreed to extend the
expiration date of Dr. Field’s Employment Options and Performance Options until
December 31, 2014.
57
Brian
Lenz
Former
Chief Financial Officer
Mr.
Lenz’s employment with us was governed by an employment agreement dated June 11,
2008, as amended on July 9, 2008. Under the agreement, which
provided for a two-year term commencing on July 15, 2008, Mr. Lenz was appointed
as our Chief Financial Officer effective August 15, 2008. The agreement
provided for an initial annual base salary of $200,000. Mr. Lenz was also
eligible to receive an annual performance bonus of up to 30% of his base salary
upon the successful completion of annual corporate and individual
milestones. In addition, upon the commencement of his employment, Mr. Lenz
received a one-time cash bonus in the amount of $25,000 and a ten-year option to
purchase 440,000 shares of our common stock at an exercise price of $2.75 per
share, with one-fourth vesting after one year and the remainder vesting in 24
equal monthly installments thereafter, subject to Mr. Lenz’s continued
employment with Arno. Mr. Lenz was also entitled to participate in Arno’s
employee benefits plans, and to receive other customary benefits. Mr. Lenz
voluntarily resigned his employment with us effective February 15, 2010, and all
of his options subsequently expired without being exercised.
The
following table sets forth information concerning stock options held by the
named executive officers at December 31, 2009:
Name
|
Number of
Securities
Underlying
Unexercised Options
Exercisable
|
Number of
Securities
Underlying
Unexercised Options
Unexercisable
|
Option Exercise
Price ($)
|
Option
Expiration Date
|
||||||||||
Mr.
Tanen
|
3,333 | 6,667 | 1.00 |
9/29/19
|
(1)
|
|||||||||
Mr.
Houchins
|
56,075 | 43,614 | 2.00 |
9/17/17
|
(2)
|
|||||||||
0 | 200,000 | 1.00 |
9/29/19
|
(3)
|
||||||||||
Dr.
Berlin
|
71,667 | 0 | 3.00 |
5/31/14
|
||||||||||
Dr.
Fields
|
398,754 | 0 | 2.00 |
12/31/14
|
||||||||||
0 | 25,000 | 1.00 |
9/22/14
|
(4)
|
||||||||||
|
||||||||||||||
Mr.
Lenz
|
178,750 | 261,250 | 2.75 |
7/16/18
|
(5)
|
(1)
|
Option
granted on September 29, 2009, as compensation for Mr. Tanen’s services as
a director prior to his appointment as our President. The option
vests in three equal installments on each anniversary of the date of
grant.
|
(2)
|
Option
granted September 17, 2017 relating to an aggregate of 99,688 shares, of
which 25% vested on the first anniversary of the grant date and the
remainder vests in 36 equal monthly installments
thereafter.
|
(3)
|
Option
granted September 29, 2009 and vests in three equal annual installments
commencing on the first anniversary of the grant
date.
|
(4)
|
Option
granted on September 22, 2009, as compensation for Dr. Field’s services as
a member of the Company’s scientific advisory board. The option
vests in 3 equal installments on each anniversary of the grant
date.
|
(5)
|
The
option expired in its entirety following Mr. Lenz’s resignation in
February 2010.
|
58
Director
Compensation
Pursuant
to the non-employee director compensation plan adopted by our Board of
Directors, our non-employee directors are entitled to receive the following in
consideration for their service on the Board: (1) an annual retainer of $25,000;
(2) a stock option grant relating to 30,000 shares of the Company’s common stock
upon their initial appointment or election to the Board; and (3) an annual stock
option grant relating to 10,000 shares of the Company’s common stock. In
addition, any non-employee director designated as chairman of the Board is
entitled to an annual retainer of $10,000, the chair of the Board’s audit
committee is entitled to an additional annual retainer of $8,000, and the chairs
of the Board’s compensation and nominating & corporate governance committees
are entitled to annual retainers of $4,000. Stock options awarded to our
non-employee directors have a 10-year term, vest in three equal annual
installments commencing on the first anniversary of the grant date, and have an
exercise price equal to the fair market value of the Company’s common stock on
the grant date.
The
following table sets forth the compensation paid to our directors for their
service in 2009.
Name (1)
|
Fees earned or
paid in cash
|
Option
Awards (2)
|
Total
|
|||||||
Arie
S. Belldegrun, M.D.
|
$
|
39,000
|
$
|
9,100
|
$
|
48,100
|
||||
William
F. Hamilton, Ph.D.
|
$
|
33,000
|
|
$
|
27,300
|
$
|
60,300
|
|||
Robert
I. Falk (3)
|
$
|
29,000
|
$
|
9,100
|
$
|
38,100
|
||||
Peter
M. Kash
|
$
|
25,000
|
$
|
9,100
|
$
|
34,100
|
||||
Joshua
A. Kazam (3)
|
$
|
25,000
|
$
|
9,100
|
$
|
34,100
|
||||
David
M. Tanen
|
$
|
25,000
|
$
|
9,100
|
$
|
34,100
|
|
(1)
|
Roger
G. Berlin, our former Chief Executive Officer, has been omitted from this
table since he received no additional compensation for serving on our
Board; his compensation is described above under “Executive
Compensation.”
|
|
(2)
|
Amounts
reflect the grant date fair value of awards granted under the Company’s
2005 Stock Option Plan, computed pursuant to Financial Accounting
Standards Board’s Accounting Standards Codification 718 “Compensation – Stock
Compensation”. Assumptions used in the calculation of these amounts
are included in Note 10 of the audited December 31, 2009 Notes to
Financial Statements included in this
prospectus.
|
|
(3)
|
Messrs.
Falk and Kazam resigned as directors in September 2010 upon the completion
of our private placement of Series A Preferred
Stock.
|
59
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table summarizes certain information regarding the beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act) of our
common stock and Series A Preferred Stock as of October 31, 2010 by: (i) each of
our current directors, (ii) each of our “named executive officers,” as defined
above under “Executive Compensation,” (iii) all of our current directors and
executive officers as a group, and (iv) each person known by us to be the
beneficial owner of more than 5% of our common stock or Series A Preferred
Stock, Except as indicated in the footnotes below, the security
and stockholders listed below possess sole voting and investment power with
respect to their shares. Except as otherwise indicated, the address of
each of our executive officers and directors identified below is 4 Campus Drive,
2nd Floor, Parsippany, New Jersey 07054.
Name of Beneficial Owner
|
No. Shares of
Common Stock
Beneficially Owned (1)
|
Percent of
Class (1)
|
No. Shares of
Series A
Preferred Stock
Beneficially Owned (2)
|
Percent of
Class (2)
|
||||||||||||
Arie
S. Belldegrun, M.D. (3)
|
1,346,175 | 3.7 | 750,000 | 4.9 | ||||||||||||
David
M. Tanen (4)
|
1,632,720 | 4.6 | 164,084 | 1.1 | ||||||||||||
J.
Chris Houchins (5)
|
303,608 | * | — | — | ||||||||||||
Scott
L. Navins (6)
|
249,532 | * | 100,000 | * | ||||||||||||
Roger
G. Berlin, M.D. (5)
|
71,667 | * | — | — | ||||||||||||
Scott
Z. Fields, M.D. (5)
|
406,987 | 1.1 | — | — | ||||||||||||
Brian
Lenz
|
4,000 | * | — | — | ||||||||||||
William
F. Hamilton, Ph.D. (7)
|
39,938 | * | — | — | ||||||||||||
Tomer
Kariv (8)
|
4,500,000 | 12.1 | 4,500,000 | 26.8 | ||||||||||||
Peter
M. Kash (9)
|
2,038,511 | 5.7 | 339,534 | 2.2 | ||||||||||||
Yacov
Reizman (10)
|
756,300 | 2.1 | 756,300 | 4.8 | ||||||||||||
Steven
B. Ruchefsky (11)
|
3,300,000 | 9.0 | 3,300,000 | 20.2 | ||||||||||||
All
current executive officers and directors as a group (8
persons)
|
13,863,176 | 34.7 | 9,909,918 | 52.3 | ||||||||||||
Pontifax
Ltd. (8)
|
4,500,000 | 12.1 | 4,500,000 | 26.8 | ||||||||||||
UTA
Capital LLC (12)
|
3,000,000 | 8.2 | 3,000,000 | 18.4 | ||||||||||||
100
Executive Drive, Ste. 330
|
||||||||||||||||
Wes
Orange, NJ 07052
|
||||||||||||||||
Commercial
Street Capital, LLC (11)
|
3,300,000 | 9.0 | 3,300,000 | 20.2 | ||||||||||||
800
Westchester Ave.
|
||||||||||||||||
Rye
Brook, NY 10573
|
||||||||||||||||
Clal
Insurance Co. Ltd. (13)
|
3,104,727 | 8.6 | 1,650,000 | 10.4 | ||||||||||||
48
Menachem Begin St.
|
||||||||||||||||
Tel-Aviv
66180, Israel
|
||||||||||||||||
Wexford
Capital LP (14)
|
3,865,789 | 10.6 | 1,860,000 | 11.7 | ||||||||||||
411
West Putnam Ave.
|
||||||||||||||||
Greenwich,
CT 06830
|
*
represents less than 1%.
(1)
|
Assumes
35,686,024 shares of our common stock are outstanding, including
15,274,000 shares issuable upon the conversion of our Series A Preferred
Stock, but does not include any shares issuable upon the exercise of
outstanding warrants and options to purchase shares of our capital
stock. Beneficial ownership is determined in accordance with Rule
13d-3 under the Securities Act, and includes any shares as to which the
security or stockholder has sole or shared voting power or investment
power, and also any shares which the security or stockholder has the right
to acquire within 60 days of the date hereof, whether through the exercise
or conversion of any stock option, convertible security, warrant or other
right. The indication herein that shares are beneficially owned is
not an admission on the part of the security or stockholder that he, she
or it is a direct or indirect beneficial owner of those
shares.
|
60
(2)
|
Based
upon 15,274,000 shares of Series A Preferred Stock outstanding, excluding
warrants to purchase 8,693,930 shares of Series A Preferred
Stock.
|
(3)
|
Common
stock beneficially owned include (i) 61,916 shares held in a trust of
which Dr. Belldegrun is a beneficiary, and (ii) 509,337 shares issuable
upon exercise of stock options. Series A Preferred Stock
beneficially owned includes (i) 187,500 shares held in a family trust for
which Dr. Belldegrun is a co-trustee, including 62,500 shares issuable
upon the exercise of warrants, (ii) 375,000 shares held in a trust of
which Dr. Belldegrun is a beneficiary, including 125,000 shares issuable
upon the exercise of warrants, and (iii) 187,500 shares held in a family
limited partnership of which Dr. Belldegrun is a
partner.
|
(4)
|
Common
stock beneficially owned includes 149,532 shares held by Mr. Tanen’s minor
children and 11,236 shares issuable upon the exercise of options and
warrants held by Mr. Tanen. Series A Preferred Stock beneficially
owned includes 99,618 shares issuable upon the exercise of
warrants.
|
(5)
|
Represents
shares issuable upon the exercise of stock
options.
|
(6)
|
Series
A Preferred Stock beneficially owned includes 100,000 shares issuable upon
the exercise of warrants.
|
(7)
|
Includes
30,000 shares issuable upon the exercise of stock
options.
|
(8)
|
Represents
shares issuable upon conversion of Series A Preferred Stock, including
warrants to purchase 1,500,000 shares of Series A Preferred Stock, all of
which are held by affiliates of Pontifax Ltd., of which Mr. Kariv is chief
executive officer.
|
(9)
|
Common
stock beneficially owned includes (i) 358,876 shares held by Mr. Kash’s
minor children and (ii) 12,472 shares issuable upon the exercise of stock
options and warrants held by Mr. Kash. Series A Preferred Stock
beneficially owned includes 239,534 shares issuable upon the exercise of
warrants.
|
(10)
|
Represents
shares issuable upon conversion of Series A Preferred Stock, including
warrants to purchase 456,300 shares of Series A Preferred Stock, all of
which are held by FCC Ltd., of which Mr. Reizman is chairman and chief
executive officer.
|
(11)
|
Represents
shares issuable upon conversion of Series A Preferred Stock, including
warrants to purchase 1,100,000 shares of Series A Preferred Stock, held by
Commercial Street Capital, LLC, of which Mr. Ruchefsky is
president.
|
(12)
|
Represents
shares issuable upon conversion of Series A Preferred Stock, including
warrants to purchase 1,000,000 shares of Series A Preferred
Stock.
|
(13)
|
Common
stock beneficially owned includes 1,650,000 shares of Series A Preferred
Stock, including 550,000 shares of Series A Preferred Stock issuable upon
the exercise of warrants.
|
(14)
|
Common
stock beneficially owned represents: (i) 247,345 shares of our
common stock held by Kappa Investors, LLC (“Kappa”); (ii) a warrant held
by Kappa to purchase 24,734 shares of our common stock that are
exercisable at $2.42 per share; and (iii) 1,733,712 shares of our common
stock held by Wexford Spectrum Investors LLC, a Delaware limited liability
company ("Wexford Spectrum"). Series A Preferred Stock beneficially
owned represents (i) 1,607,985 shares held by Wexford Spectrum, including
535,995 shares issuable upon the exercise of warrants to purchase Series A
Preferred Stock, and (ii) 252,014 shares held by Kappa, including 84,005
shares issuable upon the exercise of warrants. Wexford Capital LP, a
Delaware partnership (“Wexford Capital”), is a registered Investment
Advisor and also serves as an investment advisor or sub-advisor to the
members of Kappa and Wexford Spectrum. Wexford GP LLC (“Wexford GP”)
is the general partner of Wexford Capital. Mr. Charles E. Davidson
and Mr. Joseph M. Jacobs are each managing and controlling
members of Wexford
GP.
|
61
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Dr.
Belldegrun and Mr. Tanen, each a current director and substantial stockholder of
Arno, and Mr. Kazam, a director until September 2010 and substantial stockholder
of Arno, control Two River Consulting, LLC, or TRC. Certain employees of
TRC, including Mr. Tanen, our President, and Mr. Scott L. Navins, our Treasurer,
perform substantial services for us, including without limitation operational,
managerial, financial, clinical and regulatory activities for which we pay TRC a
monthly consulting fee of $55,000 pursuant to a services agreement. Other
than the payments to TRC, we do not pay any salary or other compensation to
Messrs. Tanen and Navins for their services to us.
Mr.
Kazam, Mr. Tanen and Mr. Peter M. Kash, who also serves as a director of Arno,
are also principals of Riverbank Capital Securities, Inc., a FINRA member broker
dealer that acted as our placement agent in connection with our September 2010
and June 2008 private placements. Additionally, Mr. Navins, our
Treasurer, is also the Financial and Operations Principal of Riverbank. In
consideration for its services in connection with the September 2010 private
placement, we paid Riverbank a placement fee of approximately $789,880 and
issued to designees of Riverbank five-year warrants to purchase an aggregate of
664,880 shares of Series A Preferred Stock at an initial exercise price of $1.10
per share. Riverbank did not receive any selling commission for its
services in connection with the June 2008 private placement, but received a
non-accountable expense allowance of $100,000.
Pursuant
to a Consulting Agreement entered into between Arno and Fountainhead Capital
Management Limited, we paid a $500,000 consulting fee to Fountainhead Capital
upon completion of the merger with Laurier. Fountainhead Capital
Management was a significant stockholder of Laurier at the time of the
merger.
WHERE
YOU CAN FIND MORE INFORMATION
Federal securities laws require us to
file information with the SEC concerning our business and operations.
Accordingly, we file annual, quarterly, and special reports, proxy statements
and other information with the SEC. You can inspect and copy this
information at the Public Reference Facility maintained by the SEC at Judiciary
Plaza, 100 F Street, N.E., Washington, D.C. 20549. You can receive
additional information about the operation of the SEC’s Public Reference
Facilities by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding companies that, like us, file
information electronically with the SEC.
VALIDITY
OF COMMON STOCK
Legal matters in connection with the
validity of the shares offered by this prospectus will be passed upon by
Fredrikson & Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The
financial statements as of December 31, 2009, and for the year then ended,
and for the period from August 1, 2005 (inception)
through December 31, 2009, included in this prospectus, have been so
included in reliance on the report of Crowe Horwath LLP, independent registered
public accounting firm, given on the authority of that firm as experts in
accounting and auditing.
The
financial statements as of December 31, 2008, and for the year then ended,
included in this prospectus, have been so included in reliance on the report of
Hays & Company LLP, independent registered public accounting firm, given on
authority of said firm as experts in auditing and accounting.
TRANSFER
AGENT
The transfer agent for our common stock
is American Stock Transfer & Trust Company, and its address is 40 Wall
Street, New York, New York, 10005.
62
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for
liabilities arising under the Securities Act of may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore
unenforceable.
63
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
|
Arno
Therapeutics, Inc. for the years ended December 31, 2009 and
2008:
|
||
Reports
of Independent Registered Public Accounting Firms
|
F-2
|
|
Balance
Sheets as of December 31, 2009 and 2008
|
F-4
|
|
Statements
of Operations for the years ended December 31, 2009 and 2008 and the
period from August 1, 2005 (Inception) through December 31,
2009
|
F-5
|
|
Statement
of Changes in Stockholders’ Equity (Deficiency) for the period from August
1, 2005 (Inception) through December 31, 2009
|
F-6
|
|
Statements
of Cash Flows for the years ended December 31, 2009 and 2008 and the
period from August 1, 2005(Inception) through December 31,
2009
|
F-7
|
|
Notes
to Financial Statements
|
F-9
|
|
Arno
Therapeutics, Inc. for the three and six months ended June 30, 2010
and 2009 (Unaudited)
|
||
Condensed
Balance Sheets as of June 30, 2010 and December 31, 2009
|
F-25
|
|
Condensed
Statements of Operations for the three and six months ended June 30,
2010 and 2009 and the period from August 1, 2005 (Inception)
through June 30, 2010
|
F-26
|
|
Condensed
Statement of Changes in Stockholders’ Equity (Deficiency) for the
period from August 1, 2005 (Inception) through June 30,
2010
|
F-27
|
|
Condensed
Statements of Cash Flows for the six months ended June 30, 2010 and
2009 and the period from August 1, 2005 (Inception) through June 30,
2010
|
F-28
|
|
Notes
to Unaudited Condensed Financial Statements
|
F-29
|
F-1
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and stockholders
Arno
Therapeutics, Inc.
Parsippany,
New Jersey
We have
audited the accompanying balance sheet of Arno Therapeutics, Inc. (a development
stage company) as of December 31, 2009, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended and for
the period from August 1, 2005 (inception) through December 31,
2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of
Arno Therapeutics, Inc. for the period from August 1, 2005 (inception) through
December 31, 2008 were audited by other auditors whose report dated March 31,
2009 expressed an unqualified opinion. Our opinion on the statements
of operations, stockholders’ equity, and cash flows for the period from August
1, 2005 (inception) through December 31, 2009, insofar as it relates to the
amounts for prior periods through December 31, 2008, is based solely on the
report of other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Arno Therapeutics, Inc. (a
development stage company) as of December 31, 2009, and the results of its
operations and its cash flows for the year then ended and the period from August
1, 2005 (inception) through December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
/s/ Crowe Horwath
LLP
New York,
New York
November
8, 2010
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and stockholders
Arno
Therapeutics, Inc.
We have
audited the accompanying balance sheet of Arno Therapeutics, Inc. (a development
stage company) as of December 31, 2008 and the related statements of
operations, stockholders’ equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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. An audit also includes
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, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Arno Therapeutics, Inc. as of
December 31, 2008, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Hays & Company
LLP
|
March 31,
2009
|
New
York, New York
|
F-3
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEETS
December 31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 3,087,299 | $ | 10,395,007 | ||||
Prepaid
expenses
|
110,589 | 315,014 | ||||||
Total
current assets
|
3,197,888 | 10,710,021 | ||||||
Property
and equipment, net
|
41,567 | 63,584 | ||||||
Restricted
cash
|
44,018 | 44,018 | ||||||
Security
deposit
|
- | 12,165 | ||||||
Total
assets
|
$ | 3,283,473 | $ | 10,829,788 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 1,003,030 | $ | 2,493,658 | ||||
Accrued
expenses
|
556,204 | 450,713 | ||||||
Due
to related party
|
132,418 | 5,616 | ||||||
Total
current liabilities
|
1,691,652 | 2,949,987 | ||||||
Deferred
rent
|
16,070 | 17,393 | ||||||
Total
liabilities
|
1,707,722 | 2,967,380 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Preferred
stock, $0.0001 par value; 20,000,000 shares authorized, 0 shares
issued and outstanding
|
- | - | ||||||
Common
stock, $0.0001 par value; 80,000,000 shares
authorized, 20,412,024 and 20,392,024 shares issued and
outstanding
|
2,041 | 2,039 | ||||||
Additional
paid-in capital
|
25,154,571 | 24,504,525 | ||||||
Deficit
accumulated during the development stage
|
(23,580,861 | ) | (16,644,156 | ) | ||||
Total
stockholders' equity
|
1,575,751 | 7,862,408 | ||||||
Total
liabilities and stockholders' equity
|
$ | 3,283,473 | $ | 10,829,788 |
See
accompanying notes to financial statements
F-4
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
Year ended December 31,
|
Period from
August 1, 2005
(inception) through
|
|||||||||||
2009
|
2008
|
December 31, 2009
|
||||||||||
Operating
expenses
|
||||||||||||
Research
and development
|
$ | 5,444,202 | $ | 9,768,389 | $ | 18,477,688 | ||||||
General
and administrative
|
1,520,648 | 2,315,178 | 4,201,235 | |||||||||
Total
operating expenses
|
6,964,850 | 12,083,567 | 22,678,923 | |||||||||
Loss
from operations
|
(6,964,850 | ) | (12,083,567 | ) | (22,678,923 | ) | ||||||
Other
income (expense)
|
||||||||||||
Interest
income
|
28,145 | 206,054 | 358,161 | |||||||||
Interest
expense
|
- | (1,036,053 | ) | (1,260,099 | ) | |||||||
Total
other income (expense)
|
28,145 | (829,999 | ) | (901,938 | ) | |||||||
Net
loss
|
$ | (6,936,705 | ) | $ | (12,913,566 | ) | $ | (23,580,861 | ) | |||
Net
loss per share - basic and diluted
|
$ | (0.34 | ) | $ | (0.81 | ) | ||||||
Weighted
average shares outstanding - basic and diluted
|
20,399,092 | 16,022,836 |
See
accompanying notes to financial statements
F-5
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENT
OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
Period
from August 1, 2005 (inception) through December 31, 2009
Common Stock
|
Additional
paid-in
|
Deficit
accumulated
during the
development
|
Total
stockholders'
equity
|
|||||||||||||||||
Shares
|
Amount
|
capital
|
stage
|
(deficiency)
|
||||||||||||||||
Issuance
of common stock to founders at $0.0001 per share
|
9,968,797 | $ | 997 | $ | 4,003 | $ | - | $ | 5,000 | |||||||||||
Stock
based compensation for services
|
- | - | 9,700 | - | 9,700 | |||||||||||||||
Net
loss, period from August 1, 2005 (inception) through December 31,
2006
|
- | - | - | (370,893 | ) | (370,893 | ) | |||||||||||||
Balance
at December 31, 2006
|
9,968,797 | 997 | 13,703 | (370,893 | ) | (356,193 | ) | |||||||||||||
Stock
based compensation for services
|
- | - | 88,300 | - | 88,300 | |||||||||||||||
Net
loss, year ended December 31, 2007
|
- | - | - | (3,359,697 | ) | (3,359,697 | ) | |||||||||||||
Balance
at December 31, 2007
|
9,968,797 | 997 | 102,003 | (3,730,590 | ) | (3,627,590 | ) | |||||||||||||
Common
stock sold in private placement, net of issuance costs of
$141,646
|
7,360,689 | 736 | 17,689,301 | - | 17,690,037 | |||||||||||||||
Conversion
of notes payable upon closing of private placement
|
1,962,338 | 196 | 4,278,322 | - | 4,278,518 | |||||||||||||||
Discount
arising from note conversion
|
- | - | 475,391 | - | 475,391 | |||||||||||||||
Warrants
issued in connection with note conversion
|
- | - | 348,000 | - | 348,000 | |||||||||||||||
Reverse
merger transaction - elimination of accumulated
deficit
|
- | - | (120,648 | ) | - | (120,648 | ) | |||||||||||||
Previously
issued Laurier common stock
|
1,100,200 | 110 | 120,538 | - | 120,648 | |||||||||||||||
Warrants
issued for services
|
- | - | 480,400 | - | 480,400 | |||||||||||||||
Stock
based compensation for services
|
- | - | 1,131,218 | - | 1,131,218 | |||||||||||||||
Net
loss, year ended December 31, 2008
|
- | - | - | (12,913,566 | ) | (12,913,566 | ) | |||||||||||||
Balance
at December 31, 2008
|
20,392,024 | 2,039 | 24,504,525 | (16,644,156 | ) | 7,862,408 | ||||||||||||||
Stock
based compensation for services
|
- | - | 647,448 | - | 647,448 | |||||||||||||||
Stock
option exercise
|
20,000 | 2 | 2,598 | - | 2,600 | |||||||||||||||
Net
loss, year ended December 31, 2009
|
- | - | - | (6,936,705 | ) | (6,936,705 | ) | |||||||||||||
Balance
at December 31, 2009
|
20,412,024 | $ | 2,041 | $ | 25,154,571 | $ | (23,580,861 | ) | $ | 1,575,751 |
See
accompanying notes to financial statements
F-6
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
Year ended December 31,
|
Period from
August 1, 2005
(inception) through
|
|||||||||||
2009
|
2008
|
December 31, 2009
|
||||||||||
Cash
flows from operating activities
|
||||||||||||
Net
loss
|
$ | (6,936,705 | ) | $ | (12,913,566 | ) | $ | (23,580,861 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
Depreciation
and amortization
|
19,337 | 45,467 | 77,913 | |||||||||
Stock
based compensation
|
647,448 | 1,131,218 | 1,876,666 | |||||||||
Write-off
of intangible assets
|
- | - | 85,125 | |||||||||
Warrants
issued for services
|
- | 480,400 | 480,400 | |||||||||
Warrants
issued in connection with note conversion
|
- | 348,000 | 348,000 | |||||||||
Note
discount arising from beneficial conversion feature
|
- | 475,391 | 475,391 | |||||||||
Deferred
rent
|
(1,323 | ) | 17,242 | 16,070 | ||||||||
Loss
on disposal of assets
|
2,680 | - | 2,680 | |||||||||
Non
cash interest expense
|
- | 98,930 | 311,518 | |||||||||
Changes
in operating assets and liabilities
|
||||||||||||
Prepaid
expenses
|
204,425 | (240,922 | ) | (110,589 | ) | |||||||
Restricted
cash
|
- | (44,018 | ) | (44,018 | ) | |||||||
Security
deposit
|
12,165 | - | - | |||||||||
Accounts
payable
|
(1,490,628 | ) | 2,382,184 | 1,003,030 | ||||||||
Accrued
expenses
|
105,491 | (669,315 | ) | 556,204 | ||||||||
Due
to related parties
|
126,802 | 5,033 | 132,418 | |||||||||
Net
cash used in operating activities
|
(7,310,308 | ) | (8,883,956 | ) | (18,370,053 | ) | ||||||
Cash
flows from investing activities
|
||||||||||||
Purchase
of equipment
|
- | (37,317 | ) | (77,160 | ) | |||||||
Cash
paid for intangible assets
|
- | - | (85,125 | ) | ||||||||
Proceeds
from related party advance
|
- | - | 525,000 | |||||||||
Repayment
of related party advance
|
- | - | (525,000 | ) | ||||||||
Net
cash used in investing activities
|
$ | - | $ | (37,317 | ) | $ | (162,285 | ) |
See
accompanying notes to financial statements
F-7
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS (Continued)
Year ended December 31,
|
Period from
August 1, 2005
(inception) through
|
|||||||||||
2009
|
2008
|
December 31, 2009
|
||||||||||
Cash
flows from financing activities
|
||||||||||||
Deferred
financing fees paid
|
$ | - | $ | (20,000 | ) | $ | (45,000 | ) | ||||
Proceeds
from issuance of common stock in private placement,
net
|
- | 17,690,037 | 17,690,037 | |||||||||
Proceeds
from issuance of common stock to founders
|
- | - | 5,000 | |||||||||
Proceeds
from issuance of notes payable
|
- | 1,000,000 | 1,000,000 | |||||||||
Repayment
of notes payable
|
- | (1,000,000 | ) | (1,000,000 | ) | |||||||
Proceeds
from issuance of convertible notes payable
|
- | - | 3,967,000 | |||||||||
Proceeds
from exercise of stock options
|
2,600 | - | 2,600 | |||||||||
Net
cash provided by financing activities
|
2,600 | 17,670,037 | 21,619,637 | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
(7,307,708 | ) | 8,748,764 | 3,087,299 | ||||||||
Cash
and cash equivalents - beginning of period
|
10,395,007 | 1,646,243 | - | |||||||||
Cash
and cash equivalents - end of period
|
$ | 3,087,299 | $ | 10,395,007 | $ | 3,087,299 | ||||||
Supplemental
schedule of cash flows information
|
||||||||||||
Cash
paid for interest
|
$ | - | $ | 80,000 | $ | 80,000 | ||||||
Supplemental
disclosure of non-cash and financing activities
|
||||||||||||
Conversion
of notes payable and interest to common stock
|
$ | - | $ | 4,278,518 | $ | 4,278,518 | ||||||
Common
shares of Laurier issued in reverse merger
transaction
|
$ | - | $ | 110 | $ | 110 |
See
accompanying notes to financial statements
F-8
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
NOTE
1 – DESCRIPTION OF BUSINESS
Arno
Therapeutics, Inc. (“Arno” or “the Company”) develops innovative drug candidates
for the treatment of cancer. Arno’s lead clinical drug candidate, AR-12, is a
potentially first-in-class, orally available, targeted anti-cancer agent that
inhibits phosphoinositide dependent protein kinase-1 (“PDK-1”), a protein in the
PI3K/Akt pathway, and also causes cell death through the induction of
endoplasmic reticulum (“ER”) stress. The PI3K/Akt pathway is of increasing
interest in oncology, as it is believed to be involved in the survival of cancer
cells and their ability to become resistant to therapy. AR-12’s ability to both
inhibit PDK-1 and cause ER stress may provide a unique therapeutic profile that
helps to differentiate this molecule from other PI3K/Akt inhibitors in
development. Arno is currently enrolling patients with solid tumors or lymphomas
in a Phase I clinical trial who have progressed despite treatment with other
therapies. In this study, Arno is measuring biomarkers in order to demonstrate
preliminary proof-of-concept of AR-12 as a PDK-1 inhibitor in cancer patients.
The Phase I study is also designed to evaluate the safety and tolerability of
the drug candidate. Arno plans to complete the AR-12 Phase I study by the end of
2010 and begin Phase II development in the first half of 2011.
Arno’s
second drug candidate, AR-67, is a novel, third-generation camptothecin analogue
that is currently in Phase II clinical development. Camptothecins treat cancer
by disrupting cell division through the inhibition of topoisomerase I, a
critical enzyme in DNA replication. Through several mechanisms of action,
camptothecins preferentially target cancer cells to normal tissues. Two
second-generation therapies, topotecan (Hycamtin®,
Glaxo-Smith-Kline) and irinotecan (also known as “CPT-11” and marketed as
Camptostar® by
Pfizer), are approved by the United States Food and Drug Administration (the
FDA). In clinical studies, AR-67 has demonstrated activity and an excellent
safety profile as well as improved pharmacokinetic properties when compared to
these approved therapies. We believe these advantages could allow AR-67 to
become a leading product in the camptothecin market. Arno is currently
conducting a Phase II study in patients with glioblastoma multiforme (GBM), an
aggressive form of brain cancer. Arno expects to have interim data from both of
these studies in 2010.
Arno is
also developing AR-42, an orally available, targeted broad spectrum histone
deacetylase (pan-HDAC) inhibitor. HDAC inhibitors are a growing class of
compounds that target histone deactylase, a molecule involved in determining
which genes are expressed in a particular cell. This class has two approved
agents, vorinostat (SAHA, or Zolinza® by
Merck) and romidepsin (Istodax® by Celgene).
In
preclinical studies, AR-42 has been shown activity against a broad spectrum of
deacetylation targets and increased potency compared to SAHA. This combination
of activity and potency could make AR-42 an important member of this emerging
class of compounds. Arno plans to initiate a Phase I study of AR-42, in
collaboration with The Ohio State University in the first half of
2010.
The
Company was incorporated in Delaware in March 2000, at which time its name was
Laurier International, Inc. (“Laurier”). Pursuant to an Agreement and Plan of
Merger dated March 6, 2008 (as amended, the “Merger Agreement”), by and among
the Company, Arno Therapeutics, Inc., a Delaware corporation formed on August 1,
2005 (“Old Arno”), and Laurier Acquisition, Inc., a Delaware corporation and
wholly-owned subsidiary of the Company (“Laurier Acquisition”), on June 3, 2008,
Laurier Acquisition merged with and into Old Arno, with Old Arno remaining as
the surviving corporation and a wholly-owned subsidiary of Laurier. Immediately
following this merger, Old Arno merged with and into Laurier and Laurier’s name
was changed to Arno Therapeutics, Inc. These two merger transactions are
hereinafter collectively referred to as the “Merger.” Immediately following the
Merger, the former stockholders of Old Arno collectively held 95% of the
outstanding common stock of Laurier, assuming the issuance of all shares
issuable upon the exercise of outstanding options and warrants, and all of the
officers and directors of Old Arno in office immediately prior to the Merger
were appointed as the officers and directors of Laurier immediately following
the Merger. Further, Laurier was a non-operating shell company prior to the
Merger. The merger of a private operating company into a non-operating public
shell corporation with nominal net assets is considered to be a capital
transaction in substance, rather than a business combination, for accounting
purposes. Accordingly, the Company treated this transaction as a capital
transaction without recording goodwill or adjusting any of its other assets or
liabilities. All costs incurred in connection with the Merger have been
expensed. Upon completion of the Merger, the Company adopted Old Arno’s business
plan.
F-9
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
On May 1,
2009, the Company filed a request with Securities Exchange Commission (the
“SEC”) to deregister their unissued and unsold shares of common stock previously
registered under Form S-1. On May 5, 2009, the Company filed Form 15 with the
SEC to effectively terminate their registration.
NOTE 2 – BASIS OF
PRESENTATION
The
Company is a development stage enterprise since it has not yet generated any
revenue from the sale of products and, through December 31, 2009, its efforts
have been principally devoted to developing its licensed technologies and
raising capital. Accordingly, the accompanying financial statements have been
prepared in accordance with the provisions of Accounting Standards Codification
(the “ASC”) 915, “Development
Stage Entities”.
For the
years ended December 31, 2009 and 2008, the Company reported a net loss of
$6,936,705 and $12,913,566, respectively, and the net loss from August 1, 2005
(inception) through December 31, 2009 was $23,580,861. The Company’s total cash
balance as of December 31, 2009 was $3,087,299 compared to $10,395,007at
December 31, 2008. Through December 31, 2009, all of the Company’s financing has
been through private placements of common stock and debt financing. In June
2008, the Company completed a private placement of its common stock, raising
approximately $17,832,000 in gross proceeds. The Company expects to incur
substantial and increasing losses and have negative net cash flows from
operating activities as it expands its technology portfolio and engages in
further research and development activities, particularly the conducting of
pre-clinical and clinical trials.
The
Company plans to continue to fund operations from its existing cash balance and
additional funds raised through various sources, such as equity and debt
financing. Based on its current resources at December 31, 2009, and the current
plan of expenditure on continuing development of current products, the Company
believes that it has sufficient capital to fund its operations through the end
of the second quarter of 2010, and will need additional financing in the future
until it can achieve profitability, if ever.
The
success of the Company depends on its ability to develop its products to the
point of FDA approval and subsequent revenue generation and, accordingly, to
raise enough capital to finance these developmental effort, or the ability to
enter into a strategic transaction with a third party. The Company plans to
raise additional capital to finance the continued operating and capital
requirements of the Company. Amounts raised will be used to further develop the
Company’s products, acquire additional product licenses and for other working
capital purposes. However, there can be no assurance that the Company will be
able to raise additional capital at times or on terms that it desires, if at
all, particularly given the current economic conditions, which have made access
to the capital markets more difficult. If the Company is unable to raise or
otherwise secure additional capital, it will likely be forced to curtail its
operations, which would delay the development of its product
candidates.
F-10
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
NOTE
3 – THE MERGER
Description
of the Merger and Private Placement Offering
On June
3, 2008, the Company completed the Merger. In accordance with the terms of the
Merger, each share of common stock of Old Arno that was outstanding immediately
prior to the Merger was exchanged for 1.99377 shares of the Company’s common
stock. In addition, all securities convertible into or exercisable for shares of
Old Arno common stock outstanding immediately prior to the Merger were
cancelled, and the holders thereof received similar securities convertible into
or exercisable for the purchase of an aggregate of 1,611,760 shares of the
Company’s common stock. In consideration for their shares of Old Arno’s common
stock, the shareholders received an aggregate of 19,291,824 shares of the
Company’s common stock. Immediately prior to the effective time of the Merger,
1,100,200 shares of Laurier’s common stock were issued and outstanding. Upon
completion of the Merger, the Old Arno shareholders owned approximately 95% of
the Company’s issued and outstanding common stock.
Following
the Merger, the business conducted by the Company is the business conducted by
Old Arno prior to the Merger. In addition, the directors and officers of Laurier
were replaced by the directors and officers of Old Arno.
As a
condition and immediately prior to the closing of the Merger, on June 2, 2008,
Old Arno completed a private placement of its equity securities whereby it
received gross proceeds of approximately $17,732,000 through the sale of
3,691,844 shares of Old Arno Common Stock to selected accredited investors,
which shares were exchanged for 7,360,689 shares of Company Common Stock after
giving effect to the Merger. Contemporaneously with the June 2008 private
placement, the 6% Notes (Note 8) converted into 984,246 Old Arno Shares and the
holders of the 6% Notes received Warrants to purchase an aggregate of 98,409
shares of Old Arno Common Stock at an exercise price equal to $4.83 per share.
The Old Arno Shares were exchanged for an aggregate of 1,962,338 shares of the
Company’s Common Stock and the Conversion Warrants were exchanged for an
aggregate of 196,189 five year warrants to purchase our Common Stock at an
exercise price equal to $2.42 per share.
All
references to share and per share amounts in these financial statements have
been restated to retroactively reflect the number of common shares of Arno
common stock issued pursuant to the Merger.
Accounting
Treatment of the Merger; Financial Statement Presentation
The
Merger was accounted for as a reverse acquisition pursuant to the guidance in
Appendix B of SEC Accounting Disclosure Rules and Practices Official Text, which
provides that the “merger of a private operating company into a non-operating
public shell corporation with nominal net assets typically results in the owners
and management of the private company having actual or effective operating
control of the combined company after the transaction, with the shareholders of
the former public shell continuing only as passive investors. These transactions
are considered by the Securities and Exchange Commission to be capital
transactions in substance, rather than business combinations. That is, the
transaction is equivalent to the issuance of stock by the private company for
the net monetary assets of the shell corporation, accompanied by a
recapitalization.” Accordingly, the Merger has been accounted for as a
recapitalization, and, for accounting purposes, Old Arno is considered the
acquirer in a reverse acquisition.
Laurier’s
historical accumulated deficit for periods prior to June 3, 2008, in the amount
of $120,538, was eliminated against additional-paid-in-capital, and the
accompanying financial statements present the previously issued shares of
Laurier’s common stock as having been issued pursuant to the Merger on June 3,
2008. The shares of common stock of the Company issued to the Old Arno
stockholders in the Merger are presented as having been outstanding since August
2005 (the month when Old Arno first sold its equity
securities).
F-11
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Because
the Merger was accounted for as a reverse acquisition under accounting
principles generally accepted in the United States (“GAAP”), the financial
statements for periods prior to June 3, 2008, reflect only the operations of Old
Arno.
NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Estimates and assumptions principally
relate to services performed by third parties but not yet invoiced, estimates of
the fair value of stock options issued to employees and consultants, and
estimates of the probability and potential magnitude of contingent liabilities.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a remaining maturity of
three months or less at the time of acquisition to be cash
equivalents.
Restricted
Cash
In
October 2008, the Company entered into a five year office lease agreement with
an opt-out provision at the end of the third year. In connection with the lease,
the Company delivered an irrevocable stand-by and unconditional letter of credit
in the amount of approximately $44,000 (or the approximate equivalent of three
months rent) as a security deposit with the landlord as the beneficiary in case
of default or failure to comply with the lease requirements. In order to fund
the letter of credit, the Company deposited a compensating balance of
approximately $44,000 into an interest bearing certificate of deposit with a
financial institution which shall be reduced by $11,005 on January 1, 2011 and
by an additional $11,005 on January 1, 2013, provided the Company maintains
certain conditions described in the lease agreement.
Prepaid
Expenses
Prepaid
expenses consist of payments made in advance to vendors relating to service
contracts for clinical trial development and insurance policies. These advanced
payments are amortized to expense either as services are performed or over the
relevant service period using the straight line method.
Property
and Equipment
Property
and equipment consist primarily of furnishings, fixtures, leasehold improvements
and computer equipment and are recorded at cost. Repairs and maintenance costs
are expensed in the period incurred. Depreciation is provided for by the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized using the straight-line method over the
remaining lease term or the life of the asset, whichever is
shorter.
F-12
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Description
|
Estimated useful life
|
|
Office
equipment and furniture
|
5
to 7 years
|
|
Leasehold
improvements
|
3
years
|
|
Computer
equipment
|
3
years
|
Fair
Value of Financial Instruments
The
Company measures fair value in accordance with GAAP. Fair value measurements are
applied under other accounting pronouncements that require or permit fair value
measurements. The provisions are to be applied prospectively as of the beginning
of the fiscal year in which it is initially adopted, with any transition
adjustment recognized as a cumulative-effect adjustment to the opening balance
of retained earnings. The adoption of this standard had no significant impact on
the Company’s financial statements. Financial instruments included in the
Company’s balance sheets consist of cash and cash equivalents, accounts payable,
accrued expenses and due to related parties. The carrying amounts of these
instruments reasonably approximate their fair values due to their short-term
maturities.
Concentration
of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents. The Company deposits cash
and cash equivalents with high credit quality financial institutions and is
insured to the maximum limitations. Balances in these accounts may exceed
federally insured limits at times, which expose the Company to institutional
risk.
Research
and Development
Research
and development costs are charged to expense as incurred. Research and
development includes employee costs, fees associated with operational
consultants, contract clinical research organizations, contract manufacturing
organizations, clinical site fees, contract laboratory research organizations,
contract central testing laboratories, licensing activities, and allocated
executive, human resources and facilities expenses. The Company accrues for
costs incurred as the services are being provided by monitoring the status of
the trial and the invoices received from its external service providers. The
Company adjusts its accruals in the period when actual costs become known. Costs
related to the acquisition of technology rights and patents for which
development work is still in process are charged to operations as incurred and
considered a component of research and development expense.
Stock-Based
Compensation
Stock-based
compensation cost is measured at the grant date based on the value of the award
and is recognized as expense over the required service period, which is
generally equal to the vesting period.
Common
stock, stock options, and warrants or other equity instruments issued to
non-employees (including consultants and all members of the Company’s Scientific
Advisory Board) as consideration for goods or services received by the Company
are accounted for based on the fair value of the equity instruments issued
(unless the fair value of the consideration received can be more reliably
measured). The fair value of any options issued to non-employees is recorded as
expense over the applicable service periods.
F-13
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Loss
per Common Share
Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding. Diluted loss per
share is computed similarly to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. For all periods presented, potentially
dilutive securities are excluded from the computation of fully diluted loss per
share as their effect is anti-dilutive.
Potentially
dilutive securities as of December 31, 2009 and 2008 include:
2009
|
2008
|
|||||||
Warrants
to purchase common stock
|
$ | 495,252 | $ | 495,252 | ||||
Options
to purchase common stock
|
1,913,241 | 2,436,511 | ||||||
Total
potential dilutive securities
|
$ | 2,408,493 | $ | 2,931,763 |
Comprehensive
Loss
The
Company has no components of other comprehensive loss other than its net loss,
and accordingly, comprehensive loss is equal to net loss for all periods
presented.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the period in which the
differences are expected to affect taxable income. The Company provides a
valuation allowance when it appears more likely than not that some or all of the
net deferred tax assets will not be realized.
A tax
position is recognized as a benefit only if it is “more likely than not” that
the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For
tax positions not meeting the “more likely thank not” test, no tax benefit is
recorded.
The
Company’s policy is to include interest and penalties related to unrecognized
tax benefits within the Company’s provision for (benefit from) income taxes. The
Company recognized no amounts for interest and penalties related to unrecognized
tax benefits in 2009 and 2008 respectively. In addition the Company had no
amounts accrued for interest and penalties as of December 31, 2009 and 2008,
respectively.
Reclassification
Certain
amounts in the prior period financial statements and related notes have been
reclassified to conform to the current period presentation. Reclassifications
had no effect on net loss or stockholders’ equity.
F-14
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Recently
Issued Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the ASC. The ASC
has become the single source of non-governmental GAAP recognized by the FASB in
the preparation of financial statements. The Company adopted the ASC as of July
1, 2009. The ASC does not change GAAP and did not have an effect on the
Company’s financial position, results of operations or cash flows.
Effective
June 30, 2009, the Company adopted a new accounting standard issued by the FASB
related to the disclosure requirements of the fair value of financial
instruments. This standard expands the disclosure requirements of fair value
(including the methods and significant assumptions used to estimate fair value)
of certain financial instruments to interim period financial statements that
were previously only required to be disclosed in financial statements for annual
periods. In accordance with this standard, the disclosure requirements have been
applied on a prospective basis and did not have a material impact on the
Company’s financial statements.
Effective
June 30, 2009, the Company adopted a newly issued accounting standard related to
accounting for and disclosure of subsequent events in its financial statements.
This standard provides the authoritative guidance for subsequent events that was
previously addressed only in United States auditing standards. This standard
establishes general accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued and requires the Company to disclose the date through which it has
evaluated subsequent events and whether that was the date the financial
statements were issued or available to be issued. This standard does not apply
to subsequent events or transactions that are within the scope of other
applicable GAAP that provide different guidance on the accounting treatment for
subsequent events or transactions. The adoption of this standard did not have a
material impact on the Company’s financial statements.
In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis. This standard clarifies how a company should measure the fair
value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard. The adoption of this standard did not have a
material impact on the Company’s financial statements
Management
does not believe that any other recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the Company’s financial statements.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment as of December 31, 2009 and 2008 consist of the
following:
2009
|
2008
|
|||||||
Computer
equipment
|
$ | 5,080 | $ | 12,602 | ||||
Office
furniture and equipment
|
48,380 | 53,802 | ||||||
Leasehold
improvements
|
9,144 | 10,756 | ||||||
Total
property and equipment
|
62,604 | 77,160 | ||||||
Accumulated
depreciation
|
(21,037 | ) | (13,576 | ) | ||||
Total
property and equipment, net
|
$ | 41,567 | $ | 63,584 |
F-15
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Depreciation
expense for the years ended December 31, 2009, 2008 and the period from August
1, 2005 (inception) through December 31, 2009 were $19,337, $11,926 and $32,912,
respectively.
NOTE
6 - INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
AR-67
License Agreement
The
Company’s rights to AR-67 are governed by an October 2006 license agreement with
the University of Pittsburgh (“Pitt”). Under this agreement, Pitt granted the
Company an exclusive, worldwide, royalty-bearing license for the rights to
commercialize technologies embodied by certain issued patents, patent
applications and know-how relating to AR-67 for all therapeutic uses. The
Company has expanded, and intends to continue to expand, its patent portfolio by
filing additional patents covering expanded uses for this
technology.
Under the
terms of the license agreement with Pitt, the Company made a one-time cash
payment of $350,000 to Pitt and reimbursed it for past patent expenses of
approximately $373,000. Additionally, Pitt will receive performance-based cash
payments upon successful completion of clinical and regulatory milestones
relating to AR-67. The Company will make the first milestone payment to Pitt
upon the acceptance of the first New Drug Application (“NDA”) by the FDA for
AR-67. The Company is also required to pay to Pitt an annual maintenance fee of
$200,000 upon the third and fourth anniversaries, $250,000 upon the fifth and
sixth anniversaries, and $350,000 upon the seventh anniversary and annually
thereafter and to pay Pitt a royalty equal to a percentage of net sales of
AR-67, pursuant to the license agreement. To the extent the Company enters into
a sublicensing agreement relating to AR-67, the Company will pay Pitt a portion
of all non-royalty income received from such sublicensee.
Under the
license agreement with Pitt, the Company also agreed to indemnify and hold Pitt
and its affiliates harmless from any and all claims, actions, demands,
judgments, losses, costs, expenses, damages and liabilities (including
reasonable attorneys’ fees) arising out of or in connection with (i) the
production, manufacture, sale, use, lease, consumption or advertisement of
AR-67, (ii) the practice by the Company or any affiliate or sublicensee of the
licensed patent; or (iii) any obligation of the Company under the license
agreement unless any such claim is determined to have arisen out of the gross
negligence, recklessness or willful misconduct of Pitt. The license agreement
will terminate upon the expiration of the last patent relating to AR-67. Pitt
may generally terminate the agreement at any time upon a material breach by the
Company to the extent it fails to cure any such breach within 60 days after
receiving notice of such breach or in the event the Company files for
bankruptcy. The Company may terminate the agreement for any reason upon 90 days
prior written notice.
AR-12
and AR-42 License Agreements
The
Company’s rights to both AR-12 and AR-42 are governed by separate license
agreements with The Ohio State University Research Foundation (“Ohio State”)
entered into in January 2008. Pursuant to each of these agreements, Ohio State
granted the Company exclusive, worldwide, royalty-bearing licenses to
commercialize certain patent applications, know-how and improvements relating to
AR-42 and AR-12 for all therapeutic uses.
Pursuant
to the Company’s license agreements for AR-12 and AR-42, the Company made
one-time cash payments to Ohio State in the aggregate amount of $450,000 and
reimbursed it for past patent expenses in the aggregate amount of approximately
$174,000. Additionally, the Company will be required to make performance-based
cash payments upon successful completion of clinical and regulatory milestones
relating to AR-12 and AR-42 in the United States, Europe and Japan. The first
milestone payment for each of the licensed compounds will be due when the first
patient is dosed in the first Company sponsored Phase I clinical trial of each
of AR-12 and AR-42. In October 2009, the Company remitted a $200,000 milestone
payment to Ohio State for the first patient dosed in the first Company sponsored
Phase I clinical trial of AR-12. To the extent the Company enters into a
sublicensing agreement relating to either or both of AR-12 or AR-42, it will be
required to pay Ohio State a portion of all non-royalty income received from
such sublicensee.
F-16
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
The
license agreements with Ohio State further provide that the Company will
indemnify Ohio State from any and all claims arising out of the death of or
injury to any person or persons or out of any damage to property, or resulting
from the production, manufacture, sale, use, lease, consumption or advertisement
of either AR-12 or AR-42, except to the extent that any such claim arises out of
the gross negligence or willful misconduct of Ohio State. The license agreements
for AR-12 and AR-42 each expire on the later of (i) the expiration of the last
valid claim contained in any licensed patent and (ii) 20 years after the
effective date of the license. Ohio State will generally be able to terminate
either license upon the Company’s breach of the terms of the license to the
extent the Company fails to cure any such breach within 90 days after receiving
notice of such breach or the Company files for bankruptcy. The Company may
terminate either license upon 90 days prior written notice.
NOTE
7 - ACCRUED LIABILITIES
Accrued
liabilities as of December 31, 2009 and 2008 consist of the
following:
2009
|
2008
|
|||||||
Accrued
compensation and related benefits
|
$ | 250,800 | $ | 274,268 | ||||
Accrued
research and development expense
|
305,404 | 98,761 | ||||||
Accrued
other expenses
|
- | 77,684 | ||||||
Total
accrued liabilities
|
$ | 556,204 | $ | 450,713 |
NOTE
8 - CONVERTIBLE NOTES PAYABLE
During
February 2007, the Company completed a private placement offering of 6%
convertible promissory notes (the “Notes”) for an aggregate principal amount of
$3,967,000, due on February 9, 2009. The aggregate principal amount and accrued
but unpaid interest on the Notes, which totaled $4,278,518, automatically
converted upon the closing of the June 3, 2008 Private Placement into 1,962,338
shares of common stock at a conversion price of $2.42, which was equal to 90% of
the per share price of the shares sold in the Financing. Due to the beneficial
conversion feature resulting from the discounted conversion price, a discount of
$475,391 was recorded as interest expense with a corresponding credit to
additional paid-in capital. In addition, in conjunction with the conversion of
the convertible debt, the Company issued fully vested warrants to purchase
196,189 shares of common stock to the holders of the Notes. The warrants were
valued at $348,000 using the Black-Scholes option-pricing model and the
following assumptions: exercise price $2.42, a 3.41% risk-free interest rate, a
five year contractual term, a dividend rate of 0%, and 94.30% expected
volatility. The cost of the warrants was included in interest expense in the
accompanying Statements of Operations, and as an increase in additional paid-in
capital.
NOTE
9 – STOCKHOLDERS’ EQUITY
Common
Stock
In August
2005, the Company issued an aggregate of 9,968,797 shares of common stock to its
founders for $5,000.
As a
condition to the closing of the Merger, on June 2, 2008, the Company completed a
private placement of 7,360,689 shares of its common stock (as adjusted to give
effect to the Merger), resulting in gross proceeds of approximately $17,832,000.
Issuance costs related to the private placement were approximately $142,000,
which were capitalized and charged to stockholders’ equity upon the closing of
the private placement. In accordance with the terms of the Notes,
contemporaneously with the completion of the June 2, 2008 private placement, the
outstanding principal and accrued interest of $4,278,518 under the Notes
converted into an aggregate of 1,962,338 shares of common stock. Additionally,
1,100,200 shares of common stock that were held by the original stockholders of
Laurier prior to the Merger are reflected in the Company’s common stock
outstanding in the accompanying financial statements.
F-17
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Warrants
In
connection with the in-licensing of the Company’s product candidates AR-12 and
AR-42, the Company issued 299,063 fully vested warrants to employees of Two
River Group Holdings, LLC (see Note 10) and a consultant for their consultation
and due diligence efforts as part of a finder’s fee arrangement. The warrants
have an exercise price of $2.42 and were valued at $480,400 based upon the
Black-Scholes option-pricing model. The assumptions used under the Black-Scholes
option-pricing model included a risk free interest rate of 3.27%, volatility of
80.80% and a five year life. None of these warrants have been exercised to
date.
In
conjunction with the conversion of $4,278,518 of convertible debt, including
accrued interest, prior to the Merger, the Company issued fully vested warrants
to purchase 196,189 shares of common stock to the holders of such debt. The
warrants were issued with an exercise price of $2.42 and expire in June 2, 2013.
The fair value of the warrants was determined to be $348,000. None of these
warrants have been exercised to date.
NOTE
10 – STOCK OPTION PLAN
The
Company’s 2005 Stock Option Plan (the “Plan”) was originally adopted by the
Board of Directors of Old Arno in August 2005, and was assumed by the Company on
June 3, 2008 in connection with the Merger. After giving effect to the Merger,
there are 2,990,655 shares of the Company’s common stock reserved for issuance
under the Plan. Under the Plan, incentives may be granted to officers,
employees, directors, consultants, and advisors. Incentives under the Plan may
be granted in any one or a combination of the following forms: (a) incentive
stock options and non-statutory stock options, (b) stock appreciation rights,
(c) stock awards, (d) restricted stock and (e) performance shares.
The Plan
is administered by the Board of Directors, or a committee appointed by the
Board, which determines recipients and types of awards to be granted, including
the number of shares subject to the awards, the exercise price and the vesting
schedule. The term of stock options granted under the Plan cannot exceed 10
years. Options shall not have an exercise price less than the fair market value
of the Company’s common stock on the grant date, and generally vest over a
period of three to four years.
The
weighted-average grant-date fair value of options granted for the years ended
December 31, 2009 and 2008 was $0.91 and $2.09 respectively. The total intrinsic
value of the options exercised during the years ended December 31, 2009 and 2008
was $121,129 and $0 respectively.
As of
December 31, 2009, an aggregate of 1,057,414 shares remained available for
future grants and awards under the Plan, which covers stock options, warrants
and restricted awards. The Company issues unissued shares to satisfy stock
options, warrants exercises and restricted stock awards.
A summary
of the status of the options issued under the Plan as of December 31, 2009, and
information with respect to the changes in options outstanding is a
follows:
F-18
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Options Outstanding
|
||||||||||||||||
Shares
Available
for Grant
|
Outstanding
Stock
Options
|
Weighted-
average
exercise price
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Balance
at January 1, 2008
|
2,302,806 | 687,849 | $ | 0.81 | ||||||||||||
Granted
under the Plan
|
(1,748,662 | ) | 1,748,662 | 2.06 | ||||||||||||
Exercised
|
- | - | - | |||||||||||||
Surrendered/cancelled
|
- | - | - | |||||||||||||
Forfeited
|
- | - | - | |||||||||||||
Balance
at December 31, 2008
|
554,144 | 2,436,511 | 1.71 | $ | - | |||||||||||
Granted
under the Plan
|
(305,000 | ) | 305,000 | 1.00 | ||||||||||||
Exercised
|
- | (20,000 | ) | 0.13 | ||||||||||||
Surrendered/cancelled
|
- | - | - | |||||||||||||
Forfeited
|
808,270 | (808,270 | ) | (2.98 | ) | |||||||||||
Balance
at December 31, 2009
|
1,057,414 | 1,913,241 | $ | 1.76 | $ | - | ||||||||||
Exercisable
at December 31, 2009
|
1,278,507 | $ | 1.71 | $ | - |
The
Company estimated the fair value of each option award granted using the
Black-Scholes option-pricing model and the following assumptions for the years
ended December 31, 2009 and 2008:
2009
|
2008
|
|||||||
Term
|
5 - 10 Years
|
5 - 10 Years
|
||||||
Volatility
|
135 | % | 77 - 123 | % | ||||
Dividend
yield
|
0 | % | 0 | % | ||||
Risk-free
interest rate
|
2.3 - 3.5 | % | 1.5 - 3.2 | % | ||||
Forfeiture
rate
|
0 | % | 0 | % |
As
allowed by ASC 718 for companies with a short period of publicly traded stock
history, management’s estimate of expected volatility is based on the average
expected volatilities of a sampling of five companies with similar attributes to
the Company, including: industry, stage of life cycle, size and financial
leverage.
The
Company has no historical basis for determining expected forfeitures and, as
such, compensation expense for stock-based awards does not include an estimate
for forfeitures.
Stock-based
compensation for the year ended December 31, 2009 and 2008 and for the period
from August 1, 2005 (inception) through December 31, 2009, are as
follows:
F-19
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Year ended December 31,
|
Period from
August 1, 2005
(inception) through
|
|||||||||||
2009
|
2008
|
December 31, 2009
|
||||||||||
General
and administrative
|
$ | 270,293 | $ | 679,948 | $ | 773,526 | ||||||
Research
and development
|
377,155 | 451,270 | 1,103,140 | |||||||||
Total
|
$ | 647,448 | $ | 1,131,218 | $ | 1,876,666 |
As of
December 31, 2009, the total outstanding, and the total exercisable, options
under the Plan were as follows:
Outstanding
|
Exercisable
|
|||||||||||||||||||||
Range of
Exercise
Prices
|
Shares
|
Weighted -
Average
Remaining
Contractual Life
|
Weighted -
Average
Exercise
Price
|
Total
Shares
|
Weighted -
Average
Exercise
Price
|
|||||||||||||||||
$ | 0.13 | 129,532 | 1.86 | $ | 0.13 | 129,532 | $ | 0.13 | ||||||||||||||
$ | 1.00 | 823,381 | 6.84 | 1.00 | 501,434 | 1.00 | ||||||||||||||||
$ | 2.42 | 428,661 | 7.61 | 2.42 | 387,124 | 2.42 | ||||||||||||||||
$ | 2.75 | 440,000 | 8.52 | 2.75 | 178,750 | 2.75 | ||||||||||||||||
$ | 3.00 | 91,667 | 4.28 | 3.00 | 81,667 | 3.00 | ||||||||||||||||
1,913,241 | 6.94 | $ | 1.76 | 1,278,507 | $ | 1.71 |
As of
December 31, 2009 and 2008, there was $768,933 and $1,837,582 of unrecognized
compensation costs related to nonvested stock options, respectively. These costs
are expected to be recognized over a weighted average period of approximately
two years as of December 31, 2009.
NOTE
11 – RELATED PARTIES
On June
1, 2009, the Company entered into a services agreement with Two River
Consulting, LLC (“TRC”) to provide various clinical development, operational,
managerial, and administrative services to the Company for a period of one year.
David M. Tanen, the Company’s President, Secretary and director, Arie S.
Belldegrun, the Chairman of the Board of Directors, and Joshua A. Kazam,
director are each partners of TRC. The terms of the Services Agreement were
reviewed and approved by a special committee of the Company’s Board of Directors
consisting of independent directors. None of the members of the special
committee has any interest in TRC or the services agreement. As compensation for
the services contemplated by the services agreement, the Company will pay to TRC
a monthly cash fee of $50,000. On occasion, some of the Company’s expenses are
paid by TRC.
F-20
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
No
interest is charged by TRC on any outstanding balance owed by the Company. For
the years ended December 31, 2009 and 2008 and for the period from August 1,
2005 (inception) through December 31, 2009, total cash services and reimbursed
expenses totaled $382,418, $0 and $382,418, respectively. As of December 31,
2009 the Company has a payable to TRC of $132,418.
Prior to
June 1, 2009, some of the Company’s expenses were paid by Two River Group
Holdings, LLC (“Two River”), a company that is controlled by four of the
Company’s directors and founders. No interest is charged by Two River on any
outstanding balance owed by the Company. For the years ended December 31, 2009
and 2008 and for the period from August 1, 2005 (inception) through December 31,
2009, reimbursable expenses totaled $16,977, $106,085 and $206,039,
respectively. In addition, the Company granted fully vested warrants to purchase
299,063 shares of its common stock at an exercise price of $2.42 to the Two
River employees who provided consultation and due diligence efforts related to
the in-licensing of AR-12 and AR-42. The warrants have a five year life and a
fair value of $480,400 based upon the Black-Scholes option-pricing model. As of
December 31, 2009 and 2008, the Company had $0 and $5,616 payable to Two River,
respectively.
The
Company utilized the services of Riverbank Capital Securities, Inc.
(“Riverbank”), a FINRA member broker dealer registered with the SEC, for
investment banking and other investment advisory services in connection with the
June 2008 private placement and the Notes. Riverbank is an entity controlled by
several partners of Two River who are also officers and/or directors of the
Company. The Company paid a $100,000 non-accountable expense allowance to
Riverbank for services related to the June 2008 private placement and is not
obligated to Riverbank for any future payments.
During
March 2008, the Company issued an unsecured promissory note to an existing
shareholder for an aggregate amount of $1,000,000 (the “Promissory Note”). The
Promissory Note bore interest at 8% and was due in full on July 3, 2008. The
Company repaid the Promissory Note and the full premium on June 3, 2008 when it
completed the Merger.
The
financial condition and results of operations of the Company, as reported, are
not necessarily indicative of results that would have been reported had the
Company operated completely independently.
On
October 1, 2007, the Company adopted a 401(k) savings plan (the “401(k) Plan”)
for the benefit of its employees. Under the 401(k) Plan the Company is required
to make contributions equal to 3% of eligible compensation for each eligible
employee whether or not the employee contributes to the 401(k) Plan. For the
years ended December 31, 2009 and 2008 and for the cumulative period from August
1, 2005 (inception) through December 31, 2009, the Company has recorded $2,944,
$10,923 and $16,064 of matching contributions to the 401(k) Plan.
NOTE
12 – INCOME TAXES
The
Company accounts for income taxes using the liability method, which requires the
determination of deferred tax assets and liabilities, based on the differences
between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The net deferred tax asset is adjusted by a valuation allowance, if,
based on the weight of available evidence, it is more likely than not that some
portion of all of the net deferred tax assets will not be realized. The income
tax returns of the Company are subject to examination by federal and state
taxing authorities. Such examination could result in adjustments to net income
or loss, which changes could affect the income tax liabilities of the Company.
The Company’s tax returns are open for inspection for the four years ended
December 31, 2009.
At
December 31, 2009, the Company had no Federal income tax expense or benefit but
did have Federal tax net operating loss carry-forwards of approximately
$20,234,624, and a research and development credit carry-forward of $1,015,207.
The federal net operating loss carry-forwards will begin to expire in 2026,
unless previously utilized.
F-21
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Deferred
income taxes reflect the net effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company’s net deferred tax assets as of December 31, 2009 and 2008 are shown
below.
2009
|
2008
|
|||||||
Research
tax credit
|
$ | 1,015,000 | $ | 702,000 | ||||
Net
operating loss carry forwards
|
8,900,000 | 6,111,000 | ||||||
Stock
based compensation
|
735,000 | 528,000 | ||||||
Depreciation
and amortization
|
- | (6,000 | ) | |||||
Total
net deferred tax assets
|
10,650,000 | 7,335,000 | ||||||
Valuation
allowance
|
(10,650,000 | ) | (7,335,000 | ) | ||||
Net
deferred tax assets
|
$ | - | $ | - |
NOTE
13 – COMMITMENTS AND CONTINGENCIES
On
October 20, 2008, the Company entered into a lease for office space consisting
of 5,390 square feet in Parsippany, New Jersey. The lease commencement date was
November 14, 2008, with lease payments beginning on January 1, 2009. The lease
expiration date is five years from the rent commencement date. The total five
year lease obligation is approximately $713,000.
The
Company provided a security deposit of $44,018, or four months base rent, in the
form of a letter of credit. The letter of credit may be reduced by $11,005 on
January 1, 2011 and by an additional $11,005 on January 1, 2013, provided the
Company maintains certain conditions described in the lease agreement. The
Company has an early termination option, which provides the Company may
terminate the lease on the third anniversary, upon providing the landlord nine
months written notice prior to the third anniversary of the lease. If the
Company exercises its termination option, the Company would be obligated to pay
a fee of $53,641 which consists of unamortized costs and expenses incurred by
the landlord in connection with the lease. The Company also has an option to
extend the term of the lease for a period of five additional years, provided the
Company gives notice to the landlord no later than 12 months prior to the
expiration of the original term.
In
November 2008, the Company abandoned an office lease for its Fairfield, New
Jersey facility that it entered into on August 10, 2007. As a result, the
Company recorded a liability of $28,798 on the date of abandonment, in
accordance with ASC 420, “Exit
or Disposal Cost Obligations.”
The
Company’s remaining gross estimated lease obligation for its Fairfield, New
Jersey office space is approximately $0 and $102,000 as of December 31, 2009 and
2008, respectively.
On April
2, 2009, the Company entered into a Termination and Release of Lease Agreement
for its Fairfield, New Jersey facility pursuant to which the Company surrendered
its $12,165 security deposit and made an additional one-time payment of $40,500
in exchange for terminating the lease as of this date. The Company recorded
additional liability and expense of $23,867 as of March 31, 2009.
The
aggregate remaining minimum future payments under these leases at December 31,
2009 are approximately as follows:
F-22
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
Year ended December 31,
|
||||
2010
|
$ | 144,000 | ||
2011
|
143,000 | |||
2012
|
143,000 | |||
2013
|
146,000 | |||
Total
|
$ | 576,000 |
On August
19, 2008, the Company entered into an employment agreement with its Chief
Executive Officer, with an effective commencement date of employment beginning
on September 3, 2008. The agreement provides for a term of two years expiring on
September 2, 2010, and an initial base salary of $375,000, plus an annual target
performance bonus of up to 50% of his base salary or $187,500. Pursuant to the
employment agreement, the CEO received a stock option to purchase 430,000 shares
of the Company’s common stock at an exercise price of $3.00 per share, which
shall vest pro rata on each anniversary of his employment. Additionally,
pursuant to the employment agreement, the CEO received a stock option to
purchase 430,000 performance options contingent upon the successful achievement
of performance goals established by the compensation committee of the Board of
Directors. The employment stock option grant had an approximate fair value of
$896,500 at the date of grant based on the Black-Scholes option-pricing model.
The employment agreement also entitles the CEO to certain severance
benefits.
On May
14, 2009, the Company entered into a Separation Agreement and General Release
(the “Separation Agreement”) with its CEO, pursuant to which, the CEO’s
employment with the Company was terminated effective May 31, 2009. Pursuant to
the Separation Agreement, the CEO received salary and benefits through July 31,
2009 and was granted an extended exercise window on his previously vested
71,667, stock options which resulted in additional stock compensation expense of
$46,100 as a result of the modification. In addition as a result of the CEO’s
termination, 788,333 stock options were forfeited and $146,200 of previously
recorded stock compensation expense related to these unvested stock options was
reversed in the current period.
On June
11, 2008, the Company entered into an employment agreement with its Chief
Financial Officer. The agreement provides for a term of two years expiring on
July 15, 2010, and an initial base salary of $200,000, plus an annual target
performance bonus of up to 30% of his base salary or $60,000.
In
addition, the CFO received a one-time cash bonus in the amount of $25,000 and a
stock option grant to purchase 440,000 shares of the Company’s common stock at
an exercise price equal to $2.75 per share. The right to purchase 25% of the
shares subject to the stock option vests in July, 2009 and thereafter, the
remaining shares vest in equal monthly installments over a 24 month period,
subject to his continued employment with the Company. The stock option grant had
an approximate fair value of $830,500 at the date of grant based on the
Black-Scholes option-pricing model. The employment agreement also entitles the
CFO to certain severance benefits.
On
February 4, 2010, the CFO tendered his resignation with the Company effective
February 15, 2010. As a result of the CFO’s resignation, 206,250 stock options
were forfeited.
On June
1, 2007, the Company entered into an employment agreement with its President and
Chief Medical Officer. The agreement provides for a term of two years expiring
on May 31, 2009, and an initial base salary of $340,000, plus an annual target
performance bonus of up to $150,000. Pursuant to the employment agreement, the
CMO received a stock option to purchase 398,754 shares of the Company’s common
stock at an exercise price of $1.00. The right to purchase 199,377 shares vests
pro rata on the first two anniversaries of his employment, and the right to
purchase the remaining 199,377 shares vest upon the achievement of performance
milestones, of which one-half, or 99,689 shares vested as of May 31, 2008. The
stock option grant had an approximate fair value of $252,800 at the date of
grant based on the Black-Scholes option-pricing model. The employment agreement
also entitles the CMO to certain severance benefits. However, in February 2009,
the CMO informed the Company that he would not be continuing his employment with
the Company beyond the expiration of his employment agreement on May 31,
2009.
F-23
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Years
ended December 31, 2009 and 2008 and the period
from
August 1, 2005 (inception) to December 31, 2009
The
Company has entered into various contracts with third parties in connection with
the development of the licensed technology described in Note 6.
The
aggregate minimum commitment under these contracts as of December 31, 2009 is
approximately $758,000.
In the
normal course of business, the Company enters into contracts that contain a
variety of indemnifications with its employees, licensors, suppliers and service
providers. Further, the Company indemnifies its directors and officers who are,
or were, serving at the Company’s request in such capacities. The Company’s
maximum exposure under these arrangements is unknown as of December 31, 2009.
The Company does not anticipate recognizing any significant losses relating to
these arrangements.
NOTE
14 – SUBSEQUENT EVENTS
On
January 20, 2010, the Company received net proceeds of $322,016 through the sale
of its New Jersey (“NJ”) net operating losses (“NOLS”). In June 2009, the
Company submitted an application with the New Jersey Economic Development
Authority (“NJEDA”) to sell its 2008 NOLS in return for cash consideration to
the Company. The NJEDA in conjunction with the State of NJ offers financing and
business incentives to NJ based biotechnology and technology companies. As a
result of the sale of the NJ NOLS sale, the Company’s NJ deferred tax asset
carryforward is reduced by $4,000,000 beginning in 2010. The Company’s federal
net operating losses were not affected by the sale of the NJ NOLS, and thus has
the full value of the 2009 deferred tax asset carryforward.
On
September 3, 2010, the Company entered into a Securities Purchase and
Registration Rights Agreement, or the Purchase Agreement, with a number of
institutional and accredited investors pursuant to which the Company sold in a
private placement an aggregate of 15,274,000 shares of newly-designated Series A
Convertible Preferred Stock, par value $0.0001 per share, or Series A Preferred
Stock, at a per share purchase price of $1.00. In accordance with the
Purchase Agreement, the Company also issued 1,221,920, two-and-one-half-year
Class A warrants to purchase additional shares of Series A Preferred Stock at an
initial exercise price of $1.00 per share and 6,415,080, five-year Class B
warrants at an initial exercise price of $1.15 per share. The terms of the Class
A and Class B warrants contain an anti-dilutive price adjustment provision, such
that in the event the Company issues common shares at a price below the current
exercise price of the Warrants the exercise price of the Class A and Class B
warrants will be adjusted based on the lower issuance price. The sale of the
shares and warrants resulted in aggregate gross proceeds of approximately $15.2
million, before expenses.
Issuance
costs related to the financing were approximately $1.9 million, including the
issuance of warrants (“Placement Warrants”) to purchase 1,050,840 shares of the
Company’s common stock at 110% of the Series A Preferred Stock purchase price
per share to designees of Riverbank and I-Bankers Securities, Inc. (“IBS”), that
acted as placement agents for the Company in connection with the private
placement. The Placement Warrants were valued at $614,400 using the
Black-Scholes option-pricing model.
Pursuant
to the Registration Rights Agreement, the Company will use its best efforts to
cause such registration statement to be declared effective within 180 days
following the initial closing under the Purchase Agreement, or by March 8,
2011. If such registration statement is not declared effective by the
SEC by such date, the Company will pay liquidated damages to the investors in
the amount of 1% of each investor’s aggregate investment amount for each 30-day
period until the registration statement is declared effective.
On
October 29, 2010, the Company was awarded funding of a total of approximately
$733,000 under the IRS Qualifying Therapeutic Discovery Project (“QTDP”)
program, which was created as part of the Patient Protection and Affordable Care
Act of 2010 (the “Healthcare Reform Act”). As enacted under the Healthcare
Reform Act, the QTDP program provides a tax credit or grant of up to 50% of
eligible costs and expenses for the tax years of 2009 and 2010 for qualifying
research and development expenses incurred for innovative projects that are
determined by the U.S. Department of Health and Human Services to have
reasonable potential to result in a new therapy, reduce health care costs, or
represent a significant advance in finding a cure for human
disease. The Company was awarded approximately $244,000 for R&D
expenses incurred for each of its AR-12, AR-42 and AR-67 development programs.
The Company expects to receive the amounts granted prior to the end of
2010.
F-24
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
BALANCE SHEETS
June 30, 2010
|
December 31, 2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 708,770 | $ | 3,087,299 | ||||
Prepaid
expenses
|
169,382 | 110,589 | ||||||
Total
current assets
|
878,152 | 3,197,888 | ||||||
Property
and equipment, net
|
35,642 | 41,567 | ||||||
Restricted
cash
|
44,018 | 44,018 | ||||||
Total
assets
|
$ | 957,812 | $ | 3,283,473 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities
|
||||||||
Accounts payable
|
$ | 373,467 | $ | 1,003,030 | ||||
Accrued expenses
and other current liabilities
|
951,270 | 556,204 | ||||||
Due
to related party
|
89,605 | 132,418 | ||||||
Total
current liabilities
|
1,414,342 | 1,691,652 | ||||||
Deferred
rent
|
15,409 | 16,070 | ||||||
Total
liabilities
|
1,429,751 | 1,707,722 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
(deficit) equity
|
||||||||
Preferred
stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued
and outstanding
|
- | - | ||||||
Common
stock, $0.0001 par value, 80,000,000 shares authorized,
20,412,024 shares issued and outstanding
|
2,041 | 2,041 | ||||||
Additional
paid-in capital
|
25,220,874 | 25,154,571 | ||||||
Deficit
accumulated during the development stage
|
(25,694,854 | ) | (23,580,861 | ) | ||||
Total
stockholders' (deficit) equity
|
(471,939 | ) | 1,575,751 | |||||
Total
liabilities and stockholders' (deficit) equity
|
$ | 957,812 | $ | 3,283,473 |
See
accompanying notes to condensed financial statements
F-25
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENTS OF OPERATIONS
Period from
|
||||||||||||||||||||
Three months ended June 30,
|
Six months ended June 30,
|
August 1, 2005 (inception)
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
through June 30, 2010
|
||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Research
and development
|
$ | 1,067,670 | $ | 1,160,512 | $ | 2,129,963 | $ | 3,236,897 | $ | 20,607,651 | ||||||||||
General
and administrative
|
213,566 | 115,402 | 319,060 | 607,974 | 4,520,295 | |||||||||||||||
Total
operating expenses
|
1,281,236 | 1,275,914 | 2,449,023 | 3,844,871 | 25,127,946 | |||||||||||||||
Loss
from operations
|
(1,281,236 | ) | (1,275,914 | ) | (2,449,023 | ) | (3,844,871 | ) | (25,127,946 | ) | ||||||||||
Other
income (expense):
|
||||||||||||||||||||
Interest
income
|
1,925 | 1,066 | 3,417 | 26,197 | 361,578 | |||||||||||||||
Interest
expense
|
- | - | - | - | (1,260,099 | ) | ||||||||||||||
Other
income
|
327 | - | 331,613 | - | 331,613 | |||||||||||||||
Total
other income (expense)
|
2,252 | 1,066 | 335,030 | 26,197 | (566,908 | ) | ||||||||||||||
Net
loss
|
$ | (1,278,984 | ) | $ | (1,274,848 | ) | $ | (2,113,993 | ) | $ | (3,818,674 | ) | $ | (25,694,854 | ) | |||||
Net
loss per share - basic and diluted
|
$ | (0.06 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.19 | ) | ||||||||
Weighted-average
shares outstanding -basic and diluted
|
21,412,024 | 20,392,024 | 21,412,024 | 20,392,024 |
See
accompanying notes to condensed financial statements
F-26
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
Period
from August 1, 2005 (inception) through June 30, 2010
(unaudited)
COMMON STOCK
|
ADDITIONAL
PAID-IN
|
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
|
TOTAL
STOCKHOLDERS'
|
|||||||||||||||||
SHARES
|
AMOUNT
|
CAPITAL
|
STAGE
|
EQUITY (DEFICIT)
|
||||||||||||||||
Issuance
of common shares to founders at $0.0001 per share
|
9,968,797 | $ | 997 | $ | 4,003 | $ | - | $ | 5,000 | |||||||||||
Stock
based compensation for services
|
- | - | 9,700 | - | 9,700 | |||||||||||||||
Net
loss, period from August 1, 2005 (inception) through December 31,
2006
|
- | - | - | (370,893 | ) | (370,893 | ) | |||||||||||||
Balance
at December 31, 2006
|
9,968,797 | 997 | 13,703 | (370,893 | ) | (356,193 | ) | |||||||||||||
Stock
based compensation for services
|
- | - | 88,300 | - | 88,300 | |||||||||||||||
Net
loss, year ended December 31, 2007
|
- | - | - | (3,359,697 | ) | (3,359,697 | ) | |||||||||||||
Balance
at December 31, 2007
|
9,968,797 | 997 | 102,003 | (3,730,590 | ) | (3,627,590 | ) | |||||||||||||
Common
stock sold in private placement, net of issuance costs of
$141,646
|
7,360,689 | 736 | 17,689,301 | - | 17,690,037 | |||||||||||||||
Conversion
of notes payable upon closing of private placement
|
1,962,338 | 196 | 4,278,322 | - | 4,278,518 | |||||||||||||||
Note
discount arising from note conversion
|
- | - | 475,391 | - | 475,391 | |||||||||||||||
Warrants
issued in connection with note conversion
|
- | - | 348,000 | - | 348,000 | |||||||||||||||
Reverse
merger transaction -
|
||||||||||||||||||||
elimination
of accumulated deficit
|
- | - | (120,648 | ) | - | (120,648 | ) | |||||||||||||
previously
issued Laurier common stock
|
1,100,200 | 110 | 120,538 | - | 120,648 | |||||||||||||||
Warrants
issued for services
|
- | - | 480,400 | - | 480,400 | |||||||||||||||
Stock
based compensation for services
|
- | - | 1,131,218 | - | 1,131,218 | |||||||||||||||
Net
loss, year ended December 31, 2008
|
(12,913,566 | ) | (12,913,566 | ) | ||||||||||||||||
Balance
at December 31, 2008
|
20,392,024 | 2,039 | 24,504,525 | (16,644,156 | ) | 7,862,408 | ||||||||||||||
Stock
based compensation for services
|
- | - | 647,448 | - | 647,448 | |||||||||||||||
Stock
option exercise
|
20,000 | 2 | 2,598 | - | 2,600 | |||||||||||||||
Net
loss, year ended December 31, 2009
|
(6,936,705 | ) | (6,936,705 | ) | ||||||||||||||||
Balance
at December 31, 2009
|
20,412,024 | 2,041 | 25,154,571 | (23,580,861 | ) | 1,575,751 | ||||||||||||||
Stock
based compensation for services
|
- | - | 66,303 | - | 66,303 | |||||||||||||||
Net
loss, six months ended June 30, 2010
|
- | - | - | (2,113,993 | ) | (2,113,993 | ) | |||||||||||||
Balance
at June 30, 2010
|
20,412,024 | $ | 2,041 | $ | 25,220,874 | $ | (25,694,854 | ) | $ | (471,939 | ) |
See
accompanying notes to condensed financial statements
F-27
ARNO
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
CONDENSED
STATEMENTS OF CASH FLOWS
(unaudited)
|
Period from
|
|||||||||||
Six months ended June 30,
|
August 1, 2005 (inception)
|
|||||||||||
2010
|
2009
|
through June 30, 2010
|
||||||||||
Cash
flows from operating activities
|
||||||||||||
Net
loss
|
$ | (2,113,993 | ) | $ | (3,818,674 | ) | $ | (25,694,854 | ) | |||
Adjustment
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
Depreciation
and amortization
|
5,925 | 9,265 | 83,838 | |||||||||
Stock-based
compensation
|
66,303 | 163,699 | 1,942,969 | |||||||||
Write-off
of intangible assets
|
- | - | 85,125 | |||||||||
Warrants
issued for services
|
- | - | 480,400 | |||||||||
Warrants
issued in connection with note conversion
|
- | - | 348,000 | |||||||||
Note
discount arising from beneficial conversion feature
|
- | - | 475,391 | |||||||||
Deferred
rent
|
(661 | ) | (662 | ) | 15,409 | |||||||
Loss
on disposal of assets
|
- | 2,780 | 2,680 | |||||||||
Noncash
interest expense
|
- | - | 311,518 | |||||||||
Changes
in operating assets and liabilities
|
||||||||||||
Prepaid
expenses
|
(58,793 | ) | 134,395 | (169,382 | ) | |||||||
Restricted
cash
|
- | - | (44,018 | ) | ||||||||
Security
deposit
|
- | 12,165 | - | |||||||||
Accounts
payable
|
(629,563 | ) | (1,163,218 | ) | 373,467 | |||||||
Accrued
expenses
|
395,066 | (152,116 | ) | 951,270 | ||||||||
Due
to related party
|
(42,813 | ) | 50,699 | 89,605 | ||||||||
Net
cash used in operating activities
|
(2,378,529 | ) | (4,761,667 | ) | (20,748,582 | ) | ||||||
Cash
flows from investing activities
|
||||||||||||
Purchase
of property and equipment
|
- | - | (77,160 | ) | ||||||||
Cash
paid for intangible assets
|
- | - | (85,125 | ) | ||||||||
Proceeds
from related party advance
|
- | - | 525,000 | |||||||||
Repayment
of related party advance
|
- | - | (525,000 | ) | ||||||||
Net
cash used in investing activities
|
- | - | (162,285 | ) | ||||||||
Cash
flows from financing activities
|
||||||||||||
Deferred
financing fees paid
|
- | - | (45,000 | ) | ||||||||
Proceeds
from issuance of common stock in private placement, net
|
- | - | 17,690,037 | |||||||||
Proceeds
from issuance of common stock to founders
|
- | - | 5,000 | |||||||||
Proceeds
from issuance of notes payable
|
- | - | 1,000,000 | |||||||||
Repayment
of notes payable
|
- | - | (1,000,000 | ) | ||||||||
Proceeds
from issuance of convertible notes payable
|
- | - | 3,967,000 | |||||||||
Proceeds
from exercise of stock options
|
- | - | 2,600 | |||||||||
Net
cash provided by financing activities
|
- | - | 21,619,637 | |||||||||
Net
(decrease) increase in cash and cash equivalents
|
(2,378,529 | ) | (4,761,667 | ) | 708,770 | |||||||
Cash
and cash equivalents at beginning of period
|
3,087,299 | 10,395,007 | - | |||||||||
Cash
and cash equivalents at end of period
|
$ | 708,770 | $ | 5,633,340 | $ | 708,770 | ||||||
Supplemental
schedule of cash flows information:
|
||||||||||||
Cash
paid for interest
|
$ | - | $ | - | $ | 80,000 | ||||||
Supplemental
schedule of non-cash investing and financing activities:
|
||||||||||||
Conversion
of notes payable and interest to common stock
|
$ | - | $ | - | $ | 4,278,518 | ||||||
Common
shares of Laurier issued in reverse merger transaction
|
$ | - | $ | - | $ | 110 |
See
accompanying notes to condensed financial statements
F-28
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
NOTE
1 – DESCRIPTION OF BUSINESS
Arno
Therapeutics, Inc. (“Arno” or “the Company”) develops innovative drug candidates
for the treatment of cancer. Arno’s lead clinical drug candidate, AR-12, is a
potentially first-in-class, orally available, targeted anti-cancer agent that
inhibits phosphoinositide dependent protein kinase-1, or PDK-1, a protein in the
PI3K/Akt pathway involved in the growth and proliferation of cells, including
cancer cells. Arno believes that AR-12 may also cause cell death
through the induction of stress in the endoplasmic reticulum, which is important
to the growth of cells. In May 2009, the FDA accepted Arno’s investigational new
drug application, or IND, for AR-12. Arno is currently conducting a
multi-centered Phase I clinical study of AR-12 in adult patients with advanced
or recurrent solid tumors or lymphoma. The Phase I study
of AR-12 is being conducted in two parts. The first part is a
dose-escalating study, which Arno refers to as the Escalation Phase, primarily
designed to evaluate the compound’s safety in order to identify the maximum
tolerated dose, or MTD, or a recommended dose, or RD, for future studies of
AR-12. Arno anticipates that the Escalation Phase will be completed
in the second quarter of 2011. Following the Escalation Phase, Arno
plans to initiate the second part of the study, which involves enrolling an
expanded cohort of up to 50 patients at the MTD or RD in multiple tumor
types. Arno refers to this second part of the study as the Expansion
Phase. The purpose of the Expansion Phase is to further evaluate and confirm the
PD effects, potential anti-tumor activity, and safety of AR-12 at the MTD or
RD. Arno anticipates concluding the Expansion Phase by the end of
2011.
Arno is
also developing AR-42, an orally available, broad spectrum inhibitor of both
histone and non-histone deacetylation proteins, which play an important role in
the regulation of gene expression. In preclinical studies, AR-42 has
demonstrated greater potency and activity in solid and liquid tumors when
compared to vorinostat (also known as SAHA and marketed as Zolinza® by
Merck) and other deacetylase inhibitors. These data demonstrate the potent and
differentiating activity of AR-42. Additionally, pre-clinical findings presented
at the 2009 American Society of Hematology Annual Meeting and Exposition showed
that AR-42 potently and selectively inhibits leukemic stem cells in acute
myeloid leukemia. AR-42 is currently being studied in an investigator
initiated Phase I/IIa clinical study in adult patients with relapsed or
refractory multiple myeloma, chronic lymphocytic leukemia, or CLL, or
lymphoma. Once the MTD is defined, the study is designed so that
additional patients can be added to investigate efficacy in a particular disease
and help guide future Phase II programs. Up to an additional 10
patients may be enrolled at the MTD dose in each of the multiple myeloma, CLL
and lymphoma.
Arno is
also developing AR-67, a novel, third-generation campothecin analogue that
inhibits Topoisomerase I activity. In 2008, Arno completed a multi-centered,
ascending dose Phase I clinical trial of AR-67 in patients with advanced solid
tumors. AR-67 is currently being studied in a Phase II clinical
trial in patients with glioblastoma multiforme, or GBM, a highly
aggressive form of brain cancer. Arno anticipates having interim data
from this Phase II study by the second quarter of 2011. Thereafter,
if data permits, Arno may elect to initiate larger Phase II studies or advance
AR-67 into a registration-enabling Phase III study.
On May 1,
2009, the Company filed a request with Securities Exchange Commission (the
“SEC”) to deregister their unissued and unsold shares of common stock previously
registered under Form S-1. On May 5, 2009, the Company filed Form 15 with the
SEC to effectively terminate their registration.
NOTE 2 – BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Company is a development stage enterprise since it has not yet generated any
revenue from the sale of products and, through June 30, 2010, its efforts have
been principally devoted to developing its licensed technologies and raising
capital. Accordingly, the accompanying financial statements have been prepared
in accordance with the provisions of Accounting Standards Codification (“ASC”)
915, “Development Stage
Entities”. The Company has experienced net losses since its inception and
has an accumulated deficit of approximately $25.7 million at June 30,
2010. The Company expects to incur substantial and increasing losses
and have negative net cash flows from operating activities as it expands its
technology portfolio and engages in further research and development activities,
particularly the conducting of pre-clinical and clinical
trials.
F-29
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
The
accompanying unaudited Condensed Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of Arno’s
management, the accompanying Condensed Financial Statements contain all
adjustments (consisting of normal recurring accruals and adjustments) necessary
to present fairly the financial position, results of operations and cash flows
of the Company at the dates and for the periods indicated. The interim results
for the period ended June 30, 2010 are not necessarily indicative of results for
the full 2010 fiscal year or any other future interim periods. Because the
Merger was accounted for as a reverse acquisition under generally accepted
accounting principles, the financial statements for periods prior to June 3,
2008 reflect only the operations of Old Arno.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Estimates and assumptions principally relate to services performed by third
parties but not yet invoiced, estimates of the fair value and forfeiture rates
of stock options issued to employees and consultants, and estimates of the
probability and potential magnitude of contingent liabilities. Actual results
could differ from those estimates.
NOTE
3 - LIQUIDITY AND CAPITAL RESOURCES
Cash
resources as of June 30, 2010 were approximately $0.7 million, compared to $3.1
million as of December 31, 2009. Based on its resources at June 30, 2010, the
financing completed in August 2010 and the current plan of expenditure for
continued development of the Company’s current product candidates, the Company
believes that it has sufficient capital to fund its operations through the
second half of 2011. However, the Company will need substantial additional
financing in the future until it can achieve profitability, if ever. The
Company’s continued operations will depend on its ability to raise additional
funds through various potential sources, such as equity and debt financing, or
to license its product candidates to another pharmaceutical company. The Company
will continue to fund operations from cash on hand and through sources of
capital similar to those previously described. The Company cannot assure that it
will be able to secure such additional financing, or if available, that it will
be sufficient to meet its needs.
The
success of the Company depends on its ability to discover and develop new
products to the point of FDA approval and subsequent revenue generation and,
accordingly, to raise enough capital to finance these developmental efforts.
Management plans to raise additional equity capital or license one or more of
its products to finance the continued operating and capital requirements of the
Company. Amounts raised will be used to further develop the Company’s product
candidates, acquire additional product licenses and for other working capital
purposes. While the Company will extend its best efforts to raise additional
capital to fund all operations for the next 12 to 24 months, management can
provide no assurances that the Company will be able to raise sufficient funds.
The accompanying condensed financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In
addition, to the extent that the Company raises additional funds by issuing
shares of its common stock or other securities convertible or exchangeable for
shares of common stock, stockholders may experience additional significant
dilution. In the event the Company raises additional capital through
debt financings, the Company may incur significant interest expense and become
subject to covenants in the related transaction documentation that may affect
the manner in which the Company conducts its business. To the extent that the
Company raises additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to its technologies
or product candidates, or grant licenses on terms that may not be favorable to
the Company. These things may have a material adverse effect on the
Company’s business.
NOTE
4 – BASIC AND DILUTED LOSS PER SHARE
Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding. Diluted loss per
share is computed similarly to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
For all
periods presented, potentially dilutive securities are excluded from the
computation of fully diluted loss per share as their effect is
anti-dilutive.
F-30
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
Potentially
dilutive securities include:
June 30, 2010
|
June 30, 2009
|
|||||||
Warrants
to purchase common stock
|
495,252 | 495,252 | ||||||
Options
to purchase common stock
|
1,453,303 | 2,436,511 | ||||||
Total
potentially dilutive securities
|
1,948,555 | 2,931,763 |
NOTE
5 - INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
AR-67
License Agreement
The
Company’s rights to AR-67 are governed by an October 2006 license agreement with
the University of Pittsburgh (“Pitt”). Under this agreement, Pitt granted the
Company an exclusive, worldwide, royalty-bearing license for the rights to
commercialize technologies embodied by certain issued patents, patent
applications and know-how relating to AR-67 for all therapeutic uses. The
Company has expanded, and intends to continue to expand, its patent portfolio by
filing additional patents covering expanded uses for this
technology.
Under the
license agreement with Pitt, the Company also agreed to indemnify and hold Pitt
and its affiliates harmless from any and all claims, actions, demands,
judgments, losses, costs, expenses, damages and liabilities (including
reasonable attorneys’ fees) arising out of or in connection with (i) the
production, manufacture, sale, use, lease, consumption or advertisement of
AR-67, (ii) the practice by the Company or any affiliate or sublicensee of the
licensed patent; or (iii) any obligation of the Company under the license
agreement unless any such claim is determined to have arisen out of the gross
negligence, recklessness or willful misconduct of Pitt. The license agreement
will terminate upon the expiration of the last patent relating to AR-67. Pitt
may generally terminate the agreement at any time upon a material breach by the
Company to the extent it fails to cure any such breach within 60 days after
receiving notice of such breach or in the event the Company files for
bankruptcy. The Company may terminate the agreement for any reason upon 90 days
prior written notice.
AR-12
and AR-42 License Agreements
The
Company’s rights to both AR-12 and AR-42 are governed by separate license
agreements with The Ohio State University Research Foundation (“Ohio State”)
entered into in January 2008. Pursuant to each of these agreements, Ohio State
granted the Company exclusive, worldwide, royalty-bearing licenses to
commercialize certain patent applications, know-how and improvements relating to
AR-42 and AR-12 for all therapeutic uses.
The
license agreements with Ohio State further provide that the Company will
indemnify Ohio State from any and all claims arising out of the death of or
injury to any person or persons or out of any damage to property, or resulting
from the production, manufacture, sale, use, lease, consumption or advertisement
of either AR-12 or AR-42, except to the extent that any such claim arises out of
the gross negligence or willful misconduct of Ohio State. The license agreements
for AR-12 and AR-42 each expire on the later of (i) the expiration of the last
valid claim contained in any licensed patent and (ii) 20 years after the
effective date of the license. Ohio State will generally be able to terminate
either license upon the Company’s breach of the terms of the license to the
extent the Company fails to cure any such breach within 90 days after receiving
notice of such breach or the Company files for bankruptcy. The Company may
terminate either license upon 90 days prior written notice.
F-31
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
NOTE
6 – STOCKHOLDERS’ EQUITY
Preferred
Stock
On August
11, 2010, the Company amended and restated its certificate of incorporation,
increasing the number of shares of preferred stock authorized for issuance
thereunder from 10,000,000 to 35,000,000, all of which are currently designated
as Series A Convertible Preferred Stock.
Common
Stock
In August
2005, the Company issued an aggregate of 9,968,797 shares of common stock to its
founders for $5,000.
As a
condition to the closing of the Merger, on June 2, 2008, the Company completed a
private placement of 7,360,689 shares of its common stock (as adjusted to give
effect to the Merger), resulting in gross proceeds of approximately $17.8
million. Issuance costs related to the private placement were approximately
$142,000, which were capitalized and charged to stockholders’ equity upon the
closing of the private placement. In accordance with the terms of the Notes,
contemporaneously with the completion of the June 2, 2008 private placement, the
outstanding principal and accrued interest of $4,278,518 under the Notes
converted into an aggregate of 1,962,338 shares of common stock. Additionally,
1,100,200 shares of common stock that were held by the original stockholders of
Laurier prior to the Merger are reflected in the Company’s common stock
outstanding in the accompanying financial statements.
Warrants
In
connection with the in-licensing of the Company’s product candidates AR-12 and
AR-42, the Company issued 299,063 fully vested warrants to employees of Two
River Group Holdings, LLC (see Note 10) and a consultant for their consultation
and due diligence efforts as part of a finder’s fee arrangement. The warrants
have an exercise price of $2.42 and were valued at $480,400 based upon the
Black-Scholes option-pricing model. The assumptions used under the Black-Scholes
option-pricing model included a risk free interest rate of 3.27%, volatility of
80.80% and a five year life. None of these warrants have been exercised to
date.
In
conjunction with the conversion of $4,278,518 of convertible debt, including
accrued interest, prior to the Merger, the Company issued fully vested warrants
to purchase 196,189 shares of common stock to the holders of such debt. The
warrants were issued with an exercise price of $2.42 and expire in June 2, 2013.
The fair value of the warrants was determined to be $348,000. None of these
warrants have been exercised to date.
NOTE
7 – STOCK OPTION PLAN
The
Company’s 2005 Stock Option Plan (the “Plan”) was originally adopted by the
Board of Directors of Old Arno in August 2005, and was assumed by the Company on
June 3, 2008 in connection with the Merger. After giving effect to the Merger,
there are 2,990,655 shares of the Company’s common stock reserved for issuance
under the Plan. Under the Plan, incentives may be granted to officers,
employees, directors, consultants, and advisors. Incentives under the Plan may
be granted in any one or a combination of the following forms: (a) incentive
stock options and non-statutory stock options, (b) stock appreciation rights,
(c) stock awards, (d) restricted stock and (e) performance shares.
The Plan
is administered by the Board of Directors, or a committee appointed by the
Board, which determines recipients and types of awards to be granted, including
the number of shares subject to the awards, the exercise price and the vesting
schedule. The term of stock options granted under the Plan cannot exceed 10
years. Options shall not have an exercise price less than the fair market value
of the Company’s common stock on the grant date, and generally vest over a
period of three to four years.
As of
June 30, 2010, an aggregate of 1,517,352 shares remained available for future
grants and awards under the Plan, which covers stock options, warrants and
restricted awards. The Company issues unissued shares to satisfy stock options,
warrants exercises and restricted stock awards.
F-32
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
A summary
of the status of the options issued under the Plan as of June 30, 2010, and
information with respect to the changes in options outstanding is a
follows:
Options Outstanding
|
||||||||||||||||
Shares
|
Outstanding
|
Weighted-
|
Aggregate
|
|||||||||||||
Available
for
|
Stock
|
Average
|
Intrinsic
|
|||||||||||||
Grant
|
Options
|
Exercise Price
|
Value
|
|||||||||||||
Balance
at January 1, 2010
|
1,057,414 | 1,913,241 | $ | 1.76 | ||||||||||||
Options
granted under the Plan
|
- | - | $ | - | ||||||||||||
Options
exercised
|
- | - | $ | - | ||||||||||||
Options
forfeited
|
459,938 | (459,938 | ) | $ | 2.72 | |||||||||||
Balance
at June 30, 2010
|
1,517,352 | 1,453,303 | $ | 1.47 | $ | - | ||||||||||
Exercisable
at June 30, 2010
|
1,154,326 | $ | 1.53 | $ | - |
The
Company estimates the fair value of each option award granted using the
Black-Scholes option-pricing model. For the three months ended March
31, 2010 and 2009, there were no options granted.
As
allowed by ASC 718 for companies with a short period of publicly traded stock
history, management’s estimate of expected volatility is based on the average
expected volatilities of a sampling of five companies with similar attributes to
the Company, including: industry, stage of life cycle, size and financial
leverage.
The
Company has no historical basis for determining expected forfeitures and, as
such, compensation expense for stock-based awards does not include an estimate
for forfeitures.
Stock-based
compensation for the six months ended June 30, 2010 and 2009 and for the period
from August 1, 2005 (inception) through June 30, 2010, are as
follows:
Three months ended June 30,
|
Six months ended June 30,
|
Period from
|
||||||||||||||||||
August 1, 2005 (inception)
|
||||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
through June 30, 2010
|
||||||||||||||||
General
and administrative
|
$ | 6,300 | $ | (190,179 | ) | $ | (3,000 | ) | $ | (22,595 | ) | $ | 973,592 | |||||||
Research
and development
|
34,800 | 80,878 | 69,300 | 186,294 | 969,377 | |||||||||||||||
Total
|
$ | 41,100 | $ | (109,301 | ) | $ | 66,300 | $ | 163,699 | $ | 1,942,969 |
F-33
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
As of
June 30, 2010, the total outstanding, and the total exercisable, options under
the Plan were as follows:
Outstanding
|
Exercisable
|
|||||||||||||||||||||
Range of
Exercise
Prices
|
Shares
|
Weighted-
Average
Remaining
Contractual Life
(in years)
|
Weighted-
Average
Exercise
Price
|
Total Shares
|
Weighted-
Average
Exercise
Price
|
|||||||||||||||||
$ | 0.13 | 129,532 | 1.4 | $ | 0.13 | 129532 | $ | 0.13 | ||||||||||||||
1.00 | 803,443 | 6.5 | 1.00 | 546034 | 1.00 | |||||||||||||||||
2.42 | 428,661 | 7.1 | 2.42 | 397093 | 2.42 | |||||||||||||||||
3.00 | 91,667 | 3.8 | 3.00 | 81667 | 3.00 | |||||||||||||||||
1,453,303 | 6.1 | $ | 1.47 | 1,154,326 | $ | 1.53 |
As of
June 30, 2010 and 2009, there was $261,431 and $752,982, respectively, of
unrecognized compensation costs related to non-vested stock options. These costs
are expected to be recognized over a period of approximately 2.3 years as from
June 30, 2010.
NOTE
8 – RELATED PARTIES
On June
1, 2009, the Company entered into a services agreement with Two River
Consulting, LLC (“TRC”) to provide various clinical development, operational,
managerial, accounting and financial, and administrative services to the Company
for a period of one year. David M. Tanen, the Company’s President, Secretary and
director, Arie S. Belldegrun, the Chairman of the Board of Directors, and Joshua
A. Kazam, director are each partners of TRC. The terms of the Services Agreement
were reviewed and approved by a special committee of the Company’s Board of
Directors consisting of independent directors. None of the members of the
special committee has any interest in TRC or the services agreement. As
compensation for the services contemplated by the services agreement, the
Company pays TRC a monthly cash fee of $55,000. The monthly fee
increased from $50,000 to $55,000 effective February 2010, when the scope of
services provided by TRC increased to include accounting and financial services
upon the resignation of the Company’s Chief Financial Officer.
On
occasion, some of the Company’s expenses are paid by TRC. No interest
is charged by TRC on any outstanding balance owed by the Company. For the six
months ended June 30, 2010 and 2009, and for the period from August 1, 2005
(inception) through June 30, 2010, total cash services and reimbursed expenses
totaled $379,074, $50,000 and $784,074, respectively. As of June 30, 2010 and
2009, the Company had a payable to TRC of $89,605 and $50,000,
respectively.
Prior to
June 1, 2009, some of the Company’s expenses were paid by Two River Group
Holdings, LLC (“Two River”), a company that is controlled by four of the
Company’s directors and founders. No interest is charged by Two River on any
outstanding balance owed by the Company. For the six months ended June 30, 2010
and 2009 for the period from August 1, 2005 (inception) through June 30, 2010,
reimbursable expenses totaled $0, $10,904 and $304,550, respectively. In
addition, the Company granted fully vested warrants to purchase 299,063 shares
of its common stock at an exercise price of $2.42 to the Two River employees who
provided consultation and due diligence efforts related to the in-licensing of
AR-12 and AR-42. The warrants have a five year life and a fair value of $480,400
based upon the Black-Scholes option-pricing model. As of June 30, 2010 and 2009,
the Company had $0 and $6,315 payable to Two River, respectively.
The
Company utilized the services of Riverbank Capital Securities, Inc.
(“Riverbank”), a FINRA member broker dealer registered with the SEC, for
investment banking and other investment advisory services in connection with the
June 2008 private placement and the Notes. Riverbank is an entity controlled by
several partners of Two River who are also officers and/or directors of the
Company. The Company paid a $100,000 non-accountable expense allowance to
Riverbank for services related to the June 2008 private placement and is not
obligated to Riverbank for any future payments.
The
financial condition and results of operations of the Company, as reported, are
not necessarily indicative of results that would have been reported had the
Company operated completely independently.
F-34
ARNO
THERAPEUTICS, INC.
(a
development stage company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
June
30, 2010
(unaudited)
NOTE
9 – COMMITMENTS AND CONTINGENCIES
On
October 20, 2008, the Company entered into a lease for office space consisting
of 5,390 square feet in Parsippany, New Jersey. The lease commencement date was
November 14, 2008, with lease payments beginning on January 1, 2009. The lease
expiration date is five years from the rent commencement date. The total five
year lease obligation is approximately $713,000.
The
Company provided a security deposit of $44,018, or four months base rent, in the
form of a letter of credit. The letter of credit may be reduced by $11,005 on
January 1, 2011 and by an additional $11,005 on January 1, 2013, provided the
Company maintains certain conditions described in the lease agreement. The
Company has an early termination option, which provides the Company may
terminate the lease on the third anniversary, upon providing the landlord nine
months written notice prior to the third anniversary of the lease. If the
Company exercises its termination option, the Company would be obligated to pay
a fee of $53,641 which consists of unamortized costs and expenses incurred by
the landlord in connection with the lease. The Company also has an option to
extend the term of the lease for a period of five additional years, provided the
Company gives notice to the landlord no later than 12 months prior to the
expiration of the original term.
The
Company has entered into various contracts with third parties in connection with
the development of the licensed technology described in Note 4.
The
aggregate minimum commitment under these contracts as of June 30, 2010 is
approximately $900,000.
In the
normal course of business, the Company enters into contracts that contain a
variety of indemnifications with its employees, licensors, suppliers and service
providers. Further, the Company indemnifies its directors and officers who are,
or were, serving at the Company’s request in such capacities. The Company’s
maximum exposure under these arrangements is unknown as of June 30, 2010. The
Company does not anticipate recognizing any significant losses relating to these
arrangements.
NOTE
10 – SUBSEQUENT EVENTS
On
September 3, 2010, the Company entered into a Securities Purchase and
Registration Rights Agreement, or the Purchase Agreement, with a number of
institutional and accredited investors pursuant to which the Company sold in a
private placement an aggregate of 15,274,000 shares of newly-designated Series A
Convertible Preferred Stock, par value $0.0001 per share, or Series A Preferred
Stock, at a per share purchase price of $1.00. In accordance with the
Purchase Agreement, the Company also issued 1,221,920, two-and-one-half-year
Class A warrants to purchase additional shares of Series A Preferred Stock at an
initial exercise price of $1.00 per share and 6,415,080, five-year Class B
warrants at an initial exercise price of $1.15 per share. The terms of the Class
A and Class B warrants contain an anti-dilutive price adjustment provision, such
that in the event the Company issues common shares at a price below the current
exercise price of the Warrants the exercise price of the Class A and Class B
warrants will be adjusted based on the lower issuance price. The sale of the
shares and warrants resulted in aggregate gross proceeds of approximately $15.2
million, before expenses.
Issuance
costs related to the financing were approximately $1.9 million, including the
issuance of warrants (“Placement Warrants”) to purchase 1,050,840 shares of the
Company’s common stock at 110% of the Series A Preferred Stock purchase price
per share to designees of Riverbank and I-Bankers Securities, Inc. (“IBS”), that
acted as placement agents for the Company in connection with the private
placement. The Placement Warrants were valued at $614,400 using the
Black-Scholes option-pricing model.
Pursuant
to the Registration Rights Agreement, the Company will use its best efforts to
cause such registration statement to be declared effective within 180 days
following the initial closing under the Purchase Agreement, or by March 8,
2011. If such registration statement is not declared effective by the
SEC by such date, the Company will pay liquidated damages to the investors in
the amount of 1% of each investor’s aggregate investment amount for each 30-day
period until the registration statement is declared effective.
On
October 29, 2010, the Company was awarded funding of a total of approximately
$733,000 under the IRS Qualifying Therapeutic Discovery Project (“QTDP”)
program, which was created as part of the Patient Protection and Affordable Care
Act of 2010 (the “Healthcare Reform Act”). As enacted under the Healthcare
Reform Act, the QTDP program provides a tax credit or grant of up to 50% of
eligible costs and expenses for the tax years of 2009 and 2010 for qualifying
research and development expenses incurred for innovative projects that are
determined by the U.S. Department of Health and Human Services to have
reasonable potential to result in a new therapy, reduce health care costs, or
represent a significant advance in finding a cure for human
disease. The Company was awarded approximately $244,000 for R&D
expenses incurred for each of its AR-12, AR-42 and AR-67 development programs.
The Company expects to receive the amounts granted prior to the end of
2010.
F-35
26,815,831
Shares
Common
Stock
PROSPECTUS
, 2010
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all
costs and expenses, other than underwriting discounts and commissions, payable
by us in connection with the sale of the common stock being
registered. All amounts shown are estimates except for the SEC
registration fee.
Amount
to be Paid
|
||||
SEC
registration fee
|
$ | 975 | ||
Legal
fees and expenses
|
50,000 | |||
Accounting
fees and expenses
|
20,000 | |||
Printing
and engraving and miscellaneous expenses
|
5,000 | |||
Total
|
$ | 75,975 |
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General
Corporation Law of the State of Delaware provides as follows:
A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person’s conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that the person’s
conduct was unlawful.
A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification will be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Our
certificate of incorporation provides that we will indemnify any person,
including persons who are not our directors and officers, to the fullest extent
permitted by Section 145 of the Delaware General Corporation
Law.
In
addition, pursuant to our bylaws, we will indemnify our directors and officers
against expenses (including judgments or amounts paid in settlement) incurred in
any action, civil or criminal, to which any such person is a party by reason of
any alleged act or failure to act in his capacity as such, except as to a matter
as to which such director or officer shall have been finally adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation or not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation.
Reference
is made to Item 17 for our undertakings with respect to indemnification for
liabilities arising under the Securities Act of 1933.
II-1
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
The following summarizes all sales of
unregistered securities by the Registrant within the last three
years. In June 2008, Arno was acquired by Laurier International,
Inc., a Delaware corporation, in a “reverse” merger whereby a wholly-owned
subsidiary of Laurier merged with and into Arno Therapeutics, with Arno
Therapeutics remaining as the surviving corporation and a wholly-owned
subsidiary of Laurier. In accordance with the terms of this merger, stockholders
of Arno Therapeutics exchanged all of their shares of common stock of Arno
Therapeutics for shares of Laurier common stock at a rate of 1.99377 shares of
Laurier common stock for each share of Arno Therapeutics common
stock.
On
February 9, 2007, Arno issued to certain accredited investors 6% Convertible
Promissory Notes in the aggregate principal amount of approximately $4,000,000
(the “6% Notes”). The 6% Notes provided that upon the next closing of
any equity financing in excess of $5,000,000 (a “Qualified Financing”), the 6%
Notes would automatically convert into the same securities issued by Arno in the
Qualified Financing (“Conversion Shares”), in an amount determined by dividing
the principal amount of the 6% Notes, and all accrued interest thereon, by 90%
of the price per share sold in the Qualified Financing (the “Offering
Price”). In addition, upon conversion, Arno agreed to issue to the
holders of the 6% Notes five-year warrants (“Conversion Warrants”), to purchase
a number of shares of Arno common stock equal to 10% of the Conversion Shares at
an exercise price equal to the Offering Price.
As a
condition and immediately prior to the closing of the merger, on June 2, 2008,
Arno completed a private placement of its equity securities whereby it received
gross proceeds of approximately $17,732,000 through the sale of approximately
3,691,900 shares of its common stock to accredited investors, which shares were
exchanged for 7,360,689 shares of Company common stock after giving effect to
the merger. Contemporaneously with the June 2008 private placement,
the 6% Notes converted into 984,246 Conversion Shares and the holders of the 6%
Notes received Conversion Warrants to purchase an aggregate of 98,409 shares of
Arno common stock at an exercise price equal to $4.83 per share. The
Conversion Shares were exchanged for an aggregate of approximately 1,962,338
shares of our common stock and the Conversion Warrants were exchanged for
an aggregate of approximately 196,189 five year warrants to purchase our
common stock at an exercise price equal to $2.42 per share.
On
September 9, 2010, we entered into a Securities Purchase and Registration Rights
Agreement (the “Purchase Agreement”) with a number of accredited investors
pursuant to which we agreed to sell in a private placement up to an aggregate of
20,000,000 shares of our newly-designated Series A Convertible Preferred Stock,
par value $0.0001 per share (the “Series A Preferred Stock”), at a per share
purchase price of $1.00. Pursuant to the terms of the Purchase
Agreement, we also agreed to issue to each investor a two-and-one-half-year
warrant to purchase a number of additional shares of Series A Preferred Stock
equal to 8% of the number of shares purchased by such investor at an initial
exercise price of $1.00 per share (collectively, the “Class A Warrants”), and a
five-year warrant to purchase a number of additional shares of Series A
Preferred Stock equal to 42% of the number of shares purchased by such investor
at an initial exercise price of $1.15 per share (collectively, the “Class B
Warrants”). Between September 9, 2010 and September 13, 2010, we
completed a number of closings under the Purchase Agreement, issuing an
aggregate of 15,274,000 shares of Series A Preferred Stock, Class A Warrants to
purchase 1,221,920 shares of Series A Preferred Stock, and Class B Warrants to
purchase 6,415,080 shares of Series A Preferred Stock. The sale of
the shares and warrants resulted in aggregate gross proceeds of approximately
$15.2 million, before deducting expenses. In connection with the
private placement, we issued five-year warrants to purchase an aggregate of
1,050,840 shares of Series A Preferred Stock at an initial exercise price of
$1.10 per share to the placement agents and their designees.
Except as
noted above, the sales of the securities identified above were made pursuant to
privately negotiated transactions that did not involve a public offering of
securities and, accordingly, we believe that these transactions were exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof and rules promulgated thereunder. Each of the
above-referenced investors in our stock represented to us in connection with
their investment that they were “accredited investors” (as defined by Rule 501
under the Securities Act) and were acquiring the shares 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. The investors
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 purposes of the
Securities Act.
II-2
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit Number
|
Description of Document
|
|
2.1
|
Agreement
and Plan of Merger dated March 5, 2008, by and among Laurier
International, Inc., Laurier Acquisition, Inc. and Arno Therapeutics, Inc.
(incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K
filed on March 6, 2008).
|
|
2.2
|
Amendment
No. 1 dated May 12, 2008 to Agreement and Plan of Merger by and among
Laurier International, Inc., Laurier Acquisition, Inc. and Arno
Therapeutics, Inc. (incorporated
by reference to Exhibit 2.2 of the Registrant’s Registration Statement on
Form S-1 filed July 31, 2008, SEC File No.
333-152660).
|
|
2.3
|
Amendment
No. 2 dated May 30, 2008 to Agreement and Plan of Merger by and among
Laurier International, Inc., Laurier Acquisition, Inc. and Arno
Therapeutics, Inc. (incorporated
by reference to Exhibit 2.3 of the Registrant’s Registration Statement on
Form S-1 filed July 31, 2008, SEC File No.
333-152660).
|
|
3.1
|
Amended
& Restated Certificate of Incorporation of Arno Therapeutics,
Inc.
|
|
3.2
|
Bylaws
of the Registrant (incorporated by reference to Exhibit 3.2 of the
Registrant’s Registration Statement on Form SB-2 filed on October 2, 2002,
SEC File No. 333-100259).
|
|
3.3
|
Certificate
of Designation of Series A Convertible Preferred Stock.
|
|
4.1
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the
Registrant’s Form 8-K filed June 9, 2008).
|
|
4.2
|
Form
of Common Stock Purchase Warrant issued to former note holders of Arno
Therapeutics, Inc. (incorporated by reference to Exhibit 4.2 of the
Registrant’s Form 8-K filed June 9, 2008).
|
|
4.3
|
Form
of Class A Warrant issued to investors in September 2010 private
placement.
|
|
4.4
|
Form
of Class B Warrant issued to investors in September 2010 private
placement.
|
|
4.5
|
Form of Placement Agent Warrant issued in September 2010 private placement. | |
5.1
|
Opinion
of Fredrikson & Byron, P.A.
|
|
10.1
|
Employment
Agreement dated June 1, 2007 between Arno Therapeutics, Inc. and Scott Z.
Fields, M.D. (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K filed June 9, 2008).
|
|
10.2
|
Letter
agreement dated September 2, 2007 between Arno Therapeutics, Inc. and J.
Chris Houchins (incorporated by reference to Exhibit 10.2 of the
Registrant’s Form 8-K filed June 9, 2008).
|
|
10.3
|
Arno
Therapeutics, Inc. 2005 Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the Registrant’s Form 8-K filed June 9,
2008).
|
|
10.4
|
Form
of stock option agreement for use under Arno Therapeutics, Inc. 2005 Stock
Option Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s
Form 8-K filed June 9, 2008).
|
|
10.5
|
License
Agreement dated October 25, 2006 between Arno Therapeutics, Inc. and The
University of Pittsburgh (incorporated by reference to Exhibit 10.5 of the
Registrant’s Form 8-K filed June 9, 2008).+
|
|
10.6
|
License
Agreement dated January 3, 2008 between Arno Therapeutics, Inc. and The
Ohio State University Research Foundation (incorporated by reference to
Exhibit 10.6 of the Registrant’s Form 8-K filed June 9,
2008).+
|
|
10.7
|
License
Agreement dated January 9, 2008 between Arno Therapeutics, Inc. and The
Ohio State University Research Foundation (incorporated by reference to
Exhibit 10.7 of the Registrant’s Form 8-K filed June 9,
2008).+
|
|
10.8
|
Form
of Subscription Agreement between Arno Therapeutics, Inc. and the
investors in the June 2, 2008 private placement (incorporated by reference
to Exhibit 10.8 of the Registrant’s Form 8-K filed June 9,
2008).
|
|
10.9
|
Employment
Agreement dated June 9, 2008 between Arno Therapeutics, Inc. and Brian
Lenz, as amended on July 9, 2008 (incorporated by reference to Exhibit
10.1 of the Registrant’s Form 10-Q for the quarter ended June 30,
2008).
|
|
10.10
|
Employment
Agreement by and between Arno Therapeutics, Inc. and Dr. Roger Berlin,
dated September 3, 2008 (incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 8-K filed September 3, 2008).
|
|
10.11
|
Services
Agreement dated June 1, 2009, between Arno Therapeutics, Inc. and Two
River Consulting, LLC.
|
|
10.12
|
Lease
Agreement by and between Arno Therapeutics, Inc. and Maple 4 Campus
L.L.C., dated October 17, 2008 (incorporated by reference to Exhibit 10.11
of the Registrant’s Form 10-K for the fiscal year ended December 31,
2008).
|
|
10.13
|
Form
of Securities Purchase and Registration Rights Agreement dated September
3, 2010 among Arno Therapeutics, Inc. and the purchasers identified
therein.
|
|
10.14
|
First
Amendment to Services Agreement dated September 9, 2010, between Arno
Therapeutics, Inc. and Two River Consulting, LLC.
|
|
23.1
|
Consent
of Crowe Horwath LLP
|
|
23.2
|
Consent
of Hays & Company LLP.
|
|
23.3
|
Consent
of Fredrikson & Byron, P.A. (included in Exhibit
5.1).
|
|
24.1
|
Power
of Attorney (included on signature page
hereof).
|
|
+
|
Confidential
treatment has been granted as to certain omitted portions of this exhibit
pursuant to Rule 406 of the Securities Act or Rule 24b-2 of the Exchange
Act.
|
II-3
(b) Financial
Statement Schedules.
The Financial Statement
Schedules have been omitted either because they are not required or because the
information has been included in the financial statements or the notes thereto
included in this Registration Statement.
II-4
ITEM
17. UNDERTAKINGS.
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;
|
|
(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) 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 purpose of determining any liability under the Securities Act,
each 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 that remain unsold at the termination of this
offering.
|
|
(4)
|
That,
for the purpose of determining liability under the Securities Act to any
purchaser, if the registrant is subject to Rule 430C, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document
immediately prior to such date of first
use.
|
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the SEC this form of indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against these 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 a 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 Securities
Act and will be governed by the final adjudication of this
issue.
II-5
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Parsippany, State of New Jersey, on November 8,
2010.
ARNO
THERAPEUTICS, INC.
|
||
By:
|
/s/
David M. Tanen
|
|
David
M. Tanen, President
|
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints David M. Tanen and Scott L. Navins, and each of them,
his true and lawful attorneys-in-fact and agent, with full power of substitution
and resubstitution, for him in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and
additional registration statements relating to the same offering, and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
David M. Tanen
|
President,
Secretary, and Director
|
November
8, 2010
|
||
David
M. Tanen
|
(Principal
Executive Officer)
|
|||
/s/
Scott L. Navins
|
Treasurer
|
November
8, 2010
|
||
Scott
L. Navins
|
(Principal
Financial and Accounting Officer)
|
|||
/s/
Arie S. Belldegrun
|
Chairman
of the Board
|
November
8, 2010
|
||
Arie
S. Belldegrun, M.D.
|
||||
/s/
William F. Hamilton
|
Director
|
November
8, 2010
|
||
William
F. Hamilton, Ph.D.
|
||||
|
Director
|
November
8, 2010
|
||
Tomer
Kariv
|
||||
/s/
Peter M. Kash
|
Director
|
November
8, 2010
|
||
Peter
M. Kash
|
||||
/s/
Yacov Reizman
|
Director
|
November
8, 2010
|
||
Yacov
Reizman
|
||||
/s/
Steven B. Ruchefsky
|
Director
|
November
8, 2010
|
||
Steven
B. Ruchefsky
|
II-6
INDEX
TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
Exhibit Number
|
Description of Document
|
|
3.1
|
Amended
& Restated Certificate of Incorporation of Arno Therapeutics,
Inc.
|
|
3.3
|
Certificate
of Designation of Series A Convertible Preferred Stock.
|
|
4.3
|
Form
of Class A Warrant issued to investors in September 2010 private
placement.
|
|
4.4
|
Form
of Class B Warrant issued to investors in September 2010 private
placement.
|
|
4.5
|
Form
of Placement Agent Warrant issued in September 2010 private
placement.
|
|
5.1
|
Opinion
of Fredrikson & Byron, P.A.
|
|
10.11
|
Services
Agreement dated June 1, 2009, between Arno Therapeutics, Inc. and Two
River Consulting, LLC.
|
|
10.13
|
Form
of Securities Purchase and Registration Rights Agreement dated September
3, 2010 among Arno Therapeutics, Inc. and the purchasers identified
therein.
|
|
10.14
|
First
Amendment to Services Agreement dated September 9, 2010, between Arno
Therapeutics, Inc. and Two River Consulting, LLC.
|
|
23.1
|
|
Consent
of Crowe Horwath LLP
|
23.2
|
Consent of Hays & Company LLP |
II-7