As
filed with the Securities and Exchange Commission on February 7, 2011
Registration No. 333-171982
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REGENERX BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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2834
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52-1253406 |
(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number) |
15245 Shady Grove Road, Suite 470
Rockville, MD 20850
(301) 208-9191
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
J.J. Finkelstein
President and Chief Executive Officer
15245 Shady Grove Road, Suite 470
Rockville, MD 20850
(301) 208-9191
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Darren K. DeStefano, Esq.
Brian F. Leaf, Esq.
Cooley LLP
One Freedom Square, Reston Town Center
11951 Freedom Drive
Reston, VA 20190-5656
(703) 456-8000
Approximate date of commencement of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
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
statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration number of the
earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
The registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment that
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration
statement shall become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
Subject
To Completion, Dated February 7, 2011
PROSPECTUS
15,000,000 Shares
Common Stock
This prospectus relates to the sale of up to 15,000,000 shares of our common stock which
may be offered by the selling stockholder, Lincoln Park Capital Fund, LLC, or Lincoln Park, from
time to time. The shares of common stock being offered by the selling stockholder are issuable
pursuant to the Lincoln Park Purchase Agreement, which we refer to in this prospectus as the
Purchase Agreement. Please refer to the section of this prospectus entitled The Lincoln Park
Transaction for a description of the Purchase Agreement and the section entitled Selling
Stockholder for additional information. Such registration does not mean that Lincoln Park will
actually offer or sell any of these shares. We will not receive any proceeds from the sales of
shares of our common stock by the selling stockholder; however, we may receive proceeds of up to
$11,000,000 under the Purchase Agreement.
Our common stock is currently quoted on the Over-the-Counter Bulletin Board under the
symbol RGRX. On February 4, 2011, the last reported
sale price of our common stock was $0.22 per
share.
Investing in our securities involves a high degree of risk. See Risk Factors beginning
on page 8 of this prospectus for a discussion of information that should be considered in
connection with an investment in our securities.
The selling stockholder is an underwriter within the meaning of the Securities Act of 1933,
as amended. The selling stockholder is offering these shares of common stock and may sell all or a
portion of these shares from time to time in market transactions, in negotiated transactions or
otherwise, and at prices and on terms that will be determined by the then prevailing market price
or at negotiated prices directly or through a broker or brokers, who may act as agent or as
principal or by a combination of such methods of sale. For additional information on the methods
of sale, you should refer to the section entitled Plan of Distribution.
Neither the Securities and Exchange Commission nor any state securities regulators have
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is February ____, 2011.
TABLE OF CONTENTS
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F-1 |
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You should rely only on the information contained in this prospectus. We have not, and
the selling stockholder has not, authorized any person to provide you with different information.
If anyone provides you with different or inconsistent information, you should not rely on it. This
prospectus is not an offer to sell, nor is the selling stockholder seeking an offer to buy,
securities in any state where the offer or solicitation is not permitted. The information contained
in this prospectus is complete and accurate as of the date on the front cover of this prospectus,
but information may have changed since that date. We are responsible for updating this prospectus
to ensure that all material information is included and will update this prospectus to the extent
required by law.
This prospectus includes statistical and other industry and market data that we obtained
from industry publications and research, surveys and studies conducted by third parties. Industry
publications and third-party research, surveys and studies generally indicate that their
information has been obtained from sources believed to be reliable, although they do not guarantee
the accuracy or completeness of such information. While we believe that these industry publications
and third-party research, surveys and studies are reliable, we have not independently verified such
data and we do not make any representation as to the accuracy of the information.
-i-
PROSPECTUS SUMMARY
The items in the following summary are described in more detail later in this prospectus.
This summary does not contain all of the information you should consider. Before investing in our
securities, you should read the entire prospectus carefully, including the Risk Factors beginning
on page 8 and the financial statements and related notes beginning on page F-1. Unless the
context indicates otherwise as used in this prospectus, the terms RegeneRx, our company, we,
us and our refer to RegeneRx Biopharmaceuticals, Inc.
Overview
We are a biopharmaceutical company focused on the development of a novel therapeutic peptide,
Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have
formulated Tß4 into three distinct product candidates currently in clinical development:
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RGN-352, an injectable product candidate to treat cardiovascular diseases, central
nervous system diseases, and other medical indications that may be treated by systemic
administration; |
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RGN-259, a topical eye drop for regeneration of corneal tissues damaged by injury,
disease or other pathology; and |
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RGN-137, a topically applied gel for chronic dermal wounds and reduction of scar tissue. |
We have a fourth product candidate, RGN-457, in preclinical development. RGN-457 is an
inhaled formulation of Tß4 targeting cystic fibrosis and other pulmonary diseases.
We are continuing strategic partnership discussions with biotechnology and pharmaceutical
companies regarding the further clinical development of all of our product candidates.
In addition to our four pharmaceutical product candidates, we are also pursuing the commercial
development of peptide fragments and derivatives of Tß4 for potential cosmeceutical use. These
fragments are amino acid sequences, and variations thereof, within the Tß4 molecule that have
demonstrated activity in several in vitro preclinical research studies that we have sponsored. We
believe the biological activities of these fragments may be useful, for example, in developing
novel cosmeceutical products for the anti-aging market. Our strategy is to enter into a
collaboration with another company to develop cosmeceutical formulations based on these
peptides.
The following chart provides an overview of our product candidates and their development
status:
1
We are engaged in research collaborations with at least 25 research institutions
throughout the world, which we believe indicates significant independent research interest in the
clinical potential of Tß4. Most of these institutions, including the U.S. military, are conducting
research on Tß4 at their own expense. We have also entered into a license agreement with the U.S.
National Institutes of Health, or NIH, under which we received an exclusive worldwide license for
Tß4 for several clinical indications. We have similarly in-licensed other rights related to Tß4
that we believe support our current or expected future clinical development. We hold worldwide
patents and patent applications covering peptide compositions, uses and formulations related to
cardiac, central nervous system, ophthalmic and dermal indications, among others, as well as for
cosmetic and consumer products.
Our Tß4-Based Product Candidates
Tß4 is a naturally occurring 43-amino acid peptide that was originally isolated from
bovine thymus glands. Preclinical animal research has identified several important biological
activities of Tß4 that we believe make it potentially useful as a wound healing, repair and tissue
regenerating agent, including:
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signaling adult epicardial progenitor cells, or EPCs, to differentiate into coronary blood vessels; |
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forming cardiomyocytes that repair damaged heart tissue; |
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triggering the maturation of stem cells into cells that produce myelin, the outer covering of nerve
cells in the central nervous system; |
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improving neurologic functional recovery; |
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regulating actin, which is critical to cell structure and mobility; |
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stimulating angiogenesis, or blood vessel development; |
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reducing inflammation, which is implicated in many medical indications; |
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stimulating the formation of collagen and up-regulation of laminin-5 to accelerate tissue repair; and |
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preventing apoptosis, or programmed cell death. |
We have developed a synthetic version of Tß4 and have formulated it for various routes of
administration, targeting medical indications with significant unmet needs and market potential, as
well as orphan indications that we believe could also provide substantial commercial value. Our
product candidates are intended to provide solutions to these medical indications and to offer
improvements to current standards of care.
RGN-352
Our product candidate RGN-352 is an injectable formulation of Tß4 for systemic
administration. We have initially targeted RGN-352 for patients who have suffered an acute
myocardial infarction, or AMI, commonly known as a heart attack. Preclinical research published in
the scientific journal Nature has indicated that Tß4 can guide specific types of stem cells from
the outer layer of the heart to generate new myocardial blood vessels and tissue at injured sites.
During 2009, we completed a Phase 1 clinical trial evaluating the safety of RGN-352 in 60
healthy subjects. Based on the results of this Phase 1 trial and extensive preclinical efficacy
data published in peer-reviewed journals, we initiated a Phase 2 clinical trial in the second half
of 2010 to evaluate RGN-352s ability to salvage and regenerate damaged cardiac tissue and improve
cardiac function after an AMI.
Additionally, recent preclinical research published in the scientific journals Neuroscience
and the Journal of Neurosurgery indicate that RGN-352 may prove useful for patients with multiple
sclerosis, or MS, as well as stroke and traumatic brain injury. In these studies, the
administration of Tß4 resulted in regeneration of neuronal tissue and improvement of neurological
function. Based on this preclinical research, we intend to support a proposed Phase 1/2 clinical
trial to be conducted at a major U.S. medical center under a physician-sponsored investigational
new drug application, or
2
IND, in order to evaluate the therapeutic potential of RGN-352 in patients
with MS. We are planning to supply RGN-352 and provide clinical and regulatory guidance for the
trial.
In May 2010, we were awarded a $3 million grant from the National Heart, Lung and Blood
Institute, one of the institutes of the NIH, to support the further development of RGN-352.
RGN-259
Our product candidate RGN-259 is a sterile topical eye drop formulation of Tß4 for
ophthalmic indications. Emerging human clinical data from two compassionate use studies have
demonstrated the ability of RGN-259 to repair and regenerate corneal tissue in patients with
non-healing corneal lesions in the eye. This data has been reported at medical conferences and
published in scientific journals and provided the proof-of-concept data that we initially sought
for RGN-259. Based on these data and slower than expected patient accrual in a Phase 2 ophthalmic
wound healing trial that we had initiated with RGN-259, in 2009, we closed the Phase 2 trial after
enrolling the initial low-dose cohort. The results from evaluating this initial cohort indicated
increased corneal epithelial thickening and reduced cell and flare inflammation in the Tß4-treated
patients, as compared to patients who were administered a placebo. We believe these results are
indicative of Tß4s activities in corneal re-epithelialization and healing.
We are supporting a physician-sponsored clinical trial in patients with dry eye secondary
to graft versus host disease, or GvHD, in order to evaluate RGN-259s ability to repair and
regenerate damaged ophthalmic tissues. Our support includes manufacturing and supplying RGN-259 for
the trial and providing regulatory and clinical guidance. We are continuing to collaborate with the
U.S. military to evaluate the potential of RGN-259 to prevent or reduce eye damage caused by
chemical warfare agents. Once enough human data is generated, we intend to seek strategic
partnerships with one or more ophthalmic specialty companies.
RGN-137
Our product candidate RGN-137 is a topical gel formulation of Tß4 intended to promote
dermal wound healing and tissue regeneration. Preclinical research has demonstrated that Tß4 can
accelerate dermal regeneration after a wound, while more recent research indicates that Tß4 can
reduce scarring after injury in the skin and heart. In 2005, based on research conducted at the
NIH, we initiated a series of Phase 2 clinical trials to evaluate RGN-137 for the treatment of
three different types of skin wounds.
We are evaluating the use of RGN-137 in the treatment of patients with epidermolysis
bullosa, or EB, which is a genetic defect that results in fragile skin and other epithelial tissues
that can blister at the slightest trauma or friction, creating a wound that at times does not heal
or heals poorly. A portion of this trial was funded by a grant from the U.S. Food and Drug
Administration, or FDA. Despite the small patient population with EB, we continue to enroll
patients in this Phase 2 trial and expect to complete the trial in 2011. Once we complete our Phase
2 EB trial, we will analyze the data in conjunction with our two other completed Phase 2 trials of
RGN-137, along with preclinical data indicating Tß4s ability to reduce scarring, at which time we
will further evaluate our strategy for the clinical development of RGN-137.
Relationship with Sigma-Tau
Sigma-Tau Industrie Farmaceutiche Riunite S.p.A. is an international pharmaceutical
company and an affiliate of Sigma-Tau Finanziaria S.p.A., which together with its affiliates
comprise our largest stockholder group and are referred to in this prospectus as Sigma-Tau.
Sigma-Tau has licensed certain rights to our product candidates for marketing in Europe and other
surrounding countries, for which we would be the exclusive supplier of Tß4 and would receive
royalties on commercial sales, if any. Sigma-Tau conducted and funded our completed Phase 2 trial
in Italy and Poland to evaluate RGN-137 for the treatment of patients with venous stasis ulcers.
Commercialization Strategy
Our strategy is to seek strategic partners and to out-license rights for each drug
candidate and our peptide fragments, with
3
certain exceptions. For example, we believe we can
commercially develop and market RGN-137 for EB, since the patient population is small and
well-defined, as is the population of pediatric dermatologists who specialize in treating this
disease. We continue to hold strategic discussions with pharmaceutical and biotechnology companies
at each development milestone for each product candidate.
Corporate Information
We were incorporated in Delaware in 1982 under the name Alpha 1 Biomedicals, Inc. In
2000, we changed our corporate name to RegeneRx Biopharmaceuticals, Inc.. Our principal executive
office is located at 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850. Our telephone
number is (301) 208-9191. Our website address is www.regenerx.com. Information contained in, or
accessible through, our website does not constitute a part of, and is not incorporated into, this
prospectus. We use RegeneRxTM and the RegeneRx logo as trademarks
and service marks in the United States and other countries. All other trademarks or trade names
referred to in this prospectus are the property of their respective owners.
Recent Developments
NYSE Amex Delisting
On October 26, 2010, we received a notice from the staff of the NYSE Amex, or the Exchange,
stating that we had failed to regain compliance with the Exchanges continued listing standards and
that, accordingly, our common stock was subject to a delisting proceeding. The Exchange advised us
that we were not in compliance with Section 1003(a)(iii) of the Exchanges Company Guide because
our stockholders equity was less than $6,000,000. In accordance with Sections 1009(d) and 1203 of
the Exchanges Company Guide, we appealed the determination of the Exchanges staff and initially
requested a hearing before the Exchanges Listing Qualifications Panel. The hearing was scheduled
to occur on December 17, 2010.
On December 15, 2010, we notified the Exchange of our intent to withdraw the request for a
hearing, and our common stock was suspended from the Exchange as of the commencement of trading on
December 23, 2010. Our common stock began to be quoted on the OTC Bulletin Board as of December 23,
2010.
Purchase Agreements with Lincoln Park
We have entered into two purchase agreements and a registration rights agreement with Lincoln
Park. Under the terms of a Securities Purchase Agreement, on January 7, 2011 Lincoln Park purchased
1,851,852 shares of our common stock, together with a warrant to purchase an additional 740,741
shares of our common stock at an exercise price of $0.38 per share, for gross proceeds of $500,000.
The warrant will be exercisable on July 7, 2011 and thereafter until July 7, 2016. This offering
was made pursuant to a shelf registration statement and related prospectus, as supplemented by a
prospectus supplement filed with the Securities and Exchange Commission, or SEC, on January 7,
2011.
On January 4, 2011, we also entered into a Purchase Agreement and a Registration Rights
Agreement, under which Lincoln Park is irrevocably committed to purchase from us up to $11,000,000
of our common stock, from time to time, over a 30-month period. We have filed a registration
statement, of which this prospectus is a part, covering the resale of the shares that may be issued
to Lincoln Park under the Purchase Agreement. Under the Purchase Agreement, we have also agreed to
issue to Lincoln Park up to an aggregate of 1,916,666 shares of common stock as a fee for Lincoln
Parks commitment to purchase our shares. Of these commitment shares, we issued one-half, or
958,333 shares, upon entering into the agreement with Lincoln Park. The remaining commitment shares
are issuable to Lincoln Park on a pro rata basis as additional purchases are made under the
Purchase Agreement.
Lincoln Park may not assign or transfer its rights and obligations
under the Purchase Agreement.
For additional information about the terms of the Purchase Agreement and the
Registration Rights Agreement, please refer to the section of this prospectus entitled The Lincoln
Park Transaction.
Purchase Agreements with Sigma-Tau
In addition to the agreements entered into with Lincoln Park, on January 7, 2011, we
consummated a private placement of our securities to affiliates of Sigma-Tau. In this private
placement, we issued an additional 3,518,519 shares of our common stock at a price per share of
$0.27, for gross proceeds of $950,000. In connection with the private placement, we issued to the
purchasers warrants to purchase an additional 1,407,407 shares of common stock in the aggregate at
an exercise price of $0.38 per share. The warrants will be exercisable on July 7, 2011 and
thereafter until July 7, 2016. In connection with this private placement, we also agreed to amend
the terms of certain outstanding warrants held by Sigma-Tau in order to reduce their exercise
prices to $0.38 per share and to extend their expiration dates to December 31, 2011.
4
The Offering
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Common stock outstanding prior
to the offering
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79,860,282 shares,
including the 958,333 initial
commitment shares already
issued to Lincoln Park under
the Purchase Agreement and the
1,851,852 shares already issued
to Lincoln Park outside of the
Purchase Agreement |
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Common Stock offered by the
selling stockholder
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15,000,000 shares, consisting
of up to 958,333 shares to be
issued to Lincoln Park as
additional commitment shares
and the remaining shares to be
purchased from time to time
under the Purchase Agreement |
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Common stock to be outstanding
after giving effect to the
issuance of 15,000,000 shares
to Lincoln Park under the
Purchase Agreement
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94,860,282 shares |
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Use of proceeds
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We will not receive any
proceeds from the sale of the
shares of common stock by
Lincoln Park. However, we may
receive up to $11,000,000 from
sales of shares under the
Purchase Agreement. Any
proceeds that we receive from
sales to Lincoln Park under the
Purchase Agreement will be used
to further development of our
drug candidates and for general
corporate purposes. See Use
of Proceeds. |
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OTC Bulletin Board symbol
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RGRX |
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Risk factors
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This investment involves a high
degree of risk. See Risk Factors for
a discussion of factors you should
consider carefully before making an
investment decision. |
The numbers of shares of our common stock are based on 79,860,282 shares of common stock
outstanding as of January 7, 2011, and excludes:
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5,348,863 shares of our common stock issuable upon the exercise of outstanding stock options, with a
weighted average exercise price of $1.37 per share; |
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4,327,500 shares of our common stock available for future issuance under our 2010 Equity Incentive Plan; |
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16,136,900 shares of our common stock issuable upon the exercise of outstanding warrants, with a
weighted-average exercise price of $0.89 per share; and |
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additional shares of our common stock that are potentially issuable to Lincoln Park under the Purchase
Agreement beyond the 15,000,000 shares being offered by this prospectus. |
On January 4, 2011, we executed a Purchase Agreement and a Registration Rights Agreement with
the selling stockholder, Lincoln Park Capital Fund, LLC, or Lincoln Park. Under the Purchase
Agreement, we have the right to sell to Lincoln Park up to $11,000,000 of our common stock at our
option as described below.
Pursuant to the Registration Rights Agreement, we are filing this registration statement and
prospectus with the SEC covering the shares that may be issued to Lincoln Park under the Purchase
Agreement. We do not have the right to commence any sales of our shares to Lincoln Park until the
SEC has declared effective the registration statement. Thereafter, over approximately 30 months,
and subject to certain terms and conditions, we have the right to direct Lincoln Park to purchase
up to $11,000,000 of our common stock in periodic amounts of up to 400,000 shares and as often as
every two business days. The purchase price of the shares will be based on the market prices of
our shares immediately prior to the time of sale as computed under the Purchase Agreement without
any fixed discount. In no event, however, will Lincoln Park be obligated to purchase shares of our
common stock under the Purchase Agreement at a price of less than $0.15 per share. We may, at any
time, and in our sole discretion, terminate the Purchase Agreement without fee, penalty or cost
upon notice to Lincoln Park.
Lincoln Park may not assign or transfer its rights and obligations
under the Purchase Agreement.
5
Upon signing the Purchase Agreement, we issued 958,333 shares of our common stock to Lincoln
Park as a commitment fee for entering into the Purchase Agreement (which commitment shares are not
part of this offering), and we may issue up to an additional 958,333 shares pro rata (which shares
are included in this offering) if and when we sell additional shares to Lincoln Park under the
Purchase Agreement. In addition to the purchases contemplated by the Purchase Agreement, Lincoln
Park invested $500,000 in our company on January 7, 2011 and received 1,851,852 shares of our
common stock, together with a warrant to purchase 740,741 shares of our common stock at an exercise
price of $0.38 per share. These securities were offered and sold pursuant to an effective shelf
registration statement and are not included in this offering.
Under the Purchase Agreement and the Registration Rights Agreement, we are required to
register the $11,000,000 of shares which we may sell to Lincoln Park and the 958,333 shares which
we are required to issue pro rata in the future as a commitment fee if and when we sell shares to
Lincoln Park under the Purchase Agreement. Although the Purchase Agreement provides that we may
sell up to $11,000,000 of our common stock to Lincoln Park, we are only registering 15,000,000
shares to be purchased thereunder, which may or may not cover all such shares purchased by Lincoln
Park under the Purchase Agreement, depending on the purchase price per share.
Of the 15,000,000 shares offered under this prospectus:
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958,333 shares represent shares that we are required to issue proportionally in the
future, as a commitment fee, if and when we sell additional shares to Lincoln Park under
the Purchase Agreement; and |
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The remainder represent shares we may sell to Lincoln Park under the Purchase Agreement. |
Except as otherwise indicated herein, all information in this prospectus, including the number
of shares that will be outstanding after this offering, assumes or gives effect to no exercise of
options or warrants outstanding on the date of this prospectus or in the future, except as
specifically set forth herein.
As of January 7, 2011, there were 79,860,282 shares outstanding, of which 45,743,676 shares
were held by non-affiliates (including the 958,333 shares already issued to Lincoln Park under the
Purchase Agreement and 1,851,852 shares issued to Lincoln Park outside of the Purchase Agreement).
If all of the 15,000,000 shares offered by Lincoln Park were issued and outstanding as of the date
hereof, such shares would represent 15.8% of the total common stock outstanding, or 24.8% of the
non-affiliates shares outstanding. The number of shares ultimately offered for sale by Lincoln
Park is dependent upon the number of shares that we sell to Lincoln Park under the Purchase
Agreement. If we elect to issue more than the 15,000,000 shares offered under this prospectus,
which we have the right but not the obligation to do, we must first register under the Securities
Act the resale by Lincoln Park of any additional shares we may elect to sell to Lincoln Park before
we can sell such additional shares.
6
Summary Financial Data
The following tables summarize our financial data. We have derived the following summary of
our statement of operations data for the years ended December 31, 2009 and 2008 from our audited
financial statements appearing later in this prospectus. We have derived the following summary of
our statement of operations data for the nine months ended September 30, 2010 and 2009 and balance
sheet data as of September 30, 2010 from our unaudited financial statements appearing later in this
prospectus. Our historical results are not necessarily indicative of the results that may be
expected in the future. You should read the summary of our financial data set forth below together
with our financial statements and the related notes to those statements, as well as Managements
Discussion and Analysis of Financial Condition and Results of Operations appearing later in this
prospectus.
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Year Ended |
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Nine Months Ended |
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December 31, |
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September 30, |
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2009 |
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2008 |
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2010 |
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2009 |
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Statement of Operations
Data: |
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Sponsored research revenue |
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$ |
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$ |
168,412 |
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$ |
53,819 |
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Operating expenses: |
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Research and development |
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3,724,514 |
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7,149,808 |
|
|
|
1,819,036 |
|
|
|
3,064,248 |
|
General and
administrative |
|
|
2,781,790 |
|
|
|
3,805,346 |
|
|
|
2,345,619 |
|
|
|
2,161,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6,506,304 |
|
|
|
10,955,154 |
|
|
|
4,164,655 |
|
|
|
5,225,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,506,304 |
) |
|
|
(10,786,742 |
) |
|
|
(4,110,836 |
) |
|
|
(5,225,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
12,444 |
|
|
|
149,777 |
|
|
|
6,840 |
|
|
|
10,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,493,860 |
) |
|
|
(10,636,965 |
) |
|
|
(4,103,996 |
) |
|
|
(5,215,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per share |
|
$ |
(0.12 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute
basic and diluted net loss
per share |
|
|
55,680,525 |
|
|
|
50,967,617 |
|
|
|
66,729,519 |
|
|
|
54,216,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
Balance Sheet Data: |
|
|
|
|
Cash and cash equivalents |
|
$ |
4,975,947 |
|
Working capital |
|
|
4,423,905 |
|
Total assets |
|
|
5,615,670 |
|
Common stock |
|
|
73,531 |
|
Additional paid-in capital |
|
|
92,997,669 |
|
Accumulated deficit |
|
|
(88,605,400 |
) |
Total stockholders equity |
|
|
4,465,800 |
|
7
RISK FACTORS
Before you make a decision to invest in our securities, you should consider carefully the risks
described below, together with other information in this prospectus. If any of the following events
actually occur, our business, operating results, prospects or financial condition could be
materially and adversely affected. This could cause the trading price of our common stock to
decline and you may lose all or part of your investment. 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 significantly impair our business operations and could result in a complete loss of your
investment.
Risks Related to Our Liquidity and Need for Financing
Before giving effect to any future sales to Lincoln Park, we estimate that our existing capital
resources will only be sufficient to fund our operations into the second half of 2011.
We intend to use the proceeds from our recent investment transactions and our other existing
capital resources to fund our ongoing research and development activities; however, we may not be
able to complete all of our active trials and those we intend to initiate in 2011 without
additional funding. We expect that the proceeds of the recent investment transactions, together
with our other capital resources, will provide us the ability to fund our operations into the
second half of 2011, without giving effect to any other financing activities, including any
purchases under the Purchase Agreement with Lincoln Park. Our research initiatives include support
for a Phase 1/2 clinical trial of RGN-352 in patients with multiple sclerosis and a
physician-sponsored clinical trial in patients with dry eye secondary to GvHD using RGN-259, and
completing our ongoing Phase 2 trial of RGN-137 in patients with EB. We also intend to conduct a
portion of a Phase 2 clinical trial of RGN-352 in patients who have suffered an acute myocardial
infarction. We expect that the Phase 2 trial design will allow for an interim review of patient
data, which, if positive, we believe will facilitate discussions with potential strategic partners.
In January 2011, we entered into the Purchase Agreement with Lincoln Park, under which we may
direct Lincoln Park to purchase up to an additional $11,000,000 worth of shares of our common stock
over a 30-month period, once the registration statement of which this prospectus forms a part has
been declared effective by the SEC. If we make sales of our common stock under the Purchase
Agreement, we would be able to fund our operations for a longer period of time. However, the
extent to which we will rely on the Purchase Agreement with Lincoln Park as a source of funding
will depend on a number of factors, including the prevailing market price of our common stock and
volume of trading and the extent to which we are able to secure working capital from other sources.
Specifically, Lincoln Park does not have the obligation to purchase any shares of our common stock
on any business day that the price of our common stock is less than $0.15 per share.
We are registering the resale of 15,000,000 shares by Lincoln Park pursuant to this
prospectus. In the event we elect to issue more than the 15,000,000 shares offered hereby, we
would be required to file a new registration statement and have it declared effective by the SEC.
If obtaining sufficient funding from Lincoln Park does not occur or is prohibitively dilutive, we
will need to secure another source of funding in order to satisfy our working capital needs.
Should the financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, the consequences could be a material adverse effect on
our business, operating results, financial condition and prospects.
Our forecast of the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors, including the factors discussed
elsewhere in this prospectus. We have based this estimate on assumptions that may prove to be
wrong, and we could use our available capital resources sooner than we currently expect.
We may not be able to access the full
amounts available under the Purchase Agreement.
Under the
Purchase Agreement, we may direct Lincoln Park to purchase up to $11,000,000 worth of shares
of our common stock over a 30-month period, generally in amounts of up to 200,000 shares every
two business days. Lincoln Park does not have the right or the obligation to purchase any
shares of our common stock on any business day that the market price of our common stock is
less than $0.15. To the extent that the market price of our common stock is below $0.15 per share on a trading day,
we would not receive any proceeds under the Purchase Agreement for that day. The amount we can sell under the Purchase Agreement may be increased to
400,000 shares every two business days as long as the closing sale price of our common
stock is not below $0.35 per share on the purchase date.
Depending
on the prevailing market price of our common stock, we may not be able to sell shares to Lincoln
Park for the maximum $11,000,000 over the term of the agreement. If the market price of our
common stock is less than $0.35 per share, our sales will be limited to 200,000 shares on each
purchase date. At the minimum price of $0.15 per share, we would be able to sell 200,000
shares for proceeds of $30,000 on each purchase date. Assuming that we sold shares to Lincoln
Park ten times each month, we would receive $300,000 in proceeds per month, or $9,000,000 over
the term of the Purchase Agreement. In the event that we make less frequent sales to Lincoln
Park under the Purchase Agreement, the aggregate proceeds available to us will be even less.
In
addition, we are only registering 15,000,000 shares of our common stock under this prospectus.
Assuming a purchase price of $0.22 per share, the closing sale price of our common stock on
February 4, 2011, and the issuance to Lincoln Park of 15,000,000 shares, which would be
comprised of 14,717,909 shares purchased at $0.22 per share and 282,091 shares issued as
additional pro rata commitment shares for no additional consideration, the proceeds to us
would only be $3.2 million. In the event we elect to issue more than 15,000,000 shares,
we would be required to file a new registration statement and have it declared effective
by the SEC.
In addition to our current development objectives, we will need substantial additional capital for
the continued development of product candidates through marketing approval and for our longer-term
future operations.
Beyond our current liquidity needs, we anticipate that substantial new capital resources will
be required to continue our longer-term independent product development efforts, including any and
all follow-on trials that will result from our current clinical programs beyond those currently
contemplated, and to scale up manufacturing processes for our product candidates. We may be able
to obtain funding under the Purchase Agreement with Lincoln Park in order to further some of these
efforts. However, the actual amount of funds that we will need will be determined by many factors,
some of which are beyond our control. These factors include, without limitation:
8
|
|
|
the scope of our clinical trials, which is significantly
influenced by the quality of clinical data achieved as
trials are completed and the requirements established by
regulatory authorities; |
|
|
|
|
the speed with which we complete our clinical trials,
which depends on our ability to attract and enroll
qualifying patients and the quality of the work performed
by our clinical investigators; |
|
|
|
|
the time required to prosecute, enforce and defend our
intellectual property rights, which depends on evolving
legal regimes and infringement claims that may arise
between us and third parties; |
|
|
|
|
the ability to manufacture at scales sufficient to supply
commercial quantities of any of our product candidates
that receive regulatory approval, which may require levels
of effort not currently anticipated; and |
|
|
|
|
the successful commercialization of our product candidates, which will
depend on our ability to either create or partner with an effective
commercialization organization and which could be delayed or prevented
by the emergence of equal or more effective therapies. |
Emerging biotechnology companies like us may raise capital through corporate collaborations
and by licensing intellectual property rights to other biotechnology or pharmaceutical enterprises.
We intend to pursue this strategy, but there can be no assurance that we will be able to license
our intellectual property or product development programs on commercially reasonable terms, if at
all. There are substantial challenges and risks that will make it difficult to successfully
implement any of these alternatives. If we are successful in raising additional capital through
such a license or collaboration, we may have to give up valuable rights to our intellectual
property. In addition, the business priorities of a strategic partner may change over time, which
creates the possibility that the interests of the strategic partner in developing our technology
may diminish and could have a potentially material negative impact on the value of our interest in
the licensed intellectual property or product candidates.
Further, if we raise additional funds by selling shares of our common stock or securities
convertible into our common stock, including to Lincoln Park under the Purchase Agreement, the
ownership interest of our existing stockholders may be significantly diluted. If additional funds
are raised through the issuance of preferred stock or debt securities, these securities are likely
to have rights, preferences and privileges senior to our common stock and may involve significant
fees, interest expense, restrictive covenants or the granting of security interests in our assets.
Our failure to successfully address long-term liquidity requirements would have a material
negative impact on our business, including the possibility of surrendering our rights to some
technologies or product opportunities, delaying our clinical trials or ceasing our operations.
We have incurred losses since inception and expect to incur significant losses in the foreseeable
future and may never become profitable.
We have not commercialized any product candidates to date and incurred net operating losses
every year since our inception in 1982. We believe these losses will continue for the foreseeable
future, and may increase, as we pursue our product development efforts related to Tß4. As of
September 30, 2010, our accumulated deficit totaled approximately $88.6 million.
As we expand our research and development efforts and seek to obtain regulatory approval of
our product candidates to make them commercially viable, we anticipate substantial and increasing
operating losses. Our ability to generate additional revenues and to become profitable will depend
largely on our ability, alone or through the efforts of third-party licensees and collaborators, to
efficiently and successfully complete the development of our product candidates, obtain necessary
regulatory approvals for commercialization, scale-up commercial quantity manufacturing capabilities
either internally or through third-party suppliers, and market our product candidates. There can be
no assurance that we will achieve any of these objectives or that we will ever become profitable or
be able to maintain profitability. Even if we do achieve profitability, we cannot predict the level
of such profitability. If we sustain losses over an extended period of time and are not otherwise
able to raise necessary funds to continue our development efforts and maintain our operations, we
may be forced to cease operations.
Our common stock has been delisted from the NYSE Amex stock exchange, which subjects us to the
SECs penny stock rules and will further decrease the liquidity of our common stock.
We were previously operating under a compliance plan intended to allow us to regain compliance
with the Exchanges stockholders equity requirement by October 25, 2010. On October 26, 2010, we
were notified by the Exchange that we had
9
not timely regained compliance with the Exchanges continued listing standards. As a result,
the notice indicated that our securities were subject to delisting from the Exchange. We were
initially granted a hearing before the Exchanges Listing Qualifications Panel that was scheduled
for December 17, 2010. On December 15, 2010, we withdrew our request for a hearing, and our common
stock was suspended from trading on the Exchange as of the commencement of trading on December 23,
2010 and will be delisted.
As of December 23, 2010, our common stock is traded over-the-counter on the OTC Bulletin
Board. Over-the-counter markets are generally considered to be less efficient than, and not as
broad as, a stock exchange. There may be a limited market for our stock now that it is quoted on
the OTC Bulletin Board, trading in our stock may become more difficult and our share price could
decrease. Specifically, you may not be able to resell your shares of common stock at or above the
price you paid for such shares or at all.
In addition, our ability to raise additional capital may be impaired because of the less
liquid nature of the over-the-counter markets. While we cannot guarantee that we would be able to
complete an equity financing on acceptable terms, or at all, we believe that dilution from any
equity financing while our shares are quoted on an over-the-counter market would likely be
substantially greater than if we were to complete a financing while our common stock is traded on a
national securities exchange. Further, now that our stock is not traded on an exchange, upon the
filing of our annual report for the year ended December 31, 2010, we will no longer be eligible to
use short-form registration statements on Form S-3 for the registration of our securities, which
could impair our ability to raise additional capital as needed.
Our common stock is also subject to penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell our common stock. The SEC generally defines penny stock
as an equity security that has a market price of less than $5.00 per share, subject to certain
exceptions. The ability of broker-dealers to sell our common stock and the ability of our
stockholders to sell their shares in the secondary market will be limited and, as a result, the
market liquidity for our common stock will likely be adversely affected. We cannot assure you that
trading in our securities will not be subject to these or other regulations in the future.
The report of our independent registered public accounting firm contains explanatory language that
substantial doubt exists about our ability to continue as a going concern.
The report of our independent registered public accounting firm on our financial statements
for the year ended December 31, 2009 contains explanatory language that substantial doubt exists
about our ability to continue as a going concern, without raising additional capital. We estimate
that our existing capital resources, without giving effect to any proceeds that we may receive from
sales of our shares to Lincoln Park under the Purchase Agreement, will only be sufficient to fund
our operations into the second half of 2011. As a result, unless we sell shares under the Purchase
Agreement or obtain significant additional financing, the report of our independent registered
public accounting firm for the year ended December 31, 2010 will continue to express substantial
doubt about our ability to continue as a going concern.
Risks Related to Our Business and Operations
All of our drug candidates are based on a single compound that has yet to be proven effective in
human subjects.
Our current primary business focus is the development of Tß4, and its analogues, derivatives
and fragments, for the improvement of cardiac function, the acceleration of corneal healing, the
treatment of non-healing wounds and other conditions. Unlike many pharmaceutical companies that
have a number of unique chemical entities in development, we are dependent on a single molecule,
formulated for different routes of administration and different clinical indications, for our
potential commercial success. As a result, any common safety or efficacy concerns for Tß4-based
products that cross formulations would have a much greater impact on our business prospects than if
our product pipeline were more diversified.
We may never be able to commercialize our product candidates.
Although Tß4 has shown biological activity in in vitro and animal models, we cannot assure you
that our product candidates will exhibit activity or importance in humans. Our drug candidates are
still in research and development, and we do not expect them to be commercially available for the
foreseeable future, if at all. Only a small number of research and development programs ultimately
result in commercially successful drugs. Potential products that appear to be promising at early
stages of development may not reach the market for a number of reasons. These include the
possibility that the potential products may:
10
|
|
|
be found ineffective or cause harmful side effects during preclinical studies or clinical trials; |
|
|
|
|
fail to receive necessary regulatory approvals; |
|
|
|
|
be precluded from commercialization by proprietary rights of third parties; |
|
|
|
|
be difficult to manufacture on a large scale; or |
|
|
|
|
be uneconomical or otherwise fail to achieve market acceptance. |
If any of these potential problems occurs, we may never successfully market Tß4-based products.
We are subject to intense government regulation, and we may not receive regulatory approvals for
our drug candidates.
Our product candidates will require regulatory approvals prior to sale. In particular,
therapeutic agents are subject to stringent approval processes, prior to commercial marketing, by
the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and
corresponding foreign approvals is costly and time-consuming, and we cannot assure you that such
approvals will be granted. Also, the regulations we are subject to change frequently and such
changes could cause delays in the development of our product candidates
Three of our drug candidates are currently in the clinical stage, and we cannot be certain
that we or our collaborators will successfully complete the clinical trials necessary to receive
regulatory product approvals. The regulatory approval process is lengthy, unpredictable and
expensive. To obtain regulatory approvals in the United States, we or a collaborator must
ultimately demonstrate to the satisfaction of the U.S. Food and Drug Administration, or FDA, that
our product candidates are sufficiently safe and effective for their proposed administration to
humans. Many factors, known and unknown, can adversely impact clinical trials and the ability to
evaluate a product candidates safety and efficacy, including:
|
|
|
the FDA or other health regulatory authorities, or institutional review boards, or IRBs, do not approve a
clinical trial protocol or place a clinical trial on hold; |
|
|
|
|
suitable patients do not enroll in a clinical trial in sufficient numbers or at the expected rate, for reasons
such as the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria
for the trial, the perceptions of investigators and patients regarding safety, and the availability of other
treatment options; |
|
|
|
|
clinical trial data is adversely affected by trial conduct or patient withdrawal prior to completion of the trial; |
|
|
|
|
there may be competition with ongoing clinical trials and scheduling conflicts with participating clinicians; |
|
|
|
|
patients experience serious adverse events, including adverse side effects of our drug candidates, for a variety
of reasons that may or may not be related to our product candidates, including the advanced stage of their
disease and other medical problems; |
|
|
|
|
patients in the placebo or untreated control group exhibit greater than expected improvements or fewer than
expected adverse events; |
|
|
|
|
third-party clinical investigators do not perform the clinical trials on the anticipated schedule or consistent
with the clinical trial protocol and good clinical practices, or other third-party organizations do not perform
data collection and analysis in a timely or accurate manner; |
|
|
|
|
service providers, collaborators or co-sponsors do not adequately perform their obligations in relation to the
clinical trial or cause the trial to be delayed or terminated; |
|
|
|
|
we are unable to obtain a sufficient supply of manufactured clinical trial materials; |
|
|
|
|
regulatory inspections of manufacturing facilities, which may, among other things, require us or a co-sponsor to
undertake corrective action or suspend the clinical trials; |
|
|
|
|
the interim results of the clinical trial are inconclusive or negative; |
11
|
|
|
the clinical trial, although approved and completed, generates data that is not considered by the FDA or others
to be sufficient to demonstrate safety and efficacy; and |
|
|
|
|
changes in governmental regulations or administrative actions affect the conduct of the clinical trial or the
interpretation of its results. |
There can be no assurance that our clinical trials will in fact demonstrate, to the
satisfaction of the FDA and others, that our product candidates are sufficiently safe or effective.
The FDA or we may also restrict or suspend our clinical trials at any time if either believes that
we are exposing the subjects participating in the trials to unacceptable health risks.
Clinical trials for product candidates such as ours are often conducted with patients who have
more advanced forms of a particular condition or other unrelated conditions. For example, in
clinical trials for our product candidate RGN-137, we have studied patients who are not only
suffering from chronic epidermal wounds but who are also older and much more likely to have other
serious adverse conditions. During the course of treatment with our product candidates, patients
could die or suffer other adverse events for reasons that may or may not be related to the drug
candidate being tested. Further, and as a consequence that all of our drug candidates are based on
Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug
candidate, and that adverse event may have implications for our other trials and other drug
candidates. However, even if unrelated to our product candidates, such adverse events can
nevertheless negatively impact our clinical trials, and our business prospects would suffer.
These factors, many of which may be outside of our control, may have a negative impact on our
business by making it difficult to advance product candidates or by reducing or eliminating their
potential or perceived value. As a consequence, we may need to perform more or larger clinical
trials than planned. Further, if we are forced to contribute greater financial and clinical
resources to a study, valuable resources will be diverted from other areas of our business. If we
fail to complete or if we experience material delays in completing our clinical trials as currently
planned, or we otherwise fail to commence or complete, or experience delays in, any of our other
present or planned clinical trials, including as a result of the actions of third parties upon
which we rely for these functions, our ability to conduct our business as currently planned could
materially suffer.
We may not successfully establish and maintain development and testing relationships with
third-party service providers and collaborators, which could adversely affect our ability to
develop our product candidates.
We have only limited resources, experience with and capacity to conduct requisite testing and
clinical trials of our drug candidates. As a result, we rely and expect to continue to rely on
third-party service providers and collaborators, including corporate partners, licensors and
contract research organizations, or CROs, to perform a number of activities relating to the
development of our drug candidates, including the design and conduct of clinical trials, and
potentially the obtaining of regulatory approvals. For example, we currently rely on several
third-party contractors to manufacture and formulate Tß4 into the product candidates used in our
clinical trials, develop assays to assess Tß4s effectiveness in complex biological systems,
recruit clinical investigators and sites to participate in our trials, manage the clinical trial
process and collect, evaluate and report clinical results.
We may not be able to maintain or expand our current arrangements with these third parties or
maintain such relationships on favorable terms. Our agreements with these third parties may also
contain provisions that restrict our ability to develop and test our product candidates or that
give third parties rights to control aspects of our product development and clinical programs. In
addition, conflicts may arise with our collaborators, such as conflicts concerning the
interpretation of clinical data, the achievement of milestones, the interpretation of financial
provisions or the ownership of intellectual property developed during the collaboration. If any
conflicts arise with our existing or future collaborators, they may act in their self-interest,
which may be adverse to our best interests. Any failure to maintain our collaborative agreements
and any conflicts with our collaborators could delay or prevent us from developing our product
candidates. We and our collaborators may fail to develop products covered by our present and future
collaborations if, among other things:
|
|
|
we do not achieve our objectives under our collaboration agreements; |
|
|
|
|
we or our collaborators are unable to obtain patent protection for the products or
proprietary technologies we develop in our collaborations; |
|
|
|
|
we are unable to manage multiple simultaneous product development collaborations; |
|
|
|
|
our collaborators become competitors of ours or enter into agreements with our competitors; |
12
|
|
|
we or our collaborators encounter regulatory hurdles that prevent commercialization of our
product candidates; or |
|
|
|
|
we develop products and processes or enter into additional collaborations that conflict
with the business objectives of our other collaborators. |
We also have less control over the timing and other aspects of our clinical trials than if we
conducted the monitoring and supervision entirely on our own. Third parties may not perform their
responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical
trial protocol or applicable regulations. We also rely on clinical research organizations to
perform much of our data management and analysis. They may not provide these services as required
or in a timely manner. If any of these parties do not meet deadlines or follow proper procedures,
including procedures required by law, the preclinical studies and clinical trials may take longer
than expected, may be delayed or may be terminated, which would have a materially negative impact
on our product development efforts. If we were forced to find a replacement entity to perform any
of our preclinical studies or clinical trials, we may not be able to find a suitable entity on
favorable terms or at all. Even if we were able to find a replacement, resulting delays in the
tests or trials may result in significant additional expenditures and delays in obtaining
regulatory approval for drug candidates, which could have a material adverse impact on our results
of operations and business prospects.
We are subject to intense competition from companies with greater resources and more mature
products, which may result in our competitors developing or commercializing products before or more
successfully than we do.
We are engaged in a business that is highly competitive. Research and development activities
for the development of drugs to treat indications within our focus are being sponsored or conducted
by private and public research institutions and by major pharmaceutical companies located in the
United States and a number of foreign countries. Most of these companies and institutions have
financial and human resources that are substantially greater than our own and they have extensive
experience in conducting research and development activities and clinical trials and in obtaining
the regulatory approvals necessary to market pharmaceutical products that we do not have. As a
result, they may develop competing products more rapidly that are safer, more effective, or have
fewer side effects, or are less expensive, or they may develop and commercialize products that
render our product candidates non-competitive or obsolete.
We have initially targeted our product candidate RGN-352 for cardiovascular indications. Most
large pharmaceutical companies and many smaller biomedical companies are vigorously pursuing the
development of therapeutics to treat patients after heart attacks and other cardiovascular
indications. With respect to our product candidate RGN-259 for corneal defects, there are also
numerous ophthalmic companies developing drugs for corneal wound healing and other
outside-of-the-eye diseases and injuries. Amniotic membranes have been successfully used to treat
corneal wounds in certain cases, as have topical steroids and antibacterial agents. With respect to
our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed
Regranex for this purpose in patients with diabetic foot ulcers. Other companies, such as
Novartis, are developing and marketing artificial skins, which we believe could also compete with
RGN-137. Moreover, wound healing is a large and highly fragmented marketplace attracting many
companies, large and small, to develop products for treating acute and chronic wounds, including,
for example, honey-based ointments, hyperbaric oxygen therapy, and low frequency cavitational
ultrasound.
We are also developing potential cosmeceutical products, which are loosely defined as products
that bridge the gap between cosmetics and pharmaceuticals, for example, by improving skin texture
and reducing the appearance of aging. This industry is intensely competitive, with potential
competitors ranging from large multinational companies to very small specialty companies. New
cosmeceutical products often have a short product life and are frequently replaced with newer
products developed to address the latest trends in appearance and fashion. We may not be able to
adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies.
Further, larger cosmetics companies have the financial and marketing resources to effectively
compete with smaller companies like us in order to sell products aimed at larger markets.
Even if approved for marketing, our technologies and product candidates are unproven and they may
fail to gain market acceptance.
Our product candidates, all of which are based on the molecule Tß4, are new and unproven and
there is no guarantee that health care providers or patients will be interested in our product
candidates, even if they are approved for use. If any of our product candidates are approved by the
FDA, our success will depend in part on our ability to demonstrate sufficient clinical benefits,
reliability, safety, and cost effectiveness of our product candidates relative to other approaches,
as well as on our ability to continue to develop our product candidates to respond to competitive
and technological changes. If the market does
13
not accept our product candidates, when and if we are able to commercialize them, then we may
never become profitable. Factors that could delay, inhibit or prevent market acceptance of our
product candidates may include:
|
|
|
the timing and receipt of marketing approvals; |
|
|
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the safety and efficacy of the products; |
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the emergence of equivalent or superior products; |
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the cost-effectiveness of the products; and |
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ineffective marketing. |
It is difficult to predict the future growth of our business, if any, and the size of the
market for our product candidates because the markets are continually evolving. There can be no
assurance that our product candidates will prove superior to products that may currently be
available or may become available in the future or that our research and development activities
will result in any commercially profitable products.
We have no marketing experience, sales force or distribution capabilities. If our product
candidates are approved, and we are unable to recruit key personnel to perform these functions, we
may not be able to commercialize them successfully.
Although we do not currently have any marketable products, our ability to produce revenues
ultimately depends on our ability to sell our product candidates if and when they are approved by
the FDA and other regulatory authorities. We currently have no experience in marketing or selling
pharmaceutical products, and we do not have a marketing and sales staff or distribution
capabilities. Developing a marketing and sales force is also time-consuming and could delay the
launch of new products or expansion of existing product sales. In addition, we will compete with
many companies that currently have extensive and well-funded marketing and sales operations. If we
fail to establish successful marketing and sales capabilities or fail to enter into successful
marketing arrangements with third parties, our ability to generate revenues will suffer.
If we enter markets outside the United States our business will be subject to political, economic,
legal and social risks in those markets, which could adversely affect our business.
There are significant regulatory and legal barriers to entering markets outside the United
States that we must overcome if we seek regulatory approval to market our product candidates in
countries other than the United States. We would be subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping and conflicting
laws. We also may experience difficulties adapting to new cultures, business customs and legal
systems. Any sales and operations outside the United States would be subject to political, economic
and social uncertainties including, among others:
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changes and limits in import and export controls; |
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increases in custom duties and tariffs; |
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changes in currency exchange rates; |
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economic and political instability; |
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changes in government regulations and laws; |
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absence in some jurisdictions of effective laws to protect our intellectual property rights; and |
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currency transfer and other restrictions and regulations that may limit our ability to sell
certain product candidates or repatriate profits to the United States. |
Any changes related to these and other factors could adversely affect our business if and to the
extent we enter markets outside the United States.
Governmental and third-party payors may subject any product candidates we develop to sales and
pharmaceutical pricing controls that could limit our product revenues and delay profitability.
The successful commercialization of our product candidates, if they are approved by the FDA,
will likely depend on our
14
ability to obtain reimbursement for the cost of the product and treatment. Government
authorities, private health insurers and other organizations, such as health maintenance
organizations, are increasingly seeking to lower the prices charged for medical products and
services. Also, the trend toward managed health care in the United States, the growth of healthcare
maintenance organizations, and recently enacted legislation reforming healthcare and proposals to
reform government insurance programs could have a significant influence on the purchase of
healthcare services and products, resulting in lower prices and reducing demand for our product
candidates. The cost containment measures that healthcare providers are instituting and any
healthcare reform could reduce our ability to sell our product candidates and may have a material
adverse effect on our operations. We cannot assure you that reimbursement in the United States or
foreign countries will be available for any of our product candidates, and that any reimbursement
granted will be maintained, or that limits on reimbursement available from third-party payors will
not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of
third-party reimbursements for our product candidates would decrease the potential profitability of
our operations. We cannot forecast what additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what
effect the legislation or regulation would have on our business.
We have no manufacturing or formulation capabilities and are dependent upon third-party suppliers
to provide us with our product candidates. If these suppliers do not manufacture our product
candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we
are unable to identify suitable replacement suppliers if needed, our clinical development efforts
could be delayed, prevented or impaired.
We do not own or operate manufacturing facilities and have little experience in manufacturing
pharmaceutical products. We currently rely, and expect to continue to rely, primarily on peptide
manufacturers to supply us with Tß4 for further formulation into our product candidates. We have
engaged three separate smaller drug formulation contractors for the formulation of clinical grade
product candidates, one for each of our three product candidates in clinical development. We
currently do not have an alternative source of supply for either Tß4 or the individual drug
candidates. If these suppliers, together or individually, are not able to supply us with either Tß4
or individual product candidates on a timely basis, in sufficient quantities, at acceptable levels
of quality and at a competitive price, or if we are unable to identify a replacement manufacturer
to perform these functions on acceptable terms as needed, our development programs could be
seriously jeopardized.
The risks of relying solely on single suppliers for each of our product candidates include:
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their respective abilities to ensure quality and compliance with
regulations relating to the manufacture of pharmaceuticals; |
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their manufacturing capacity may not be sufficient or available to
produce the required quantities of our product candidates based on our
planned clinical development schedule, if at all; |
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they may not have access to the capital necessary to expand their
manufacturing facilities in response to our needs; |
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commissioning replacement suppliers would be difficult and time-consuming; |
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individual suppliers may have used substantial proprietary know-how
relating to the manufacture of our product candidates and, in the event
we must find a replacement or supplemental supplier, our ability to
transfer this know-how to the new supplier could be an expensive and/or
time-consuming process; |
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an individual supplier may experience events, such as a fire or natural
disaster, that force it to stop or curtail production for an extended
period; |
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an individual supplier could encounter significant increases in labor,
capital or other costs that would make it difficult for them to produce
our products cost-effectively; or |
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an individual supplier may not be able to obtain the raw materials or
validated drug containers in sufficient quantities, at acceptable costs
or in sufficient time to complete the manufacture, formulation and
delivery of our product candidates. |
Our suppliers may use hazardous and biological materials in their businesses. Any claims relating
to improper handling, storage or disposal of these materials could be time-consuming and costly to
us, and we are not insured against such claims.
15
Our product candidates and processes involve the controlled storage, use and disposal by our
suppliers of certain hazardous and biological materials and waste products. We and our suppliers
and other collaborators are subject to federal, state and local regulations governing the use,
manufacture, storage, handling and disposal of materials and waste products. Even if we and these
suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of
accidental contamination or injury from hazardous materials cannot be completely eliminated. In the
event of an accident, we could be held liable for any damages that result, and we do not carry
insurance for this type of claim. We may also incur significant costs to comply with current or
future environmental laws and regulations.
We face the risk of product liability claims, which could adversely affect our business and
financial condition.
We may be subject to product liability claims as a result of our testing, manufacturing, and
marketing of drugs. In addition, the use of our product candidates, when and if developed and sold,
will expose us to the risk of product liability claims. Product liability may result from harm to
patients using our product candidates, such as a complication that was either not communicated as a
potential side effect or was more extreme than anticipated. We require all patients enrolled in our
clinical trials to sign consents, which explain various risks involved with participating in the
trial. However, patient consents provide only a limited level of protection, and it may be alleged
that the consent did not address or did not adequately address a risk that the patient suffered.
Additionally, we will generally be required to indemnify our clinical product manufacturers,
clinical trial centers, medical professionals and other parties conducting related activities in
connection with losses they may incur through their involvement in the clinical trials.
Our ability to reduce our liability exposure for human clinical trials and commercial sales,
if any, of Tß4 is dependent in part on our ability to obtain sufficient product liability insurance
or to collaborate with third parties that have adequate insurance. Although we intend to obtain and
maintain product liability insurance coverage if we gain approval to market any of our product
candidates, we cannot guarantee that product liability insurance will continue to be available to
us on acceptable terms, or at all, or that its coverage will be sufficient to cover all claims
against us. A product liability claim, even one without merit or for which we have substantial
coverage, could result in significant legal defense costs, thereby potentially exposing us to
expenses significantly in excess of our revenues, as well as harm to our reputation and distraction
of our management.
If any of our key employees discontinue their services with us, our efforts to develop our business
may be delayed.
We are highly dependent on the principal members of our management team. The loss of our
chairman and chief scientific advisor, Allan Goldstein, or our chief executive officer, J.J.
Finkelstein, could prevent or significantly delay the achievement of our goals. We have employment
agreements with Dr. Goldstein and Mr. Finkelstein. We cannot assure you that they, or other key
employees, will not elect to terminate their employment. In addition, we do not maintain a key man
life insurance policy with respect to Dr. Goldstein or Mr. Finkelstein. In the future, we
anticipate that we may need to add additional management and other personnel. Competition for
qualified personnel in our industry is intense, and our success will depend in part on our ability
to attract and retain highly skilled personnel. We cannot assure you that our efforts to attract or
retain such personnel will be successful.
Mauro Bove, a member of our Board, is also a director and officer of entities affiliated with
Sigma-Tau, a relationship which could give rise to a conflict of interest involving Mr. Bove.
Mauro Bove, a member of our Board of Directors, is also a director and officer of entities
affiliated with Sigma-Tau, which collectively make up our largest stockholder group. Sigma-Tau has
provided us with significant funding, may continue doing so in the future, and is also our
strategic partner in Europe with respect to the development of certain of our drug candidates. We
have issued shares of common stock and common stock warrants to Sigma-Tau in several private
placement financing transactions, including as recently as January 2011, but we retained the right
to repurchase some of these shares under certain circumstances.
We have licensed certain rights to our product candidates generally for the treatment of
dermal and internal wounds to Sigma-Tau. Under the license agreement, upon the completion of a
Phase 2 clinical trial of either of these product candidates that yields positive results in terms
of clinical efficacy and safety, Sigma-Tau is obligated to either make a $5 million milestone
payment to us or to initiate and fund a pivotal Phase 3 clinical trial of the product candidate. In
2009, we completed two Phase 2 clinical trials of RGN-137 in the treatment of pressure ulcers and
venous stasis ulcers. However, due to the lack of statistical significance of the reported efficacy
results, these trials were not sufficient to trigger the milestone obligation described above.
There can be no assurance that we will ever receive this payment or be able to initiate a pivotal
Phase 3 clinical trial of RGN-137 that would be funded by Sigma-Tau. As a result of Mr. Boves
relationship with Sigma-Tau, there could be a conflict of interest between Sigma-Tau and our other
stockholders with respect to these and other agreements and circumstances that may require the
exercise of the Boards discretion with respect to Sigma-Tau. Any decision in the best
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interests of Sigma-Tau may not be in the best interest of our other stockholders.
Risks Related To Our Intellectual Property
We are heavily reliant on our license from the National Institutes of Health for the rights to Tß4,
and any loss of these rights would adversely affect our business.
We have received an exclusive worldwide license to intellectual property discovered at the
National Institutes of Health, or NIH, pertaining to the use of Tß4 in wound healing and tissue
repair. The intellectual property rights from this license form the basis for our current
commercial development focus with Tß4. This license terminates upon the last to expire of the
patent applications that are filed, or any patents that may issue from such applications, in
connection with the license. This license requires us to pay a minimum annual royalty to the NIH,
regardless of the success of our product development efforts, plus certain other royalties upon the
sale of products created by the intellectual property granted under the license. This license may
be terminated for a number of reasons, including our non-payment of the royalty or lack of
continued product development, among others. While to date we believe that we have complied with
all requirements to maintain the license, the loss of this license would have a material adverse
effect on our business and business prospects and may require us to cease development of our
current line of Tß4-based product candidates.
If we are not able to maintain adequate patent protection for our product candidates, we may be
unable to prevent our competitors from using our technology or technology that we license.
Our success will depend in substantial part on our ability to obtain, defend and enforce
patents, maintain trade secrets and operate without infringing upon the proprietary rights of
others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the
NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents
covering our use of Tß4 have issued in some countries, we cannot guarantee whether or when
corresponding patents will be issued, or the scope of any patents that may be issued, in other
countries. We have attempted to create a substantial intellectual property portfolio, submitting
patent applications for various compositions of matter, methods of use and fragments and
derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties
that could be subject to the same risks as our own patents. If any of these patent applications do
not issue, or do not issue in certain countries, or are not enforceable, the ability to
commercialize Tß4 in various medical indications could be substantially limited or eliminated.
In addition, the patent positions of the products being developed by us and our collaborators
involve complex legal and factual uncertainties. As a result, we cannot assure you that any patent
applications filed by us, or by others under which we have rights, will result in patents being
issued in the United States or foreign countries. In addition, there can be no assurance that any
patents will be issued from any pending or future patent applications of ours or our collaborators,
that the scope of any patent protection will be sufficient to provide us with competitive
advantages, that any patents obtained by us or our collaborators will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents and other
proprietary rights we or our collaborators may hold. Unauthorized parties may try to copy aspects
of our product candidates and technologies or obtain and use information we consider proprietary.
Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no
harm or threat will be made to our or our collaborators intellectual property. In addition,
changes in, or different interpretations of, patent laws in the United States and other countries
may also adversely affect the scope of our patent protection and our competitive situation.
Due to the significant time lag between the filing of patent applications and the publication
of such patents, we cannot be certain that our licensors were the first to file the patent
applications we license or, even if they were the first to file, also were the first to invent,
particularly with regards to patent rights in the United States. In addition, a number of
pharmaceutical and biotechnology companies and research and academic institutions have developed
technologies, filed patent applications or received patents on various technologies that may be
related to our product candidates. Some of these technologies, applications or patents may conflict
with our or our licensors technologies or patent applications. A conflict could limit the scope of
the patents, if any, that we or our licensors may be able to obtain or result in denial of our or
our licensors patent applications. If patents that cover our activities are issued to other
companies, we may not be able to develop or obtain alternative technology.
Additionally, there is certain subject matter that is patentable in the United States but not
generally patentable outside of the United States. Differences in what constitutes patentable
subject matter in various countries may limit the protection we can obtain outside of the United
States. For example, methods of treating humans are not patentable in many countries outside of the
United States. These and other issues may prevent us from obtaining patent protection outside of
the United
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States, which would have a material adverse effect on our business, financial condition and
results of operations.
Changes to U.S. patent laws could materially reduce any value our patent portfolio may have.
The value of our patents depends in part on their duration. A shorter period of patent
protection could lessen the value of our rights under any patents that may be obtained and may
decrease revenues derived from its patents. For example, the U.S. patent laws were previously
amended to change the term of patent protection from 17 years following patent issuance to 20 years
from the earliest effective filing date of the application. Because the time from filing to
issuance of biotechnology applications may be more than three years depending on the subject
matter, a 20-year patent term from the filing date may result in substantially shorter patent
protection. Future changes to patent laws could shorten our period of patent exclusivity and may
decrease the revenues that we might derive from the patents and the value of our patent portfolio.
We may not have adequate protection for our unpatented proprietary information, which could
adversely affect our competitive position.
In addition to our patents, we also rely on trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive position. However,
others may independently develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose our technology. To protect our trade
secrets, we may enter into confidentiality agreements with employees, consultants and potential
collaborators. However, we may not have such agreements in place with all such parties and, where
we do, these agreements may not provide meaningful protection of our trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information. Also, our trade
secrets or know-how may become known through other means or be independently discovered by our
competitors. Any of these events could prevent us from developing or commercializing our product
candidates.
We may be subject to claims that we or our employees have wrongfully used or disclosed alleged
trade secrets of former employers.
As is commonplace in the biotechnology industry, we employ now, and may hire in the future,
individuals who were previously employed at other biotechnology or pharmaceutical companies,
including competitors or potential competitors. Although there are no claims currently pending
against us, we may be subject to claims that we or certain employees have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of former employers.
Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and would be a significant
distraction to management.
Risks Related To Our Securities
Our common stock price is volatile, our stock is highly illiquid, and any investment in our
securities could decline substantially in value.
For the period from January 1, 2009 through December 31, 2010, the closing price of our common
stock has ranged from $0.21 to $1.75, with an average daily trading volume of approximately 117,000
shares. We expect the trading volume of our common stock to decline further in light of our recent
delisting from the NYSE Amex exchange. In light of our small size and limited resources, as well as
the uncertainties and risks that can affect our business and industry, our stock price is expected
to continue to be highly volatile and can be subject to substantial drops, with or even in the
absence of news affecting our business. The following factors, in addition to the other risk
factors described in this prospectus, and the potentially low volume of trades in our common stock,
may have a significant impact on the market price of our common stock, some of which are beyond our
control:
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the recent delisting of our common stock from the NYSE Amex exchange; |
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results of pre-clinical studies and clinical trials; |
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commercial success of approved products; |
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corporate partnerships; |
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technological innovations by us or competitors; |
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changes in laws and government regulations both in the U.S. and overseas; |
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changes in key personnel at our company; |
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developments concerning proprietary rights, including patents and litigation matters; |
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public perception relating to the commercial value or safety of any of our product candidates; |
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future sales of our common stock, including to Lincoln Park under the Purchase Agreement; |
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other issuances of our common stock causing dilution; |
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anticipated or unanticipated changes in our financial performance; |
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general trends related to the biopharmaceutical and biotechnological industries; and |
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general conditions in the stock market. |
The stock market in general has recently experienced relatively large price and volume
fluctuations. In particular, the market prices of securities of smaller biotechnology companies
have experienced dramatic fluctuations that often have been unrelated or disproportionate to the
operating results of these companies. Continued market fluctuations could result in extreme
volatility in the price of our common stock, which could cause a decline in its value. You should
also be aware that price volatility may be worse if the trading volume of the common stock remains
limited or declines.
Our principal stockholders have significant voting power and may take actions that may not be in
the best interests of our other stockholders.
Following the investment transactions that were consummated on January 7, 2011, our officers,
directors and principal stockholders together controlled approximately 43% of our outstanding
common stock. Included in this group is Sigma-Tau and its affiliates, which together held
outstanding shares representing approximately 38% of our outstanding common stock. A portion of the
shares of common stock currently held by Sigma-Tau and its affiliates are subject to voting
agreements under which our Board controls the voting power of such stock. We cannot assure you that
such voting agreements would prevent Sigma-Tau and its affiliates from taking actions not in your
best interests and effectively exercising control over us. These voting agreements expire
periodically through September 2012. After their expiration, we will have no control over the
voting of these shares controlled by Sigma-Tau, including with respect to the election of directors
and approval of significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control and might adversely affect the market price of
our common stock, and therefore may not be in the best interest of our other stockholders.
If securities or industry analysts do not publish research or reports or publish unfavorable
research about our business, the price of our common stock and other securities and their trading
volume could decline.
The trading market for our common stock and other securities will depend in part on the
research and reports that securities or industry analysts publish about us or our business. We do
not currently have and may never obtain research coverage by securities and industry analysts. If
securities or industry analysts do not commence or maintain coverage of us, the trading price for
our common stock and other securities would be negatively affected. In the event we obtain
securities or industry analyst coverage, if one or more of the analysts who covers us downgrades
our securities, the price of our securities would likely decline. If one or more of these analysts
ceases to cover us or fails to publish regular reports on us, interest in the purchase of our
securities could decrease, which could cause the price of our common stock and other securities and
their trading volume to decline.
A significant portion of our total outstanding shares may be sold into the market in the near
future. This could cause the market price of our common stock to drop significantly, even if our
business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur
at any time. After giving effect to the issuance of 15,000,000 shares to Lincoln Park, we will have
outstanding 94,860,282 shares of common stock, assuming no exercise of outstanding options or
warrants. Substantially all of these outstanding shares will be freely tradable. If our
stockholders sell, or the market perceives that our stockholders intend to sell, substantial
amounts of our common stock in the public market following this offering, the market price of our
common stock could decline significantly.
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The exercise of options and warrants and other issuances of shares of common stock or securities
convertible into common stock will dilute your interest.
As of the date of this prospectus, there are outstanding options to purchase an aggregate of
5,348,863 shares of our common stock at exercise prices ranging from $0.27 per share to $3.82 per
share and outstanding warrants to purchase 16,136,900 shares of our common stock at a weighted
average exercise price of $0.89 per share. The exercise of options and warrants at prices below the
market price of our common stock could adversely affect the price of shares of our common stock.
Additional dilution may result from the issuance of shares of our capital stock in connection with
collaborations or manufacturing arrangements or in connection with other financing efforts,
including pursuant to the Purchase Agreement with Lincoln Park.
Any issuance of our common stock that is not made solely to then-existing stockholders
proportionate to their interests, such as in the case of a stock dividend or stock split, will
result in dilution to each stockholder by reducing his, her or its percentage ownership of the
total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in
the future and those options or warrants are exercised or we issue restricted stock, stockholders
may experience further dilution. Holders of shares of our common stock have no preemptive rights
that entitle them to purchase their pro rata share of any offering of shares of any class or
series.
In addition, most of the outstanding warrants to purchase shares of our common stock have an
exercise price above the current market price for our common stock. As a result, these warrants may
not be exercised prior to their expiration, in which case we would not realize any proceeds from
their exercise.
The sale of shares of our common stock to Lincoln Park under the Purchase Agreement may cause
substantial dilution to our existing stockholders and could cause the price of our common stock to
decline.
Under the Purchase Agreement, we may sell to Lincoln Park, from time to time and under certain
circumstances, up to $11,000,000 of our common stock. We do not have the right to commence any
sales of our shares to Lincoln Park under the Purchase Agreement until the SEC has declared
effective the resale registration statement of which this prospectus forms a part. After the SEC
has declared effective the resale registration statement, over approximately 30 months, generally,
we have the right, but no obligation, to direct Lincoln Park to periodically purchase up to
$11,000,000 of our common stock in specific amounts under certain conditions, which periodic
purchase amounts can be increased under specified circumstances.
We have also agreed to issue to Lincoln Park up to an aggregate of 1,916,666 shares of common
stock as a fee for Lincoln Parks commitment to purchase our shares. Of these commitment shares, we
issued one-half, or 958,333 shares, upon entering into the agreement with Lincoln Park. The
remaining commitment shares are issuable to Lincoln Park on a pro rata basis as purchases are made
under the Purchase Agreement.
Depending upon market liquidity at the time, sales of shares of our common stock to Lincoln
Park may cause the trading price of our common stock to decline. Lincoln Park may ultimately
purchase all, some or none of the $11,000,000 of common stock, and after it has acquired shares,
Lincoln Park may sell all, some or none of those shares. Therefore, sales to Lincoln Park by us
could result in substantial dilution to the interests of other holders of our common stock. The
sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of
such sales, could make it more difficult for us to sell equity or equity-related securities in the
future at a time and at a price that we might otherwise wish to effect sales. However, we have the
right to control the timing and amount of any sales of our shares to Lincoln Park, and the Purchase
Agreement may be terminated by us at any time at our discretion without any cost to us.
Our certificate of incorporation, our stockholder rights plan and Delaware law contain provisions
that could discourage or prevent a takeover or other change in control, even if such a transaction
would be beneficial to our stockholders, which could affect our stock price adversely and prevent
attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation provides our Board with the power to issue shares of
preferred stock without stockholder approval. In addition, under our stockholder rights plan, our
Board has the discretion to issue certain rights to purchase our capital stock when a person
acquires in excess of 25% of our outstanding common shares. Our Board has exempted purchases by
Sigma-Tau to date and purchases that may be made by Lincoln Park under the Purchase Agreement from
the operation of our stockholder rights plan. The stockholder rights plan may make it more
difficult for stockholders to take corporate actions and may have the effect of delaying or
preventing a change in control, even if such actions or change in control would be in your best
interests. In addition, we are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Subject to specified exceptions, this section provides that a
corporation may not engage in any business combination with any interested stockholder, as defined
in that statute, during the three-year period following
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the time that such stockholder becomes an interested stockholder. This provision could also
have the effect of delaying or preventing a change of control of our company. The foregoing factors
could reduce the price that investors or an acquirer might be willing to pay in the future for
shares of our common stock.
We may become involved in securities class action litigation that could divert managements
attention and harm our business and our insurance coverage may not be sufficient to cover all costs
and damages.
The stock market has from time to time experienced significant price and volume fluctuations
that have affected the market prices for the common stock of pharmaceutical and biotechnology
companies. These broad market fluctuations may cause the market price of our common stock to
decline. In the past, following periods of volatility in the market price of a particular companys
securities, securities class action litigation has often been brought against that company. We may
become involved in this type of litigation in the future. Litigation often is expensive and diverts
managements attention and resources, which could hurt our business, operating results and
financial condition.
Management will have broad discretion as to the use of the proceeds from sales under the Purchase
Agreement, and we may not use the proceeds effectively.
We have not designated any portion of the proceeds from sales to Lincoln Park under the
Purchase Agreement to be used for any particular purpose. Accordingly, our management will have
broad discretion as to the application of the proceeds from any such sales and could spend the
proceeds in ways that do not necessarily improve our operating results or enhance the value of our
common stock.
You will experience immediate dilution in the book value per share of the common stock you
purchase.
Because the price per share of our common stock being offered is likely to be substantially
higher than the book value per share of our common stock, you will suffer substantial dilution in
the net tangible book value of the common stock you purchase in this offering. Based on the assumed
minimum allowed offering price of $0.15 per share in this offering and a pro forma net tangible
book value per share of our common stock of $0.09 as of September 30, 2010, if you purchase
securities in this offering, you will suffer immediate and substantial dilution of $0.06 per share
in the net tangible book value of the common stock purchased. See
Dilution on page 26 for a
more detailed discussion of the dilution you will incur in connection with this offering.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial risks and
uncertainties. The forward-looking statements are contained principally in the sections entitled
Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition
and Results of Operations and Business, but are also contained elsewhere in this prospectus. In
some cases, you can identify forward-looking statements by the words may, might, will,
could, would, should, expect, intend, plan, objective, anticipate, believe,
estimate, predict, project, potential, continue and ongoing, or the negative of these
terms, or other comparable terminology intended to identify statements about the future. These
statements involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from the
information expressed or implied by these forward-looking statements. Although we believe that we
have a reasonable basis for each forward-looking statement contained in this prospectus, we caution
you that these statements are based on a combination of facts and factors currently known by us and
our expectations of the future, about which we cannot be certain. Forward-looking statements
include, but are not limited to, statements about:
|
|
|
our anticipated cash needs and our estimates regarding our capital requirements and
needs for additional financing; |
|
|
|
|
the progress, outcome, timing or success of preclinical studies and clinical trials; |
|
|
|
|
the expected timing of clinical trials and availability of data from those trials; |
|
|
|
|
our ability to obtain and maintain regulatory approval for our product candidates from
the FDA or foreign regulatory authorities; |
|
|
|
|
future demand for our product candidates and our ability to sustain such demand; |
|
|
|
|
the size of the potential market for our product candidates; |
|
|
|
|
our plans to seek collaborative relationships and the success of those relationships; |
|
|
|
|
the success of competing therapies that are or become available; |
|
|
|
|
our compliance with federal, state and foreign regulatory requirements, and regulatory
developments that impact those requirements; |
|
|
|
|
our estimates and assumptions with respect to disease incidence; |
|
|
|
|
our intellectual property and our strategies regarding filing additional patent
applications to attempt to strengthen our intellectual property rights; |
|
|
|
|
our ability to retain key management and scientific personnel; |
|
|
|
|
estimates of our future financial performance; |
|
|
|
|
our ability to implement financial controls and procedures on a timely basis; and |
|
|
|
|
anticipated trends and challenges in our business. |
In addition, you should refer to the Risk Factors section of this prospectus for a
discussion of other important factors that may cause our actual results to differ materially from
those expressed or implied by our forward-looking statements. As a result of these factors, we
cannot assure you that the forward-looking statements in this prospectus will prove to be accurate
or that we will achieve the plans, intentions or expectations expressed or implied in our
forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate,
the inaccuracy may be material. In light of the significant uncertainties in these forward-looking
statements, you should not regard these statements as a representation or warranty by us or any
other person that we will achieve our objectives and plans in any specified time frame, or at all.
Any forward-looking statements we make in this prospectus speak only as of its date, and we
undertake no obligation to publicly update any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and
have filed as exhibits to the
22
registration statement, of which this prospectus is a part, completely and with the
understanding that our actual future results may be materially different from what we expect. We
qualify all of our forward-looking statements by these cautionary statements.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and sold from
time to time by Lincoln Park. We will not receive any proceeds upon the sale of shares by Lincoln
Park. However, we may receive proceeds of up to $11,000,000 under the Purchase Agreement with
Lincoln Park, subject to the terms and conditions of the agreement.
We intend to use the proceeds from sales under the Purchase Agreement for preclinical and
clinical development of our drug candidates and for general corporate purposes, including working
capital. In addition, we may use a portion of the proceeds to acquire drugs or drug candidates,
technologies, businesses or other assets. The timing and amount of our actual expenditures will be
based on many factors, including the progress, timing and success of our clinical trials and other
development efforts, whether we partner any of our development programs, and whether we choose to
curtail some of our research activities, as well as the amount of cash used in our operations. We
will retain broad discretion in determining how we will allocate the proceeds from any sales to
Lincoln Park.
Until we use the proceeds of any such sales, we intend to invest the funds in short-term,
investment grade, interest-bearing securities.
23
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our capitalization as of
September 30, 2010.
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,975,947 |
|
|
|
|
|
Stockholders equity: |
|
|
|
|
Preferred stock, $0.001 per share, 1,000,000 shares
authorized, no shares issued or outstanding |
|
|
|
|
Common stock, $0.001 par value, 200,000,000 shares
authorized, 73,531,578 shares issued and outstanding |
|
|
73,531 |
|
Additional paid-in-capital |
|
|
92,997,669 |
|
Accumulated deficit |
|
|
(88,605,400 |
) |
|
|
|
|
|
Total stockholders equity |
|
|
4,465,800 |
|
|
|
|
|
|
Total capitalization |
|
$ |
4.465,800 |
|
|
|
|
|
The number of shares of common stock outstanding in the table above excludes, as of
September 30, 2010:
|
|
5,348,863 shares of our common stock issuable upon the exercise of outstanding
stock options, with a weighted average exercise price of $1.37 per share; |
|
|
|
4,327,500 shares of our common stock available for future issuance under our
2010 Equity Incentive Plan; |
|
|
|
13,988,751 shares of our common stock issuable upon the exercise of outstanding
warrants, with a weighted-average exercise price of $1.38 per share; and |
|
|
|
shares of our common stock issued to Lincoln Park and Sigma-Tau in January 2011. |
24
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is quoted on the OTC Bulletin Board under the symbol RGRX. Our common stock
last traded at $0.22 on February 4, 2011. Prior to December 23, 2010, our stock traded on the
NYSE Amex stock exchange under the symbol RGN. The following table provides the high and low
closing prices for our common stock for each quarterly period within the two most recent fiscal
years as quoted on the NYSE Amex or reported by the OTC Bulletin Board, as appropriate. The
quotation reported by the OTC Bulletin Board reflects inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
|
|
|
|
|
|
|
|
|
2009 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
1.75 |
|
|
$ |
0.42 |
|
Second Quarter |
|
$ |
0.85 |
|
|
$ |
0.45 |
|
Third Quarter |
|
$ |
1.12 |
|
|
$ |
0.52 |
|
Fourth Quarter |
|
$ |
0.83 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
2010 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
0.65 |
|
|
$ |
0.53 |
|
Second Quarter |
|
$ |
0.68 |
|
|
$ |
0.26 |
|
Third Quarter |
|
$ |
0.35 |
|
|
$ |
0.24 |
|
Fourth Quarter |
|
$ |
0.30 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
2011 |
|
High |
|
|
Low |
|
First Quarter (through February 4, 2011) |
|
$ |
0.27 |
|
|
$ |
0.20 |
|
As of December 31, 2010, we had 832 holders of record of our common stock and over 4,100
beneficial holders of our common stock.
We have never declared or paid any dividends on our common stock or any other securities. We
anticipate that we will retain all of our future earnings, if any, for use in the operation of our
business and do not anticipate paying cash dividends in the foreseeable future.
25
DILUTION
Investors who purchase our common stock will be diluted to the extent of the difference
between the public offering price per share of our common stock and the pro forma as adjusted net
tangible book value per share of our common stock immediately after this offering. Net tangible
book value per share is determined by dividing our total tangible assets less total liabilities by
the number of outstanding shares of our common stock. As of September 30, 2010, we had a net
tangible book value of $4.5 million, or approximately $0.06 per share of common stock. After
giving effect to the issuance of an aggregate of 6,328,704 shares in connection with sales to
Lincoln Park and Sigma-Tau on January 4, 2011 and January 7, 2011 that generated net proceeds of
$1.45 million, our as adjusted net tangible book value would have been $5.9 million, or
approximately $0.07 per share, as of September 30, 2010.
Dilution in net tangible book value per share represents the difference between the amount per
share paid by purchasers of common stock in this offering, assuming a purchase price of $0.15 per
share, which is the minimum purchase price at which shares can be sold under the Purchase
Agreement, and the pro forma as adjusted net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to our assumed receipt of
$2.2 million in estimated proceeds from the sale of 14,806,506 shares of common stock issuable
under the Purchase Agreement and registered in this offering (assuming a purchase price of $0.15
per share and the issuance of 193,404 additional commitment shares for no additional cash
consideration, and assuming all such sales and issuances were made on September 30, 2010), our pro
forma as adjusted net tangible book value as of September 30, 2010 would have been approximately
$8.1 million, or $0.09 per share. This would represent an immediate increase in the net tangible
book value of $0.02 per share to existing stockholders attributable to this offering. The following
table illustrates this per share dilution:
|
|
|
|
|
|
|
|
|
Assumed public offering price per share of common stock (minimum
allowed price) |
|
|
|
|
|
$ |
0.15 |
|
As adjusted net tangible book value per share as of September 30, 2010 |
|
$ |
0.07 |
|
|
|
|
|
Increase in as adjusted net tangible book value per share
attributable to this offering |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after this offering |
|
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
Dilution per share to new investors |
|
|
|
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
To the extent that we sell more or less than $2.2 million worth of shares under the
Purchase Agreement, or to the extent that some or all sales are made at prices in excess of the
minimum allowable purchase price of $0.15 per share, then the dilution reflected in the table above
will differ. The above table is based on 73,531,578 shares of our common stock outstanding as of
September 30, 2010, adjusted for the issuance of 6,328,704 shares issued to Lincoln Park and
Sigma-Tau on January 4, 2011 and January 7, 2011 for aggregate gross proceeds of $1.45 million, and
the assumed sale of $2.2 million in shares to Lincoln Park under the Purchase Agreement at the
assumed minimum purchase price described above. In addition, the calculations in the foregoing
table do not take into account, as of September 30, 2010:
|
|
|
5,348,863 shares of our common stock issuable upon
the exercise of outstanding stock options, with a
weighted average exercise price of $1.37 per share; |
|
|
|
|
4,327,500 shares of our common stock available for
future issuance under our 2010 Equity Incentive Plan;
and |
|
|
|
|
13,988,751 shares of our common stock issuable upon
the exercise of outstanding warrants, with a
weighted-average exercise price of $1.38 per share. |
To the extent that options or warrants are exercised, new options are issued under
our equity benefit plans, or we issue additional shares of common stock in the future, there may be
further dilution to investors participating in this offering. In addition, we may choose to raise
additional capital because of market conditions or strategic considerations, even if we believe
that we have sufficient funds for our current or future operating plans. If we raise additional
capital through the sale of equity or convertible debt securities, the issuance of these securities
could result in further dilution to our stockholders.
26
SELECTED FINANCIAL DATA
You should read the following selected financial data together with Managements
Discussion and Analysis of Financial Condition and Results of Operations and our financial
statements and accompanying notes included later in this prospectus. The selected financial data in
this section is not intended to replace our financial statements and the accompanying notes.
We have derived the selected balance sheet data as of December 31, 2009 and 2008 and the
selected statement of operations data for the years ended December 31, 2009 and 2008 from our
audited financial statements that are included in this prospectus. We have derived the selected
balance sheet data as of December 31, 2007, 2006 and 2005 and the selected statement of operations
data for the years ended December 31, 2007, 2006 and 2005 from our audited financial statements
that are not included in this prospectus. We have derived the selected statement of operations data
for the nine months ended September 30, 2010 and 2009 and the selected balance sheet data as of
September 30, 2010 from our unaudited financial statements that are included in this prospectus.
Our historical results are not necessarily indicative of the results to be expected in any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Year Ended December 31, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2010 |
|
|
2009 |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored research revenue |
|
$ |
|
|
|
$ |
168,412 |
|
|
$ |
240,324 |
|
|
$ |
272,491 |
|
|
$ |
|
|
|
$ |
53,819 |
|
|
$ |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
3,724,514 |
|
|
|
7,149,808 |
|
|
|
8,887,255 |
|
|
|
6,396,524 |
|
|
|
3,155,735 |
|
|
|
1,819,036 |
|
|
|
3,064,248 |
|
General and administrative |
|
|
2,781,790 |
|
|
|
3,805,346 |
|
|
|
3,197,685 |
|
|
|
2,665,652 |
|
|
|
2,513,792 |
|
|
|
2,345,619 |
|
|
|
2,161,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6,506,304 |
|
|
|
10,955,154 |
|
|
|
12,084,940 |
|
|
|
9,062,176 |
|
|
|
5,669,527 |
|
|
|
4,164,655 |
|
|
|
5,225,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,506,304 |
) |
|
|
(10,786,742 |
) |
|
|
(11,844,616 |
) |
|
|
(8,789,685 |
) |
|
|
(5,669,527 |
) |
|
|
(4,110,836 |
) |
|
|
(5,225,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
12,444 |
|
|
|
149,777 |
|
|
|
666,458 |
|
|
|
522,704 |
|
|
|
214,676 |
|
|
|
6,840 |
|
|
|
10,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,493,860 |
) |
|
$ |
(10,636,965 |
) |
|
$ |
(11,178,158 |
) |
|
$ |
(8,266,981 |
) |
|
$ |
(5,454,851 |
) |
|
$ |
(4,103,996 |
) |
|
|
(5,215,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss
per share |
|
$ |
(0.12 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.06 |
) |
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic
and diluted net loss per share |
|
|
55,680,525 |
|
|
|
50,967,617 |
|
|
|
46,465,982 |
|
|
|
40,116,367 |
|
|
|
36,843,609 |
|
|
|
66,729,519 |
|
|
|
54,216,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
As of December 31, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2010 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,355,768 |
|
|
$ |
5,655,367 |
|
|
$ |
3,696,878 |
|
|
$ |
13,052,308 |
|
|
$ |
4,896,143 |
|
|
$ |
4,975,947 |
|
Short-term investments |
|
|
|
|
|
|
|
|
|
|
4,579,592 |
|
|
|
4,000,000 |
|
|
|
2,679,693 |
|
|
|
|
|
Working capital |
|
|
3,671,910 |
|
|
|
4,565,932 |
|
|
|
6,102,596 |
|
|
|
16,187,188 |
|
|
|
6,939,195 |
|
|
|
4,423,905 |
|
Total assets |
|
|
4,583,754 |
|
|
|
5,922,576 |
|
|
|
8,621,793 |
|
|
|
17,501,625 |
|
|
|
7,724,634 |
|
|
|
5,615,670 |
|
Total liabilities |
|
|
880,404 |
|
|
|
1,325,912 |
|
|
|
2,469,069 |
|
|
|
1,249,290 |
|
|
|
714,127 |
|
|
|
1,149,870 |
|
Accumulated deficit |
|
|
(84,501,404 |
) |
|
|
(78,007,544 |
) |
|
|
(67,405,579 |
) |
|
|
(56,227,421 |
) |
|
|
(47,960,440 |
) |
|
|
(88,605,400 |
) |
Stockholders equity |
|
|
3,703,350 |
|
|
|
4,596,664 |
|
|
|
6,152,724 |
|
|
|
16,252,335 |
|
|
|
7,010,507 |
|
|
|
4,465,800 |
|
27
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and
results of our operations together with our financial statements and the related notes to those
statements included later in this prospectus. In addition to historical financial information, this
discussion contains forward-looking statements reflecting our current plans, estimates, beliefs and
expectations that involve risks and uncertainties. As a result of many important factors,
particularly those set forth under Special Note Regarding Forward-Looking Statements and Risk
Factors, our actual results and the timing of events may differ materially from those anticipated
in these forward-looking statements.
Overview
We are a biopharmaceutical company focused on the development of a novel therapeutic
peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We
have formulated Tß4 into three distinct product candidates currently in clinical development:
|
|
|
RGN-352, an injectable product candidate to treat cardiovascular diseases,
central nervous system diseases, and other medical indications that may be
treated by systemic administration; |
|
|
|
|
RGN-259, a topical eye drop for regeneration of corneal tissues damaged by
injury, disease or other pathology; and |
|
|
|
|
RGN-137, a topically applied gel for dermal wounds and reduction of scar tissue. |
We have a fourth product candidate, RGN-457, in preclinical development. RGN-457 is an inhaled
formulation of Tß4 targeting cystic fibrosis and other pulmonary diseases.
We are continuing strategic partnership discussions with biotechnology and pharmaceutical
companies regarding the further clinical development of all of our product candidates.
During 2009, we completed a Phase 1 clinical trial evaluating the safety of RGN-352 in 60
healthy subjects. Based on the results of this Phase 1 trial and extensive preclinical efficacy
data published in peer-reviewed journals, we initiated a Phase 2 clinical trial in the second half
of 2010 to evaluate RGN-352s ability to salvage and regenerate damaged cardiac tissue and improve
cardiac function after an acute myocardial infarction, or AMI, commonly known as a heart attack.
Additionally, recent preclinical research published in the scientific journals Neuroscience
and the Journal of Neurosurgery indicate that RGN-352 may prove useful for patients with multiple
sclerosis, or MS, as well as stroke and traumatic brain injury. In these studies, the
administration of Tß4 resulted in regeneration of neuronal tissue and improvement of neurological
function. Based on this preclinical research, we intend to support a proposed Phase 1/2 clinical
trial to be conducted at a major U.S. medical center under a physician-sponsored investigational
new drug application, or IND, in order to evaluate the therapeutic potential of RGN-352 in patients
with MS. We are planning to supply RGN-352 and provide clinical and regulatory guidance for the
trial.
We are supporting a physician-sponsored clinical trial in patients with dry eye secondary to
graft versus host disease, or GvHD, in order to evaluate RGN-259s ability to repair and regenerate
damaged ophthalmic tissues. Our support includes manufacturing and supplying RGN-259 for the trial
and providing regulatory and clinical guidance. We are continuing to collaborate with the U.S.
military to evaluate the potential of RGN-259 to prevent or reduce eye damage caused by chemical
warfare agents.
We are evaluating the use of RGN-137 in the treatment of patients with epidermolysis bullosa,
or EB, which is a genetic defect that results in fragile skin and other epithelial tissues that can
blister at the slightest trauma or friction, creating a wound that at times does not heal or heals
poorly. A portion of this trial was funded by a grant from the U.S. Food and Drug Administration,
or FDA. Despite the small patient population with EB, we continue to enroll patients in this Phase
2 trial and expect to complete the trial in 2011. Once we complete our Phase 2 EB trial, we will
analyze the data in conjunction with our two other completed Phase 2 trials of RGN-137, along with
preclinical data indicating Tß4s ability to reduce scarring, at which time we will further
evaluate our strategy for the clinical development of RGN-137.
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In addition to our four pharmaceutical product candidates, we are also pursuing the commercial
development of peptide fragments and derivatives of Tß4 for potential cosmeceutical use. These
fragments are amino acid sequences, and variations thereof, within the Tß4 molecule that have
demonstrated activity in several in vitro preclinical research studies that we have sponsored. We
believe the biological activities of these fragments may be useful, for example, in developing
novel cosmeceutical products for the anti-aging market. Our strategy is to enter into a
collaboration with another company to develop cosmeceutical formulations based on these peptides.
As of the date of this prospectus, we believe we have sufficient liquidity and capital
resources to fund our operations, including our ongoing clinical trials and other research
initiatives, into the second half of 2011, without giving effect to any potential sales of our
common stock under the Purchase Agreement or any other sources of capital. During 2011 we believe
that we will be able to complete our ongoing Phase 2 trial of RGN-137 in EB patients and also
expect to be able to conduct a portion of our Phase 2 AMI trial for RGN-352 and to support portions
of the physician-sponsored Phase 2 GvHD trial for RGN-259 and the proposed Phase 1/2 trial of
RGN-352 for multiple sclerosis patients. However, we will need substantial additional funds in
order to initiate and complete further clinical trials beyond those currently contemplated and to
continue to fund our operations.
Financial Operations Overview
We have never generated product revenues, and we do not expect to generate product revenues
until the FDA approves one of our product candidates, if ever, and we begin marketing it. Subject
to the availability of financing, we expect to invest increasingly significant amounts in the
furtherance of our current clinical programs and may add additional nonclinical studies and new
clinical trials as we explore the potential of our current product candidates in other indications
and explore new formulations of Tß4-based product candidates. As we expand our clinical development
initiatives, we expect to incur substantial and increasing losses. Accordingly, we will need to
generate significant product revenues in order to ultimately achieve and then maintain
profitability. Also, we expect that we will need to raise substantial additional capital in order
to meet product development requirements. We cannot assure investors that such capital will be
available when needed, on acceptable terms, or at all.
Most of our expenditures to date have been for research and development, or R&D, activities
and general and administrative, or G&A, activities. R&D costs include all of the wholly-allocable
costs associated with our various clinical programs passed through to us by our outsourced vendors.
Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product
candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology,
safety and pharmacokinetic studies, clinical trial management, medical oversight, laboratory
evaluations, statistical data analysis, regulatory compliance, quality assurance and other related
activities. R&D includes cash and non-cash compensation, employee benefits, travel and other
miscellaneous costs of our internal R&D personnel, seven persons in total, who are wholly dedicated
either on a full or part-time basis to R&D efforts. R&D also includes a proration of our common
infrastructure costs for office space and communications. We expense our R&D costs as they are
incurred.
R&D expenditures are subject to the risks and uncertainties associated with clinical trials
and the FDA review and approval process. As a result, these expenses could exceed our expectations,
possibly materially. We are uncertain as to what we will incur in future research and development
costs for our clinical studies, as these amounts are subject to the outcome of current studies,
managements continuing assessment of the economics of each individual research and development
project and the internal competition for project funding. As described below under Sources of
Liquidity, in May 2010 we were awarded a grant from the National Institutes of Health, or NIH, to
support the development of RGN-352. Subject to our compliance with the terms and conditions of the
grant, we are eligible to receive up to $3.0 million over a three-year period in cost
reimbursements related to the purposes set forth in the grant.
G&A costs include outside professional fees for legal, business development, audit and
accounting services. G&A also includes cash and non-cash compensation, employee benefits, travel
and other miscellaneous costs of our internal G&A personnel, three in total, who are wholly
dedicated to G&A efforts. G&A also includes a proration of our common infrastructure costs for
office space, and communications.
Our G&A expenses also include costs to maintain our intellectual property portfolio. We have
expanded our patent prosecution activities and have been reviewing our pending patent applications
in the United States, Europe and other countries with the advice of outside legal counsel. In some
cases, we have filed patent applications for non-critical strategic purposes intended to prevent
others from filing similar patent claims. We continue to closely monitor our patent applications to
determine if they will continue to provide strategic benefits. In cases where we believe the
benefit has been realized or it becomes unnecessary due to the issuance of other patents, or for
other reasons that will not affect the strength of our intellectual property portfolio, we will
abandon these patent applications in order to reduce our costs of prosecution.
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Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally
accepted in the United States. Such accounting principles require that our management make
estimates and assumptions that affect the amounts reported in our financial statements and
accompanying notes. Our actual results could differ materially from those estimates. The items in
our financial statements that have required us to make significant estimates and judgments are as
follows:
Share-Based Payment
We account for share-based compensation based on the estimated grant date fair value of the
award using the Black-Scholes option-pricing model. The estimated grant date fair value is
recognized over the requisite service period.
Determining the appropriate fair value model and calculating the fair value of share-based
payment awards require the input of highly subjective assumptions, including the expected life of
the share-based payment awards and stock price volatility. Since our historical data is limited,
the expected life was determined in accordance with SEC Staff Accounting Bulletin No. 107 guidance
for plain vanilla options. Since our historical trading volume is relatively low, we estimated
the expected volatility based on monthly closing prices for a period consistent with the expected
life of the option.
The assumptions used in calculating the fair value of share-based payment awards represent
managements best estimates, but these estimates involve inherent uncertainties and the application
of management judgment. As a result, if factors change and we use different assumptions, our
stock-based compensation expense could be materially different in the future. In addition, we are
required to estimate the expected forfeiture rate and only recognize expense for those shares
expected to vest. If our actual forfeiture rate is materially different from our estimate, the
stock-based compensation expense could be significantly different from what we have recorded in the
current period. See Note 2 to our financial statements included in this prospectus for a further
discussion on stock-based compensation and the relative ranges of our historical underlying
assumptions.
Costs of Preclinical Studies and Clinical Trials
We accrue estimated costs for preclinical studies and clinical trials conducted by contract
research organizations and participating hospitals. These costs are a significant component of
research and development expenses. We accrue costs for preclinical studies and clinical trials
performed by contract research organizations based on estimates of work performed under the
contracts. Costs of setting up hospital sites for participation in trials are accrued immediately.
Hospital costs related to patient enrollment are accrued as patients are entered in the trial.
Recent Accounting Pronouncements
In April 2010, the Financial Accounting Standards Board issued Accounting Standards Update, or
ASU, No. 2010-17, Revenue RecognitionMilestone Method, which provides guidance on defining a
milestone and determining when it may be appropriate to apply the milestone method of revenue
recognition for research or development transactions. Research or development arrangements
frequently include payment provisions whereby all or a portion of the consideration is contingent
upon milestone events such as successful completion of phases in a study or achieving a specific
result from the research or development efforts. The amendments in this ASU provide guidance on the
criteria that should be met for determining whether the milestone method of revenue recognition is
appropriate. The ASU is effective for fiscal years and interim periods within those years beginning
on or after June 15, 2010, with early adoption permitted. The adoption of ASU No. 2010-17 is not
expected to have a material impact on our financial position, results of operations or cash flows.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into
law. This legislation includes an exemption for companies with less than $75 million in market
capitalization from the requirement set forth in Section 404(b) of the Sarbanes-Oxley Act of 2002
to include an external auditors report on the effectiveness of a registrants internal control
over financial reporting. As a result of the new legislation, our independent registered public
accounting firm will not be required to issue an attestation report with respect to our internal
control over financial reporting. However, we will continue to be subject to the requirement of
Section 404 of the Sarbanes-Oxley Act of 2002 for our management to make an annual assessment of
the effectiveness of our internal control over financial reporting.
Results of Operations
Comparison of the nine months ended September 30, 2010 and 2009
Revenue. We recognized approximately $54,000 in revenue for the nine months ended September
30, 2010 from the NIH
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grant awarded in May 2010. The revenue recognized was based on the costs incurred during the
period related to this grant. There were no revenue-generating grants or other sources of revenue
during 2009.
R&D Expenses. For the nine months ended September 30, 2010, our R&D expenses decreased by
approximately $1.3 million, or 41%, to approximately $1.8 million, from approximately $3.1 million
for the same period in 2009. The decrease was primarily the result of reduced clinical activity in
2010 as compared to 2009. During the nine months ended September 30, 2009, we concluded our Phase 2
clinical trials evaluating RGN-137 in patients with pressure ulcers and venous stasis ulcers, as
well as the clinical portion of our Phase 1 trial evaluating the safety of RGN-352 in healthy
subjects. We also terminated our Phase 2 clinical trial evaluating the safety and efficacy of
RGN-259 to treat diabetic patients whose corneal epithelium had been scraped during vitrectomy
surgery. Offsetting these cost reductions we initiated several research activities, including drug
formulation and other preparatory work for our Phase 2 clinical trial with AMI patients, our Phase
2 clinical trial with GvHD patients and two pre-clinical dry eye studies.
G&A Expenses. For the nine months ended September 30, 2010, our G&A expenses increased by
approximately $200,000, or 9%, to approximately $2.4 million from approximately $2.2 million for
the same period in 2009. This net change included increases of approximately $310,000 in support of
our intellectual property portfolio, approximately $55,000 primarily due to the engagement of an
outside investor relations firm and other investor relations activities, approximately $10,000 in
additional compensation costs, and approximately $8,000 in additional insurance premiums. These
increases were offset by a reduction in legal and other outside consulting costs of approximately
$183,000.
Comparison of years ended December 31, 2009 and 2008
Revenue. For the year ended December 31, 2009, grant revenue was $0 compared to approximately
$168,000 for the year ended December 31, 2008 as our grant from the NIH for the trial of RGN-137 to
treat the orphan indication EB was exhausted. We do not expect to receive additional funding for
this trial.
R&D Expenses. For the year ended December 31, 2009, our R&D expenditures decreased by
approximately $3.4 million, or 48%, to approximately $3.7 million, from approximately $7.1 million
in 2008. Our outsourced R&D costs, which are costs paid directly to contract research
organizations and outside consultants, decreased by approximately $2.9 million, or 58%, to
approximately $2.1 million, from approximately $5.0 million. This net decrease is directly related
to the conclusion of several clinical trials in late 2008 and early 2009.
Throughout 2008 we were actively enrolling our Phase 2 trials of RGN-137 to treat patients
with pressure ulcers as well as EB. Having completed enrollment of our Phase 2 pressure ulcer trial
at the end of 2008, we incurred relatively less cost in early 2009 to evaluate the trials data and
report the information, while our Phase 2 EB trial continued enrollment throughout both periods.
Consequently, our R&D expenditures for RGN-137 decreased by approximately $1.3 million, or 89%, to
approximately $0.2 million, from approximately $1.5 million in 2008.
Regarding RGN-352, we completed the majority of work associated with a Phase 1 safety trial in
2008 including the initiation and completion of a Phase 1A portion with 40 healthy volunteers
followed by the initiation and treatment of approximately 30 healthy volunteers in Phase 1B. During
2009, only a relatively minor portion of clinical activity on Phase 1B occurred for the remaining
10 healthy volunteers, along with that phases data evaluation and wrap up. Consequently, our R&D
expenditures for RGN-352 decreased by approximately $1.2 million, or 65%, to approximately $0.6
million, from approximately $1.8 million in 2008.
Regarding RGN-259, during 2008 we were actively enrolling our Phase 2 trial to treat diabetic
patients whose corneal epithelium was scraped during vitrectomy surgery. In January 2009 we
completed enrollment of the first cohort of our Phase 2 diabetic vitrectomy study and terminated
the trial. Consequently, our R&D expenditures for RGN-259 decreased by approximately $0.1 million,
or 15%, to approximately $0.8 million, from approximately $0.9 million in 2008.
Some of our outsourced R&D costs are for various miscellaneous development efforts or are for
certain services that span several formulations or trials. These include certain stability,
pharmacokinetic, and medical monitoring services. Given the overall decrease in clinical activity
between years, these costs decreased by approximately $0.3 million, or 35%, to approximately $0.5
million, from approximately $0.8 million in 2008.
Our internal R&D costs decreased by approximately $0.5 million, or 25%, to approximately $1.6
million, from approximately $2.1 million. We implemented a salary reduction program for six months
of 2009. Additionally, we reduced our R&D headcount by one person during the year and some of our
R&D personnel only worked part time during a portion of 2009. We also increased our forfeiture
assumption for stock options, which reduced the employee-related non-cash stock-based compensation
expense associated with the grant of stock options. In combination, these variances yielded a
decrease in
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our cost of employment for our R&D personnel of approximately $0.4 million, or 23%, to
approximately $1.4 million, from approximately $1.8 million in 2008. Our other cost cutting
measures as well as a reduction in travel associated with less clinical activity yielded a decrease
in our other internal R&D costs of approximately $0.1 million, or 35%, to approximately $0.2
million, from approximately $0.3 million in 2008.
G&A Expenses. For the year ended December 31, 2009, our G&A expenses decreased by
approximately $1.0 million, or 27%, to approximately $2.8 million, from approximately $3.8 million
in 2008. The combination of our 2009 salary reduction program and reductions in stock-based
compensation expense resulting from changes in forfeiture assumptions yielded a decrease in our G&A
personnel expenses of approximately $0.5 million, or 32%, to approximately $0.9 million, from
approximately $1.4 million in 2008. We also reduced our outside accounting, legal and business
development personnel costs by $0.5 million, or 28%, to approximately $1.5 million, from
approximately $2.0 million in 2008. Our other G&A costs for facilities, investor relations,
insurance, and travel remained consistent between years at approximately $0.4 million.
Interest Income. For the year ended December 31, 2009, our interest income decreased by
$137,000, or 92%, to approximately $12,000, from approximately $150,000 in 2008. The decrease was
due to lower average interest-bearing cash balances during 2009.
Liquidity and Capital Resources
Overview
We have not commercialized any of our product candidates to date and have incurred significant
losses since inception. We have primarily financed our operations through the issuance of common
stock and common stock warrants in private and public financings, although as discussed below we
have recently been awarded government grants and will continue to pursue other governmental funding
sources. The report of our independent registered public accounting firm regarding our financial
statements for the year ended December 31, 2009 contains an explanatory paragraph regarding our
ability to continue as a going concern based upon our history of net losses and dependence on
future financing in order to meet our planned operating activities.
We incurred net losses of $6.5 million for the year ended December 31, 2009 and $4.1 million
for the nine months ended September 30, 2010. We had cash and cash equivalents totaling $5.0
million and $4.4 million at September 30, 2010 and December 31, 2009, respectively. The increase
during the nine months ended September 30, 2010 resulted from the sale of shares of our common
stock and warrants to purchase shares of our common stock, partially offset by our net loss during
the period. As of September 30, 2010, we had an accumulated deficit of $88.6 million.
Based on our current operations, we believe our existing cash resources will be adequate to
fund our operations into the second half of 2011, without considering any potential sales to
Lincoln Park under the Purchase Agreement or any other sources of capital. Accordingly, we will
continue to have a need for financing, which we may not be able to complete either on favorable
terms or at all.
Cash Flows for the Nine Months Ended September 30, 2010 and 2009
Our net cash used in operating activities was approximately $3.9 million and $5.1 million for
the nine months ended September 30, 2010 and 2009, respectively. In both periods, the net cash used
in operating activities was primarily the result of our net losses during the periods. Included in
these net losses were non-cash expenses related to employee stock compensation and depreciation of
approximately $369,000 and $620,000 for the nine months ended September 30, 2010 and 2009,
respectively. Also included in the net loss for the nine months ended September 30, 2010 was a
$141,000 non-cash gain upon the settlement of accrued liabilities. Finally, changes in working
capital resulted in net cash inflows of approximately $15,000 during the nine months ended
September 30, 2010, as opposed to net cash outflows of $525,000 during the nine months ended
September 30, 2009. During the nine months ended September 30, 2010, we spent approximately $24,000
for the purchase of furniture and equipment, which was our only investing activity during the
period, and there were no investing activities during the same period of 2009. During the nine
months ended September 30, 2010, we raised net cash proceeds of approximately $4.5 million from the
sale of units in a public offering. During the same period of 2009, we raised approximately
$574,000 in net proceeds from a private placement of our common stock and warrants.
Cash Flows for the Years Ended December 31, 2009 and 2008
Our net cash used in operating activities was approximately $6.2 million and $10.6 million for
the years ended December 31, 2009 and 2008, respectively. While our reported net loss for the year
ended December 31, 2009 was approximately $6.5 million, it included approximately $0.8 million in
non-cash expenses, primarily non-cash share-based compensation, which
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was offset by approximately $0.5 million of cash used to retire current liabilities as
compared to the liabilities reported as of December 31, 2008. Our net loss in 2008 of $10.6 million
approximated the net cash used in operating activities in the same period as the non-cash share
based compensation expenses of approximately $1.1 million were fully offset by a similar reduction
in liabilities as compared to those reported as of December 31, 2007. Our net cash provided by
investing activities was approximately $0 and approximately $4.6 million for the years ended
December 31, 2009 and 2008, respectively. In early 2008 we sold all of our short-term,
highly-liquid, investment-grade financial instruments that had more than a 90-day maturity from the
date of purchase and invested the proceeds in cash-equivalents. Our net cash provided by financing
activities totaled approximately $4.9 million and $7.9 million for the years ended December 31,
2009 and 2008, respectively. In both periods, these net proceeds result from the issuance of common
stock and warrants to purchase common stock.
Future Funding Requirements
The expenditures that will be necessary to execute our business plan are subject to numerous
uncertainties that may adversely affect our liquidity and capital resources. Currently, we are
actively enrolling patients in a Phase 2 trial for RGN-137 in EB patients and a Phase 2 clinical
trial of RGN-352 for AMI patients. We are also supporting a physician-sponsored Phase 2 clinical
trial of RGN-259 in patients with dry eye secondary to GvHD, and a planned Phase 1/2 clinical trial
of RGN-352 for MS patients. We currently have sufficient capital resources to continue clinical
development into the second half of 2011, without giving effect any sales to Lincoln Park under the
Purchase Agreement, but will require substantial capital resources to continue operations beyond
that time.
The length of time required for clinical trials varies substantially according to the type,
complexity, novelty and intended use of a product candidate. Some of the factors that could impact
our liquidity and capital needs include, but are not limited to:
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the progress of our research activities; |
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the number and scope of our research programs; |
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the progress of our preclinical development activities; |
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the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent
and other intellectual property claims; |
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the costs related to development and manufacture of preclinical, clinical and validation lots for
regulatory purposes and commercialization of drug supply associated with our product candidates; |
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our ability to enter into corporate collaborations and the terms and success of these collaborations; |
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the costs and timing of regulatory approvals; and |
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In addition, the duration and the cost of clinical trials may vary significantly over the life
of a project as a result of differences arising during the clinical trial protocol, including,
among others, the following:
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the number of patients that ultimately participate in the trial; |
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the duration of patient follow-up that seems appropriate in view of the results; |
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the number of clinical sites included in the trials; and |
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the length of time required to enroll suitable patient subjects. |
Also, we test our potential product candidates in numerous preclinical studies to identify
indications for which they may be product candidates. We may conduct multiple clinical trials to
cover a variety of indications for each product candidate. As we obtain results from trials, we may
elect to discontinue clinical trials for certain product candidates or for certain indications in
order to focus our resources on more promising product candidates or indications.
Our proprietary product candidates also have not yet achieved FDA regulatory approval, which
is required before we can
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market them as therapeutic products. In order to proceed to subsequent clinical trial stages
and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data
establish safety and efficacy. Historically, the results from preclinical studies and early
clinical trials have often not been predictive of results obtained in later clinical trials. A
number of new drugs and biologics have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.
In addition to our obligations under clinical trials, we are committed under an office space
lease through January 2013 that requires average base rental payments of approximately $7,300 per
month.
Sources of Liquidity
We have not commercialized any of our product candidates to date and have primarily financed
our operations through the issuance of common stock and common stock warrants in private and public
financings. Sigma-Tau has historically provided significant equity capital to us, including through
private placements of $950,000 in January 2011 and $1.6 million in October 2009. In January 2011,
we also raised $500,000 from a registered direct offering of our securities to Lincoln Park.
During the first half of 2010, we raised approximately $4.5 million from an underwritten public
offering of our securities, and during 2009, we raised approximately $3.7 million from a registered
direct offering of our securities.
In January 2011, we also entered into the Purchase Agreement with Lincoln Park. We have filed
a registration statement, of which this prospectus is a part, with regard to the resale by Lincoln
Park of the common stock issuable under the Purchase Agreement. We do not have the right to
commence any sales of our shares to Lincoln Park until the SEC has declared the registration
statement effective. Thereafter, over approximately 30 months, we have the right but not the
obligation to direct Lincoln Park to purchase up to 200,000 shares of common stock every third
business day at a purchase price calculated by reference to the prevailing market price of our
common stock without any fixed discount, subject to the floor price of $0.15 per share. We may sell
up to $11,000,000 worth of shares under the Purchase Agreement. There are no trading volume
requirements or restrictions under the Purchase Agreement, and we will control the timing and
amount of any sales of our common stock to Lincoln Park. Lincoln Park has no right to require any
sales by us, but is obligated to make purchases from us as we direct in accordance with the
Purchase Agreement. We can also accelerate the amount of common stock to be purchased under certain
circumstances. There are no limitations on use of proceeds, financial or business covenants,
restrictions on future funding, rights of first refusal, participation rights, penalties or
liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by us at any
time, at our discretion, without any penalty or cost to us.
Lincoln Park may not assign or transfer its rights and obligations
under the Purchase Agreement.
We are also party to a license agreement with Sigma-Tau that provides the opportunity for us
to receive milestone payments upon specified events and royalty payments in connection with
commercial sales of Tß4 in Europe. However, we have not received any milestone payments to date,
and there can be no assurance that we will be able to attain such milestones and generate any such
payments under the agreement.
We are also aggressively pursuing government funding and in May 2010 were awarded a grant from
the NIHs National Heart, Lung and Blood Institute to support the requisite nonclinical development
of RGN-352 for patients who have suffered a heart attack. These nonclinical activities are being
conducted in parallel with our ongoing Phase 2 clinical trial of RGN-352. Subject to our compliance
with the terms and conditions of the grant, we are eligible to receive up to $3.0 million over a
three-year period in cost reimbursements for our associated costs incurred for the purposes set
forth in the grant. Revenue from the grant will be recorded during the same periods when we incur
eligible expenses.
The Patient Protection and Affordable Care Act enacted in 2010 included a new incentive for
biotechnology companies like ours, known as the Qualifying Therapeutic Discovery Project grant
program. Under this program, small businesses were able to apply for a federal grant in an amount
equal to 50% of their eligible investment in qualifying therapeutic discovery projects for 2009 and
2010. Qualifying therapeutic discovery projects included those designed to treat or prevent
diseases or conditions by conducting pre-clinical or clinical activities for the purpose of
securing FDA approval of a product. We submitted three applications, covering each of our
clinical-stage product candidates, and in October 2010 were awarded an aggregate of $733,438 under
this program.
Additionally, the U.S. government is evaluating RGN-259, our sterile eye drop formulation, in
animals exposed to chemical warfare agents. We believe our other formulations may also be of
interest in healing damaged tissues for indications that result from battlefield or homeland
security situations. As such, we have engaged a consulting firm to help us identify other sources
of funding from U.S. government agencies. There can be no assurance, however, that we will be able
to secure additional funds from the U.S. government or other governmental sources.
Other potential sources of outside capital include entering into strategic business
relationships, additional issuances of
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equity securities or debt financing or other similar financial instruments. If we raise
additional capital through a strategic business relationship, we may have to give up valuable
rights to our intellectual property. If we raise funds by selling additional shares of our common
stock or securities convertible into our common stock, the ownership interest of our existing
stockholders may be significantly diluted. In addition, if additional funds are raised through the
issuance of preferred stock or debt securities, these securities are likely to have rights,
preferences and privileges senior to our common stock and may involve significant fees, interest
expense, restrictive covenants and the granting of security interests in our assets.
Our failure to successfully address ongoing liquidity requirements would have a materially
negative impact on our business, including the possibility of surrendering our rights to some
technologies or product opportunities, delaying our clinical trials, or ceasing operations. There
can be no assurance that we will be able to obtain additional capital in sufficient amounts, on
acceptable terms, or at all.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4)
of Regulation S-K.
Quantitative and Qualitative Disclosures about Market Risk
Our cash equivalents, which are generally comprised of Federally-insured bank deposits and
short-term U.S. government debt securities, are subject to default, changes in credit rating and
changes in market value. These investments are also subject to interest rate risk and will decrease
in value if market interest rates increase. As of September 30, 2010, these cash equivalents were
$3.2 million. Due to the short-term nature of these investments, if market interest rates differed
by 10% from their levels as of September 30, 2010, the change in fair value of our financial
instruments would not have been material.
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BUSINESS
General
We are a biopharmaceutical company focused on the development of a novel therapeutic
peptide, Tß4, for tissue and organ protection, repair, and regeneration. We have formulated Tß4
into three distinct product candidates currently in clinical development:
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RGN-352, an injectable product candidate to treat
cardiovascular diseases, central nervous system
diseases, and other medical indications that may be
treated by systemic administration, for which we
initiated a Phase 2 clinical trial in the second half
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RGN-259, a topical eye drop for ophthalmic
indications for which we are supporting a
physician-sponsored clinical trial in patients with
dry eye secondary to graft versus host disease, or
GvHD; and |
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RGN-137, a topically applied gel for chronic dermal
wounds and reduction of scar tissue that is currently
in a Phase 2 clinical trial for the treatment of the
skin defect epidermolysis bullosa, or EB. |
We have a fourth product candidate, RGN-457, in preclinical development. RGN-457 is
an inhaled formulation of Tß4 targeting cystic fibrosis and other pulmonary diseases.
In addition to our four pharmaceutical product candidates, we are also pursuing the commercial
development of peptide fragments and derivatives of Tß4 for cosmeceutical use. Cosmeceuticals are
cosmetic products with biologically active ingredients. We believe the biological activities of
these fragments may be useful, for example, in developing novel cosmeceutical products for the
anti-aging market.
Overview of Tß4
Tß4 is a naturally occurring 43-amino acid peptide that was originally isolated from bovine
thymus glands. It plays a vital role in cell structure and motility and in the protection,
regeneration, remodeling and healing of tissues.
Although it is recognized that wound healing is a complex process, most companies working to
develop new drugs in this area have focused primarily on the development of growth factors to
stimulate healing and have, to date, failed to demonstrate dramatic improvements in the healing
process. Unlike growth factors, numerous preclinical animal studies, published by independent
researchers, have identified several important biological activities involving Tß4 that we believe
make it potentially useful as a wound healing, repair and tissue regenerating agent. These
activities include:
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Progenitor (Stem) Cell Differentiation. Research published in the
journal Nature in November 2006 featured the discovery that Tß4 is the
key signaling molecule that triggers adult epicardial progenitor
cells, or EPCs, to differentiate into coronary blood vessels. EPCs are
partially differentiated stem cells that can further differentiate
into specific cell types when needed. Confirmatory research published
in 2009 in the Journal of Molecular and Cellular Cardiology concluded
that Tß4 is responsible for the initiation of the embryonic coronary
developmental program and EPC differentiation in adult mice. These
publications confirm that Tß4s interaction with EPCs is necessary for
the maintenance of a healthy adult animal heart, as well as normal
fetal animal heart development. |
The 2006 Nature publication also concluded that Tß4s interaction with EPCs resulted in the
formation of cardiomyocytes that repaired damaged myocardium, or heart tissue, in mice after an
induced acute myocardial infarction, or AMI, commonly known as a heart attack. Research published
in the journal Circulation in April 2008 showed Tß4s cardioprotective effects in a pig
ischemic-reperfusion model. This pig model is accepted as an important model upon which to base
human clinical research, as pigs are larger mammals, the anatomy of the pig heart is similar to the
human heart, and vascular response processes are completed five to six times faster in pigs than in
humans, so that long-term results can be obtained in a relatively short period of time. This
research also identified Tß4s interaction with EPCs as the underlying basis of cardioprotection
through the differentiation of EPCs into cardiomyocytes, yielding statistically significant cardiac
functional recovery results when compared to the administration of placebo.
Similar research in the area of brain tissue was published in the journal Neuroscience in
September 2009. This publication concluded that Tß4 triggered the differentiation of
oligodendrocyte progenitor cells to form myelin-producing oligodendrocytes, which led to the
remyelination of axons in the brain of mice with experimental autoimmune
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encephalomyelitis, or EAE. This mouse model is an accepted small animal model for the study of
multiple sclerosis.
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Actin Regulation. Tß4 regulates actin, which
comprises up to 10% of the protein of non-muscle
cells in the body and plays a central role in cell
structure and in the movement of cells. Research
studies have indicated that Tß4 stimulates the
migration of human keratinocytes, or skin cells,
human endothelial cells, and progenitor cells.
Endothelial cells are the major cell type
responsible for the formation of new blood
vessels, a process known as angiogenesis. Certain
of these studies conducted at the NIH were the
first to suggest the role of Tß4 in wound healing.
The data from these studies encouraged us to
license the rights to Tß4 from the NIH in 2001 and
to launch an initial clinical development program
that targeted the use Tß4 for chronic dermal
wounds. |
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Reduction of Inflammation. Uncontrolled
inflammation is the underlying basis of many
pathologies and injuries. Research has shown that
Tß4 is a potent anti-inflammatory agent in skin
cells and in corneal epithelial cells in the eye.
Tß4 has also been shown to decrease the levels of
inflammatory mediators and to significantly reduce
the influx of inflammatory cells in the reperfused
heart of animals. More recent preclinical research
suggests that Tß4 blocks activation of the NFкB
pathway, which is involved in DNA activation of
inflammatory mediators, thereby modulating
inflammation in the body. This anti-inflammatory
activity may explain, in part, the mechanism by
which Tß4 appeared to improve functional outcome
in the mouse multiple sclerosis model described
above, as well as promoting repair in the heart
and skin. Identifying a factor such as Tß4 that
blocks activation of NFкB suggests that Tß4 could
have additional important therapeutic applications
for inflammation-related diseases, such as cancer,
osteoarthritis, rheumatic diseases, autoimmune
diseases, inflammatory pulmonary disease and
pancreatitis. |
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Collagen and Laminin-5 Stimulation. Tß4 has a
number of additional biological activities shown
to reduce inflammation, stimulate the formation of
collagen, and up-regulate the expression of
laminin-5, a subepithelial basement membrane
protein. Both collagen and laminin-5 are central
to healthy tissue and the prevention of disease. |
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Apoptosis. Tß4 has been shown to prevent
apoptosis, or programmed cell death, in two animal
models and in two tissue types. In the rodent
model, corneal apoptosis, or loss of corneal
epithelial cells leading to corneal epithelial
thinning, was prevented through topical
administration of Tß4, and in the heart muscle of
ischemic animal models, such as in mice and pigs,
cell death was prevented by the systemic
administration of Tß4. |
In combination, we believe that these various biological activities work together to
play a vital role in the healing and repair of injured or damaged tissue and suggest that Tß4 is an
essential component of the tissue protection and regeneration process that may lead to many
potential medical applications. All of our product candidates are based on Tß4, manufactured as a
synthetic copy of the naturally occurring peptide and formulated for various routes of
administration and applications.
Our Product Candidates
RGN-352
Our product candidate RGN-352 is an injectable formulation of Tß4 for systemic administration.
We have initially targeted RGN-352 for patients who have suffered an AMI. Preclinical research
published in the scientific journal Nature has indicated that Tß4 can guide specific types of stem
cells from the outer layer of the heart to generate new myocardial blood vessels and tissue at
injured sites.
Clinical Development. In 2009, we completed a Phase 1 clinical trial evaluating the safety,
tolerability and the pharmacokinetics of the intravenous administration of RGN-352. We also
designed this trial to explore the use of RGN-352 in other indications in which acute
administration of Tß4 may be warranted. We conducted the Phase 1 trial in two consecutive parts,
referred to as Phase 1A and Phase 1B, both of which were double-blind, placebo-controlled, and
dose-escalating over four doses. We enrolled a total of 60 healthy subjects in the trial,
consisting of 40 subjects in each phase, of which 20 subjects participated in both phases. In Phase
1A, we evaluated a single administration of RGN-352, and in Phase 1B we evaluated once daily
administration for 14 consecutive days.
In September 2008, we reported the results of Phase 1A. The single intravenous injection of
RGN-352 was well-tolerated at all four dose levels. In December 2009, we reported the results of
Phase 1B. A daily intravenous injection of RGN-352 for 14 consecutive days was also observed to be
well-tolerated at all four dose levels. There were no reported dose-limiting adverse events in
either Phase 1A or Phase 1B.
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Future Plans. Based on the results of the Phase 1 trial, we initiated a Phase 2 clinical
trial in the second half of 2010 to evaluate RGN-352 in patients who have suffered an AMI. We have
designed this trial to observe RGN-352s cardioprotective effects and its ability to salvage and
regenerate damaged cardiac tissue and improve cardiac function after a heart attack. In May 2010,
we were awarded a $3 million grant from the NIHs Blood, Heart and Lung Institute to support the
further development of RGN-352. We expect that the Phase 2 trial design will allow for an interim
review of patient data from an initial group of evaluated patients. Depending on our capital
resources, we may conduct the trial while continuing strategic partnership discussions with
biotechnology and pharmaceutical companies for the further clinical development of RGN-352.
Recent preclinical research published in the scientific journals Neuroscience and Journal of
Neurosurgery also indicates that RGN-352 may prove useful for patients with multiple sclerosis, or
MS, as well as stroke and traumatic brain injury. In these studies, the administration of Tß4
resulted in regeneration of neuronal tissue and improvement of neurological function. Based on this
research, we intend to support a proposed Phase 1/2 clinical trial to be conducted at a major U.S.
medical center under a physician-sponsored IND in order to evaluate the therapeutic potential of
RGN-352 in patients with MS. We are planning to supply RGN-352 and provide clinical and regulatory
guidance for the trial. We believe that we can support this trial from our existing capital
resources, although we intend to use a portion of the proceeds from this offering to provide
additional support.
RGN-259
Our product candidate RGN-259 is a sterile topical eye drop formulation of Tß4 for ophthalmic
indications.
Clinical Development. Emerging human clinical data from two compassionate use studies have
demonstrated the ability of RGN-259 to repair and regenerate corneal tissue. In the first
compassionate study, a middle-aged diabetic woman had undergone corneal epithelial debridement
during surgery. The resultant corneal defect had not healed for 23 days prior to treatment with
RGN-259. Typically, these wounds heal within a few days after surgery. Following treatment with
RGN-259, the patient experienced reduced ocular irritation and the wound fully healed within 11
days.
In the second compassionate use study, a corneal specialist treated nine patients divided into
two groups. The first group consisted of six patients with a single non-healing eye ulcer
resulting from neurotrophic keratitis, or NK, a rare degenerative corneal disease commonly caused
by the herpes zoster virus and induced by a nerve impairment resulting in painful corneal lesions
that can lead to blindness. The NK patients evaluated had defects that had not healed for at least
six weeks and in some cases for several years. The second group consisted of three patients with
diffuse punctate erosions, corneal defects that appear as numerous small pinhole-sized lesions.
All nine patients were treated with RGN-259 for periods of up to 49 days. The six NK patients
with single non-healing ulcers showed clinically significant improvement during the treatment with
RGN-259 and the follow-up period, with four of the six patients healing completely. The completely
healed ulcers remained healed during the follow-up period, and those that had demonstrated
significant improvement continued to improve after completion of treatment with RGN-259. The three
patients with diffuse punctate erosions demonstrated no significant improvement, although they did
report reduced ocular irritation.
We had previously initiated a Phase 2 clinical trial to evaluate RGN-259 in diabetic patients
undergoing corneal epithelial debridement, or removal of the outer transparent tissue layer of the
front part of the eye, during vitrectomy surgery. In this randomized, double-blind,
placebo-controlled, dose-response trial conducted at several U.S. clinical sites, we originally
intended to evaluate the safety, tolerability, and healing efficacy of three different
concentrations of RGN-259 compared to placebo, applied as eye drops, four times daily for up to 14
consecutive days.
While we did not view this particular ophthalmic indication as a significant commercial
opportunity, we believed that it represented a proof-of-concept clinical model to evaluate the
safety and efficacy of RGN-259 for the treatment of corneal indications. We intended to obtain
initial data that could be used to address other ophthalmic indications with larger market
potential. Patient enrollment in the trial was significantly slower than anticipated due to newer
surgical techniques and equipment that reduced the need for corneal epithelial debridement required
for the trial. We closed the trial in January 2009, after completion of the first low-dose cohort
of 12 patients, in order to focus our research on other commercial opportunities. The encouraging
compassionate use data described above, which we received during the course of the trial, also
influenced our decision to close the trial earlier than originally intended.
In the 12 patients evaluated in the trial, there were no reported drug-related adverse events
associated with RGN-259. We observed increased corneal epithelial thickening and reduced cell
flare and inflammation in the low-dose patients treated with RGN-259 as compared to patients
receiving placebo, which we believe to be indicative of corneal re-epithelialization and healing.
None of the results from the trial are considered to be statistically significant.
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In all patients treated to date, RGN-259 has been well-tolerated, and there have been no
drug-related adverse events. Based on these preliminary findings, we believe that RGN-259 may
provide a novel approach to the treatment of patients with corneal defects.
Future Plans. We are supporting a physician-sponsored clinical trial in patients with dry
eye secondary to GvHD in order to gain further insight into RGN-259s ability to repair and
regenerate ophthalmic tissues. Our support includes manufacturing and supplying RGN-259 for the
trial and providing regulatory and clinical guidance. We are continuing to collaborate with the
U.S. military to evaluate the potential of RGN-259 to prevent or reduce eye damage caused by
chemical warfare agents. We are also engaged in discussions with potential partners regarding the
clinical development of this product candidate. Once enough human data is generated, we intend to
seek strategic partnerships with one or more ophthalmic specialty companies.
RGN-137
Our product candidate RGN-137 is a topical gel formulation of Tß4 intended to promote dermal
wound healing and tissue regeneration. Preclinical research has demonstrated that Tß4 can
accelerate dermal regeneration after a wound, while more recent research indicates that Tß4 can
reduce scarring after injury in the skin and heart. Based on research conducted at the NIH, we
initiated a series of Phase 2 clinical trials to evaluate RGN-137 for the treatment of three
different types of skin wounds.
Clinical Development Epidermolysis Bullosa. In 2005, we began enrolling patients in a
Phase 2 trial designed to assess the safety and effectiveness of RGN-137 for the treatment of
patients with EB. EB is a genetic defect that results in fragile skin and other epidermal tissues
that can blister at the slightest trauma or friction, creating a wound that at times does not heal
or heals poorly. In this randomized, double-blind, placebo-controlled, dose-response trial, nine
U.S. clinical sites are enrolling a total of 36 patients to evaluate the safety, tolerability, and
wound healing effectiveness of three different concentrations of RGN-137 compared to placebo.
RGN-137 is being applied topically to the skin, once daily for up to 56 consecutive days.
EB has been designated as an orphan indication by the FDA. We estimate the prevalence of EB
in the United States to be between 20,000 and 30,000 patients, with a subpopulation of
approximately 5,000 patients in the group eligible for inclusion in our Phase 2 clinical trial. We
received a grant of $681,000 from the FDAs Office of Orphan Products Development to partially fund
this trial. While enrollment has been difficult due to the small addressable patient population, we
currently expect to complete this trial in 2011.
Clinical Development Pressure Ulcers. In late 2005, we began enrolling patients in a Phase
2 clinical trial designed to assess the safety and effectiveness of RGN-137 for the treatment of
patients with chronic pressure ulcers, commonly known as bedsores. In this randomized,
double-blind, placebo-controlled, dose-response trial, 15 clinical sites in the United States
enrolled a total of 72 patients to evaluate the safety, tolerability, and wound healing
effectiveness of three different concentrations of RGN-137 compared to placebo. RGN-137 was applied
topically to the ulcers, once daily for up to 84 consecutive days. Patients in the trial were
between 19 and 85 years old and had at least one stable Stage III or IV pressure ulcer with a
surface area between 5 and 70 cm2. Stage III and IV pressure ulcers are full
thickness wounds that penetrate through the skin and muscle, sometimes completely to the bone.
In January 2009, we reported final data from this trial. RGN-137 was well-tolerated at all
three dose levels studied, with no dose-limiting adverse events, which achieved the primary
objective of the study. As for efficacy, all Tß4 doses performed similarly compared to placebo,
with no statistically significant efficacy results. Patients treated with the middle dose showed a
17% rate of wound healing, which was the highest rate among the three active doses evaluated. The
improvement in ulcer healing in this middle dose group following nine weeks of treatment was equal
to the improvement in patients treated with placebo after 12 weeks of treatment.
Clinical Development Venous Stasis Ulcers. In 2006, we began enrolling patients in a Phase
2 trial designed to assess the safety and effectiveness of RGN-137 for the treatment of patients
with venous stasis ulcers. In this randomized, double-blind dose-response trial, eight clinical
sites in Italy and Poland enrolled a total of 73 patients to evaluate the safety, tolerability, and
wound healing effectiveness of three different concentrations of RGN-137 compared to placebo.
RGN-137 was applied topically to the ulcers, once daily for up to 84 consecutive days. Patients in
the trial were between 18 to 79 years old and had at least one venous stasis ulcer with a surface
area between 3 and 30 cm 2 . We were the sponsor of the trial, and it was
conducted and funded by Sigma-Tau.
In March 2009, we reported final data from the trial. RGN-137 was well-tolerated at all three
dose levels, with no dose-limiting adverse events, which achieved the primary objective of the
study. Thirty-three percent (33%) of the patients who
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received the middle dose of RGN-137 had their ulcers heal completely after the 12 weeks of
treatment, compared to 24% of patients receiving the placebo, 16% of the patients receiving the
lowest drug dose and 17% of patients receiving the highest drug dose. Of the patients receiving the
middle dose whose ulcers healed completely, the median time to complete healing decreased by
approximately 45%, as compared to a 37% decrease in the time to healing for patients in the
placebo-treated group. None of the differences observed between RGN-137 and placebo were
statistically significant.
Future Plans. Once we complete our Phase 2 EB trial, we will analyze the data in conjunction
with our two other completed Phase 2 trials of RGN-137, along with preclinical data indicating
Tß4s ability to reduce scarring, at which time we will further evaluate our strategy for the
clinical development of RGN-137.
RGN-457
Our preclinical product candidate RGN-457 is based on Tß4 formulated as an inhaled therapeutic
agent. We have completed a substantial amount of preclinical work necessary for an IND application,
and we are currently seeking a strategic partner to assist in the development of RGN-457 for the
treatment of cystic fibrosis, or CF. CF is a life-threatening, hereditary disease that impairs the
patients ability to breathe due to the accumulation of mucus secretions in the airways of the
lungs. The predicted median age of survival for patients with cystic fibrosis is 37 years. There
are estimated to be approximately 30,000 CF patients in the United States and approximately 40,000
CF patients in Europe. It is therefore considered to be an orphan disease in both territories.
While we believe RGN-457 may prove beneficial in the treatment of CF, we remain focused primarily
on development of our other product candidates while we continue strategic partnership discussions
with respect to RGN-457.
Peptide Fragments for Cosmeceutical Applications
We are also seeking to identify and evaluate Tß4 peptide fragments and derivatives that may be
useful as novel components in cosmeceutical and consumer products. We have identified several amino
acid sequences, and variations thereof, within the Tß4 molecule that have demonstrated in vitro
activity in preclinical research studies that we have sponsored, and we have filed a number of
patent applications related to this research. We believe the biological activities of these
fragments may be useful, for example, in developing novel cosmeceutical products for the anti-aging
market. To date, research has suggested that these fragments suppress inflammation, accelerate the
deposition of certain types of collagen, promote the production of elastin, and inhibit programmed
cell death, among other activities. Our development and commercialization strategy is to identify
suitable commercial partners to license these novel fragments for various cosmeceutical
applications. We are currently holding discussions with several multinational cosmetics and
consumer products companies for potential collaborations to further develop and commercialize these
fragments.
Our Strategy
We seek to maximize the value of our product candidates by advancing their clinical
development and then identifying suitable partners for further development, regulatory approval,
and marketing. We intend to engage in strategic partnerships with companies with clinical
development and commercialization strengths in desired pharmaceutical therapeutic fields. We are
actively seeking partners with suitable infrastructure, expertise and a long-term initiative in our
medical fields of interest.
For example, in 2004, we entered into a strategic partnership with Defiante Farmaceutica S.A.,
or Defiante, a subsidiary of Sigma-Tau, for development and marketing of RGN-137 and RGN-352 for
specified indications in Europe and other contiguous countries. Sigma-Tau also funded and
co-managed our Phase 2 clinical trial of RGN-137 in Europe for the treatment of venous stasis
ulcers.
Manufacturing
We use a contract manufacturer to produce bulk Tß4 by an established and proven manufacturing
process known as solid-phase peptide synthesis, and we are in the early stages of qualifying backup
manufacturers. While we do not currently have long-term supply agreements in place, we intend to
establish a long-term supply arrangement with at least one manufacturer once practicable. No
assurance can be given, however, that such agreements will be negotiated on favorable terms, or at
all. Contractors are selected on the basis of their supply capability, ability to produce a drug
substance in accordance with current Good Manufacturing Practice requirements of the FDA, and
ability to meet our established specifications.
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We also use a number of outside contract manufacturers to formulate bulk Tß4 into our product
candidates. All of these formulations may require modifications along with additional studies as we
move through our clinical development programs.
Competition
We are engaged in a business that is highly competitive, and our target medical indications
are ones with significant unmet needs. Moreover, the cosmetic and cosmeceutical industries are
rapidly developing new products based on new scientific research. Consequently, there are many
enterprises, both domestic and foreign, pursuing therapies and products that could compete with
ours. Most of these entities have financial and human resources that are substantially greater than
ours, specifically with regard to the conduct of clinical research and development activities,
clinical testing and in obtaining the regulatory approvals necessary to market pharmaceutical
products. Brief descriptions of some of these competitive products follow:
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RGN-352. Currently, there are no approved
pharmaceutical products for regenerating cardiac
tissue following a heart attack, nor are there
approved pharmaceutical products for the
remyelination of axons for patients with multiple
sclerosis. However, many pharmaceutical companies and
research organizations are developing products and
technologies that are intended to prevent cardiac
damage, improve cardiac function, and regenerate
cardiac muscle after a heart attack. There are also
companies developing products that remyelinate
neurons and provide functional improvement for
multiple sclerosis patients. If we were to
successfully develop RGN-352 for other cardiovascular
indications, such as acute or chronic heart failure,
such a product would have to compete with other drugs
or therapies currently marketed by large
pharmaceutical companies for similar indications, as
would products for the treatment of multiple
sclerosis. |
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RGN-259. Most specialty ophthalmic companies have a
number of products on the market that could compete
with RGN-259. There are numerous antibiotics to treat
eye infections that cause corneal wounds and many eye
lubrication products to help eye healing and
function, many of which are sold without
prescriptions. Companies also market steroids to
treat certain severe conditions within our area of
interest. Allergan, Inc. has marketed
Restasis TM , a relatively new
approved eye drop to treat dry eye. Dry eye is a
condition related to a number of diseases and one
that we believe could benefit from the use of
RGN-259. |
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RGN-137. Johnson & Johnson has marketed
RegranexTM for patients with
diabetic foot ulcers. Companies such as Novartis are
developing and marketing artificial skins, which
would compete with RGN-137 in the treatment of dermal
wound healing. There are other companies developing
new pharmaceutical products for wound healing.
Products and therapies such as antibiotics,
honey-based ointments and low frequency cavitational
ultrasound are also used to treat certain types of
dermal wounds. Moreover, dermal wound healing is a
large and highly fragmented marketplace that includes
numerous therapeutic products and medical devices for
treating acute and chronic dermal wounds. |
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RGN-457. CF is a genetic defect for which there is
no cure. There are mucolytic agents and antibiotic
drugs on the market, such as Genentechs pulmozyme
and Novartis TOBI ® , an inhaled
version of tobramycin, that relieve the symptoms
posed by CF and could potentially compete with
RGN-457. |
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Cosmeceuticals. The cosmetics industry is highly
competitive and dependent on effective marketing and
distribution. There are multiple products currently
launched by major international cosmetic enterprises
that claim the same or similar benefits that may be
claimed with our product candidates. |
Government Regulation
In the United States, the Federal Food, Drug, and Cosmetic Act, as amended, and the
regulations promulgated thereunder, and other federal and state statutes and regulations govern,
among other things, the testing, manufacturing, labeling, storing, recordkeeping, distribution,
advertising and promotion of our product candidates. Regulation by governmental authorities in the
United States and foreign countries will be a significant factor in the manufacturing and marketing
of our product candidates and in our ongoing research and product development activities. Any
product candidate we develop will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to rigorous preclinical
studies, clinical trials and other approval procedures by the FDA and similar health authorities in
foreign countries. The process of obtaining these approvals and subsequent compliance with
appropriate federal and state statutes and regulations requires the expenditure of substantial
resources.
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Preclinical studies must ordinarily be conducted to evaluate an investigational new drugs
potential safety by toxicology studies and potential efficacy by pharmacology studies. The results
of these studies, among other things, are submitted to the FDA as part of an Investigational New
Drug Application, or IND, which must be reviewed by the FDA before clinical trials can begin.
Typically, clinical evaluation involves a three-stage process. Phase 1 clinical trials are
conducted with a small number of healthy volunteers to determine the safety profile and the pattern
of drug absorption, distribution, metabolism and excretion, and to assess the drugs effect on the
patient. Phase 2, or therapeutic exploratory, trials are conducted with somewhat larger groups of
patients, who are selected by relatively narrow criteria yielding a more homogenous population that
is afflicted with the target disease, in order to determine preliminary efficacy, optimal dosages
and expanded evidence of safety. Phase 2 trials should allow for the determination of the dose to
be used in Phase 3 clinical trials. Phase 3, or therapeutic confirmatory, large scale,
multi-center, comparative trials are conducted with patients afflicted with a target disease in
order to provide enough data for the statistical proof of safety and efficacy required by the FDA
and other regulatory authorities. The primary objective of Phase 3 clinical trials is to show that
the drug confers therapeutic benefit that outweighs any safety risks. All clinical trials must be
registered with a central public database, such as www.clinicaltrials.gov, and once completed,
results of the clinical trials must be entered in the database.
The results of all of these preclinical studies and clinical trials, along with detailed
information on manufacturing, are submitted to the FDA in the form of a New Drug Application, or
NDA, for approval to commence commercial sales. The FDAs review of an NDA requires the payment of
a user fee currently in excess of $1 million, which may be waived for the first NDA submitted by a
qualifying small business. In responding to an NDA, the FDA may refuse to file the application if
the FDA determines that the application does not satisfy its regulatory approval criteria, request
additional information or grant marketing approval. Therefore, even if we complete Phase 3 clinical
trials for our product candidates and submit an NDA to the FDA, there can be no assurance that the
FDA will grant marketing approval, or if granted, that it will be granted on a timely basis. If the
FDA does approve a product candidate, it may require, among other things, post-marketing testing,
including potentially expensive Phase 4 trials, which monitor the safety of the drug. In addition,
the FDA may in some circumstances impose risk evaluation and mitigation strategies that may be
difficult and expensive to administer. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems occur after the product reaches the
market.
Among the conditions for NDA approval is the requirement that the applicable clinical,
pharmacovigilance, quality control and manufacturing procedures conform on an ongoing basis with
current Good Clinical Practices, Good Laboratory Practices, current Good Manufacturing Practices,
and computer information system validation standards. During the review of an NDA, the FDA will
perform a pre-licensing inspection of select clinical sites, manufacturing facilities and the
related quality control records to determine the applicants compliance with these requirements. To
assure compliance, applicants must continue to expend time, money and effort in the area of
training, production and quality control. After approval of any product, manufacturers are subject
to periodic inspections by the FDA. If a company fails to comply with FDA regulatory requirements,
FDA may pursue a wide range of remedial actions, including seizure of products, corrective actions,
warning letters and fines.
In June 2004, we received orphan drug designation from the FDA for Tß4 for the treatment of
EB. The FDA may designate a product or products as having orphan drug status to treat a disease or
condition that affects less than 200,000 individuals in the United States, or, if patients of a
disease number more than 200,000, the sponsor can establish that it does not realistically
anticipate its product sales will be sufficient to recover its costs. If a product candidate is
designated as an orphan drug, then the sponsor may receive incentives to undertake the development
and marketing of the product, including grants for clinical trials, as well as a waiver of the user
fees for submission of an NDA application. For example, as described above, we received a grant of
approximately $681,000 in the aggregate for our ongoing Phase 2 clinical trial of RGN-137 to treat
patients with EB.
Generally, if a product with an orphan drug designation subsequently receives the first
marketing approval for the indication for which it has such designation, the product is entitled to
marketing exclusivity for a period of seven years in the United States. There may be multiple
designations of orphan drug status for a given drug and for different indications. Orphan drug
designation does not guarantee that a product candidate will be approved by the FDA for marketing
for the designation, and even if a sponsor of a product candidate for an indication for use with an
orphan drug designation is the first to obtain FDA approval of an NDA for that designation and
obtains marketing exclusivity, another sponsors application for the same drug product may be
approved by the FDA during the period of exclusivity if the FDA concludes that the competing
product is clinically superior. In this instance, the orphan designation and marketing exclusivity
originally granted would be lost in favor of the clinically superior product.
Intellectual Property
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We hold worldwide patents and patent applications covering peptide compositions, uses and
formulations related to dermal and ophthalmic indications and other organ and tissue repair
activities, as well as for cosmetic and consumer product applications. In 2001, we entered into a
license agreement with the NIH under which we received an exclusive worldwide license from the NIH
for all claims within the scope of the NIHs patent application, and any issued patents, covering
the use of Tß4 as a tissue repair and regeneration factor. During 2007, a patent was issued in
Europe and the U.S. related to the original NIH patent application, which patent expires in July
2019. Corresponding patents have been granted in Hong Kong, Australia and China and certain other
territories. The issued European patent was opposed by a third party at the European Patent Office
and in December 2009, we argued the case before the Opposition Division of the European Patent
Office in Munich, Germany and prevailed with certain amendments to
the claims. In exchange for the exclusive license, we agreed to make
certain minimum royalty and milestone payments to the NIH. Through December 31, 2010, we have
complied with all minimum royalty requirements, and no milestone payments have been required under
the agreement.
We hold a U.S. patent relating to the use of Tß4 for treatment of alopecia, an autoimmune skin
disease that results in hair loss, which expires in 2017, with corresponding patents in Europe and
Singapore that expire in 2018. In 2006, we were issued a patent in China for the use of Tß4 to
treat EB, which expires in 2022.
Under a research agreement with The George Washington University, or GWU, we funded Tß4
research at GWU and received a sole and exclusive worldwide license to any resulting patents. While
we no longer fund any research under this agreement, we remain obligated to pay GWU a royalty of 4%
of the net sales, if any, of specified products covered by patents issued in connection with the
agreement. Pursuant to the research agreement, we have exclusive rights to patent applications
filed in the United States and in Europe disclosing the use of Tß4 for the treatment of septic
shock and associated syndromes, including Adult Respiratory Distress Syndrome. Two U.S. patents
covered by this agreement have been issued, which expire in 2013 and 2014.
We have also filed numerous additional U.S. and international patent applications covering
various compositions, uses, formulations and other components of Tß4, as well as for novel peptides
resulting from our research efforts, the latest of which were filed during 2010. There can be no
assurance that these, or any other future patent applications under which we have rights, will
result in the issuance of a patent or that any patent issued will not be subject to challenge or
opposition. In the case of a claim of patent infringement by or against us, there can be no
assurance that we will be able to afford the expense of any litigation that may be necessary to
enforce our proprietary rights.
Material Agreements
National Institutes of Health
We have entered into a license agreement with NIH under which we are obligated to pay an
annual minimum royalty of $25,000. Additionally, we are obligated to pay the NIH a percentage of
sales of qualifying product candidates, if any. There have been no such sales to date.
Defiante/Sigma-Tau
We have exclusively licensed certain internal and external wound healing European rights to
Tß4 to Defiante. These licensed rights to Tß4 include its use to treat indications that are the
subject of all of our current dermal clinical trials as well as the treatment of heart attacks. The
license excludes the use of Tß4 in ophthalmic indications and other indications that are
disease-based and not the result of a wound. Under the agreement, Sigma-Tau will develop Tß4 for
the treatment of internal and external wounds in Europe and certain other contiguous and
geographically relevant countries. The license agreement expires on a country-by-country basis upon
the later of the expiration of the last to expire of any granted patent in the territory having at
least one valid claim covering the products then on the market, the expiration of any other
exclusive or proprietary marketing rights, or January 2016.
Under the license agreement, Sigma-Tau is obligated to pay us a royalty on commercial sales,
if any, and we will supply all required Tß4 for development. Upon the completion of a Phase 2
clinical trial for the covered indications that yields positive results in terms of efficacy and
safety, Sigma-Tau must either pay us a $5 million milestone payment or initiate and fund a pivotal
Phase 3 clinical trial for the applicable product candidate in order to maintain the license. As
described elsewhere in this prospectus, in 2009, we completed two Phase 2 clinical trials of
RGN-137 for the treatment of pressure ulcers and venous stasis ulcers, which, due to the lack of
statistical significance of the reported efficacy results, have not triggered the milestone
obligation described above.
The license agreement with Defiante also contains future clinical and regulatory milestones in
the licensed territory. If those milestones are attained, certain performance criteria regarding
commercial registration and minimum annual royalties
43
will be payable to us in each licensed country. The agreement does not prevent us from
sublicensing the technology in countries outside the licensed territory, and has no impact on any
U.S. rights.
Development Agreements
We have entered into agreements with outside service providers for the manufacture and
development of Tß4, the formulation of Tß4 into our product candidates, the conduct of nonclinical
safety, toxicology and efficacy studies in animal models, and the management and execution of
clinical trials in humans. Terms of these agreements vary in that they can last from a few months
to more than a year in duration. Certain of these agreements require initial up front payments
ranging from 25% to 50% of the total estimated cost. For additional information regarding our
research and development expenses over the past two years, see Managements Discussion and
Analysis of Financial Condition and Results of Operations Results of Operations in this
prospectus.
Employees
To balance costs and optimize control, we utilize an outsourcing business strategy, whereby
our management oversees the outsourced activities for many of our research and development and
administrative functions. We currently have nine full-time employees and one part-time employee,
and we retain several independent contractors on an as-needed basis. We believe that we have good
relations with our employees.
Facilities
Our corporate headquarters are located in Rockville, Maryland where we lease approximately
3,500 square feet of office space with an average base rent of $7,300 per month and a term through
January 2013. We believe that our facilities are generally suitable to meet our needs for the
foreseeable future, although we will continue to seek alternate or additional space as needed.
Corporate Information
We were incorporated in Delaware in 1982 under the name Alpha 1 Biomedicals, Inc. In 2000, we
changed our corporate name to RegeneRx Biopharmaceuticals, Inc. Our principal executive office is
located at 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850. Our telephone number is
(301) 208-9191.
Legal Proceedings
We are not currently a party to or engaged in any material legal proceedings. However, we may
be subject to various claims and legal actions arising in the ordinary course of business from time
to time.
44
MANAGEMENT
Executive Officers and Directors
The following table sets forth as of the date of this prospectus the name, age and
position of each person who serves as an executive officer or director of our company. There are no
family relationships among any of our executive officers or directors, with the exception that Mr.
Finkelstein is the first cousin of Dr. Goldsteins wife.
We seek to assemble a board that, as a whole, possesses the appropriate balance of
professional and industry knowledge. financial expertise and high-level management experience
necessary to oversee and direct our business. To that end, our board intends to maintain membership
of directors who complement and strengthen the skills of other members and who also exhibit
integrity, collegiality, sound business judgment and other qualities that we view as critical to
effective functioning of the board. The brief biographies below include information, as of the date
of this prospectus, regarding the specific and particular experience, qualifications, attributes or
skills of each director or nominee that led the board to believe that the director should serve on
the board.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
J.J. Finkelstein
|
|
|
58 |
|
|
President, Chief Executive Officer and Director |
C. Neil Lyons
|
|
|
53 |
|
|
Chief Financial Officer |
David R. Crockford
|
|
|
65 |
|
|
Vice President, Clinical and Regulatory Affairs |
Allan L. Goldstein, Ph.D.
|
|
|
73 |
|
|
Director, Chairman of the Board and Chief Scientific Advisor |
R. Don Elsey
|
|
|
57 |
|
|
Director |
Joseph C. McNay
|
|
|
77 |
|
|
Director |
Mauro Bove
|
|
|
56 |
|
|
Director |
L. Thompson Bowles, M.D., Ph.D.
|
|
|
79 |
|
|
Director |
Mr. Finkelstein has served as our President and Chief Executive Officer and a member of
our Board of Directors since 2002. Mr. Finkelstein also served as our Chief Executive Officer from
1984 to 1989 and as the Vice Chairman of our Board of Directors from 1989 to 1991. Mr. Finkelstein
has worked as an executive officer and consultant in the bioscience industry for the past 28 years,
including serving from 1989 to 1996 as chief executive officer of Cryomedical Sciences, Inc., a
publicly-traded medical device company. Mr. Finkelstein has significant experience in developing
early-stage companies. He has been responsible for the regulatory approval and marketing of several
medical devices in the U.S. and abroad. Mr. Finkelstein has served on the executive committee of
the Board of Directors of the Technology Council of Maryland since 2006, MdBio, Inc. since 1998 and
currently chairs the MdBio Foundation, all of which are non-profit entities that support bioscience
development and education in the State of Maryland. Mr. Finkelstein received a business degree in
finance from the University of Texas. The Board believes that Mr. Finkelsteins history and long
tenure as our Chief Executive Officer positions him to contribute to the Board his extensive
knowledge of our company and to provide Board continuity. In addition, the Board believes that his
experience at prior companies has provided him with operational and industry expertise, as well as
leadership skills that are important to the Board.
Mr. Lyons has served as our Chief Financial Officer and Treasurer since 2005. With more than
25 years of experience, Mr. Lyons has developed expertise related to operations, finance, SEC
compliance, complex transactions, strategy, information systems and corporate governance. From 1979
to 1990, Mr. Lyons practiced with Deloitte, providing assurance and advisory services to several
public companies in the Washington, D.C. metro area. Following that, Mr. Lyons served as a senior
financial executive with HFS, Inc., a major Department of Defense contractor, from 1990 to 1996,
with Bell Atlantic from 1996 to 1998, with SkyBridge LP, an international satellite broadband
start-up affiliated with Alcatel, from 1998 to 2003, and consulted with area businesses regarding
financial management, including the initial implementations of the Sarbanes-Oxley Act from 2003 to
2005. Mr. Lyons is a certified public accountant and received a Bachelor of Science degree
45
in accounting, magna cum laude, from Florida Southern College.
Mr. Crockford has served as our Vice President of Clinical and Regulatory Affairs since March
2005 and was a consultant to the Company from 2000 until his appointment as Vice President. He has
more than 25 years of experience in the biotechnology and pharmaceutical industries. During his
career as a clinical and regulatory affairs professional, Mr. Crockford has established strategic
plans, implemented and obtained marketing approval for 18 drug products, including one of the first
human growth hormone preparations sold in the U.S., 17 in vitro diagnostic tests, and an
intraoperative medical device to detect and treat cancer. Mr. Crockfords other clinical and
regulatory achievements include the cost-effective and timely development of a number of innovative
investigational drugs. Mr. Crockford is the author of a number of publications, including
Development of Thymosin ß4 for Treatment of Patients with Ischemic Heart Disease, and is an
inventor or co-inventor on approximately two dozen patents related to drug development. Mr.
Crockford has a B.A. degree in biology and chemistry from Boston University. He also completed
biochemistry and clinical chemistry course studies in Princeton, New Jersey, and seminars in
reproductive medicine at medical schools at Wayne State University and UCLA.
Dr. Goldstein has served as the Chairman of our Board of Directors and our Chief Scientific
Advisor since he founded our company in 1982. Dr. Goldstein has been a Professor of Biochemistry
since 1978 and served as Chairman of the Department of Biochemistry and Molecular Biology at the
George Washington University School of Medicine and Health Sciences until 2009. Dr. Goldstein is a
recognized expert in the field of immunology and protein chemistry, having authored over 430
scientific articles in professional journals. He is also the inventor on over 25 issued and/or
pending patents in biochemistry, immunology, cardiology, cancer and wound healing. Dr. Goldstein
discovered several important compounds, including Tα1, which is marketed worldwide, and Tß4, which
is the basis for RegeneRxs clinical program. Dr. Goldstein has served on the Board of Trustees of
the Sabin Vaccine Institute since 2000 and on the Board of Directors of the Richard B. and Lynne V.
Cheney Cardiovascular Institute since 2006. Dr. Goldstein has also done pioneering work in the area
of medical education, developing distance learning programs offered through Frontiers in
Medicine, a medical education series that Dr. Goldstein developed. The Board believes that Dr.
Goldsteins scientific expertise, industry background and prior experience as our founder all
position him to make an effective contribution to the medical and scientific understanding of the
Board, which the Board believes to be particularly important as we continue our Tß4 development
efforts.
Mr. Elsey has served as a member of our Board of Directors since September 2010. He has
served as senior vice president, finance and administration of Emergent BioSolutions Inc., a
publicly held biopharmaceutical company, since May 2007, and as its chief financial officer since
March 2006 and Treasurer since June 2005. Mr. Elsey previously served as vice president, finance of
Emergent BioSolutions from June 2005 to May 2007. He served as the director of finance and
administration at IGEN International, Inc., a publicly held biotechnology company, and its
successor BioVeris Corporation, from April 2000 to June 2005. Prior to joining IGEN, Mr. Elsey
served as director of finance at Applera, a genomics and sequencing company, and in several finance
positions at International Business Machines, Inc. He received an M.B.A. in finance and a B.A. in
economics from Michigan State University. Mr. Elsey is a certified management accountant. The Board
believes that Mr. Elseys experience as chief financial officer of a public company is particularly
valuable to our business in that it positions him to contribute to our Boards and Audit
Committees understanding of financial matters.
Mr. McNay has served as a member of our Board of Directors since 2002. He is currently
Chairman, Chief Investment Officer and Managing Principal of Essex Investment Management Company,
LLC, positions he has held since 1976 when he founded Essex. He has direct portfolio management
responsibilities for a variety of funds and on behalf of private clients. He is also a member of
the firms Management Board. Prior to founding Essex, Mr. McNay was Executive Vice President and
Director of Endowment Management & Research Corp. from 1967. Prior to that, Mr. McNay was Vice
President and Senior Portfolio Manager at the Massachusetts Company. Currently he is serving as
Trustee of National Public Radio, Trustee of the Dana Farber Cancer Institute, and is a Trustee and
member of the Childrens Hospital Investment Committee. He received his A.B. degree from Yale
University and his M.B.A. degree in finance from the Wharton School of the University of
Pennsylvania. The Board believes that Mr. McNays extensive financial experience is valuable to our
business and also positions him to contribute to the Audit Committees understanding of financial
matters.
Mr. Bove has served as a member of our Board of Directors since 2004 and has more than 25
years of business and management experience within the pharmaceutical industry. Mr. Bove is
currently the Head of Corporate & Business Development and serves on the board of Sigma-Tau
Finanziaria S.p.A., the holding company of Sigma-Tau Group, a leading international pharmaceutical
company, and certain Sigma-Tau affiliates, positions he has held since 1993. Sigma-Tau Finanziaria
S.p.A. and its affiliates are collectively our largest stockholder. Mr. Bove has also held a number
of senior positions in business, licensing and corporate development within Sigma-Tau Group, which
has subsidiaries in most European countries and the United States. Mr. Bove obtained his law degree
at the University of Parma, Italy, in 1980. In 1985, he attended the Academy of American and
International Laws at the International and Comparative Law Center, Dallas, Texas. The Board
believes that Mr. Boves extensive business and management experience within the pharmaceutical
46
industry allows him to recognize and advise the Board with respect to recent industry developments.
Dr. Bowles has served as a member of our Board of Directors since 2006. He retired from his
career as a thoracic surgeon in 1988. Dr. Bowles served as Dean of Medicine and Professor of
Surgery at The George Washington University, or GWU, School of Medicine and Health Sciences from
1976 to 1988 and as Vice President for Medical Affairs and Executive Dean of the GWU Medical Center
from 1988 to 1992. Dr. Bowles previously served as President of the National Board of Medical
Examiners, a medical accrediting organization, from 1992 to 2000. He has also been a member of the
National Academy of Sciences Institute of Medicine since 1988 and currently serves as a member of
several other national medical societies including: The American College of Surgeons, The American
Association for Thoracic Surgery, The Society of Thoracic Surgeons, The American College of Chest
Physicians, The American Gerontological Society, The Society of Medical Administrators, The College
of Physicians of Philadelphia, and The Washington Academy of Surgeons. Dr. Bowles has served on the
editorial board of a number of medical journals, including the Journal of Medical Education and
continued on as chairman of its newly revised updated version, Academic Medicine. Dr. Bowles has
been President of the District of Columbias medical licensing board called the Healing Arts
Commission (1977-1979), and was a member of the National Library of Medicines Board of Regents
(1982-1986), chairman (1984-1986), member of the Special Medical Advisory Group of Veterans
Administration (now Dept. of Veterans Affairs) 1984-1992, chairman 1992-1994. Dr. Bowles was also
chairman of the National Committee on Foreign Medical Education and Accreditation, 1994-1996. Dr.
Bowles received his medical degree from Duke University and his Ph.D. in higher education from New
York University. The Board believes that Dr. Bowles distinguished medical career positions him to
bring extensive medical and clinical trial experience to the Board. The Board expects that this
experience will permit Dr. Bowles to provide leadership and insight as we translate our laboratory
discoveries into human clinical trials and advance our product candidates through clinical
development toward commercialization.
Independence of the Board of Directors
Under NYSE Amex listing standards, a majority of the members of a listed companys board of
directors must qualify as independent, as affirmatively determined by the Board. Although our
common stock is no longer listed on the NYSE Amex exchange, we have determined the independence of
our directors using the NYSE Amex definitions of independence. The Board consults with counsel to
ensure that the Boards determinations are consistent with relevant securities and other laws and
regulations regarding the definition of independent, including those set forth in pertinent
listing standards of the NYSE Amex, as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or
relationships between each director, or any of his family members, and us, our senior management
and our independent auditors, the Board has affirmatively determined that the following four
directors are independent directors within the meaning of the applicable NYSE Amex listing
standards: Mr. Elsey, Mr. Bove, Mr. McNay and Dr. Bowles. In making this determination, the Board
found that none of the these directors had a material or other disqualifying relationship with us.
Mr. Finkelstein, our President and Chief Executive Officer, and Dr. Goldstein, our Chief Scientific
Advisor, are not independent directors by virtue of their employment with us.
In determining the independence of Mr. Bove, the board of directors took into account the
significant ownership of our common stock by Sigma-Tau and its affiliates. The board of directors
does not believe that any of the transactions with Sigma-Tau and its affiliates described would
interfere with Mr. Boves exercise of independent judgment in carrying out his responsibilities as
a director of our company.
Information Regarding Committees of the Board of Directors
The Board has two standing committees: an Audit Committee and a Compensation Committee. The
Board does not have a separate nominating and corporate governance committee. Rather, the
independent members of the full Board perform the functions of a nominating and corporate
governance committee.
Below is a description of each committee of the Board. Each of the committees has authority to
engage legal counsel or other experts or consultants, as it deems appropriate to carry out its
responsibilities. The Board has determined that each member of each committee meets the applicable
NYSE Amex rules and regulations regarding independence and that each member is free of any
relationship that would impair his individual exercise of independent judgment with regard to our
company.
Audit Committee
The Audit Committee of the Board consists of Mr. McNay, Dr. Bowles and Mr. Elsey, with Mr.
McNay acting as the
47
Chairman of the committee. The Audit Committee meets no less than quarterly
with management and our independent registered public accounting firm, both jointly and separately,
has sole authority to engage and terminate our independent
registered public accounting firm, and reviews our financial reporting process on behalf of
the Board. The Audit Committee operates under a formal written charter available on our website at
www.regenerx.com.
Each member of the Audit Committee is an independent director in accordance with Rule 10A-3 of
the Exchange Act. Furthermore, the Board has determined that Mr. McNay and Mr. Elsey qualify as
audit committee financial experts as defined under SEC rules.
The Audit Committee pre-approves all audit and non-audit engagement fees, and terms and
services. On an ongoing basis, management communicates specific projects and categories of services
for which advance approval of the Audit Committee is required. The Audit Committee reviews these
requests and advises management and the independent auditors if the Audit Committee pre-approves
the engagement of the independent auditors for such projects and services. On a periodic basis, the
independent auditors report to the Audit Committee the actual spending for such projects and
services compared to the approved amounts.
Compensation Committee
The Compensation Committee is composed of four directors: Dr. Bowles, Mr. McNay, Mr. Bove and
Mr. Elsey, with Dr. Bowles acting as Chairman of the committee. The Compensation Committee has
adopted a written charter that is available to stockholders on our website at www.regenerx.com.
The Compensation Committee of the Board acts on behalf of the Board to review, adopt and
oversee our compensation strategy, policies, plans and programs, including:
|
|
|
establishment of corporate and individual performance objectives relevant to the
compensation of our chief executive officer, other executive officers and Board
members; |
|
|
|
|
evaluation of performance in light of these stated objectives; |
|
|
|
|
review and approval of the compensation and other terms of employment or service,
including severance and change-in-control arrangements, of our Chief Executive
Officer and the other executive officers; and |
|
|
|
|
administration of our equity compensation plans and other similar plan and programs. |
Nominating and Corporate Governance
The Board does not have a standing nominating and corporate governance committee. Instead, the
independent members of the Board, consisting of Messrs. Elsey, McNay and Bove and Dr. Bowles, are
responsible for performing key nominating and corporate governance activities on behalf of the
Board, including identifying, reviewing and evaluating candidates to serve as our directors,
reviewing and evaluating incumbent directors, selecting candidates for election to the Board,
making recommendations to the Board regarding the membership of the committees of the Board,
assessing the performance of management and developing and maintaining a set of corporate
governance principles for us.
Director Compensation
The following table set forth certain information for the fiscal year ended December 31, 2010
with respect to the compensation of our directors. Mr. Finkelsteins compensation is disclosed in
the Summary Compensation Table below, and he does not receive any additional compensation for his
service as a director. Dr. Goldstein is an employee of our company and his compensation as an
employee is set forth in the table below. He does not receive any additional compensation for his
service as a director.
Each non-employee director is eligible to receive an annual cash retainer of $13,905. The
chairman of each of our audit committee and compensation committee is eligible to receive a
supplemental annual cash retainer of $10,300. Mr. McNay currently serves as the Chairman of the
Audit Committee and Dr. Bowles currently serves as the Chairman of the Compensation Committee.
Directors also receive $1,288 for each board meeting attended in person and $412 for each
Board meeting attended by telephone. Additionally, members of each committee of the board of
directors are eligible to receive $515 for each committee meeting attended, whether in person or by
telephone.
48
Additionally, non-employee directors receive a nonqualified stock option under our equity
incentive plan to purchase 20,000 shares of common stock upon their re-election as a director at each annual meeting of
stockholders. Newly elected or appointed non-employee directors receive a nonqualified stock option
under our equity incentive plan to purchase 40,000 shares of common stock. All options granted to
directors under this policy vest over four years, with 25% of the shares underlying the option
vesting on the first through fourth anniversaries of the date of grant.
We also reimburse directors for expenses incurred in attending meetings of the board and other
events attended on our behalf and at our request.
Director Compensation for Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
|
|
or Paid |
|
|
Option |
|
|
All Other |
|
|
|
|
|
|
in Cash |
|
|
Awards |
|
|
Compensation |
|
|
Total |
|
Name |
|
($) |
|
|
($)(1) |
|
|
($) |
|
|
($) |
|
Allan Goldstein, Ph.D. |
|
|
|
|
|
|
15,284 |
|
|
|
187,460 |
(2) |
|
|
202,744 |
|
R. Don Elsey |
|
|
7,726 |
|
|
|
6,403 |
|
|
|
|
|
|
|
14,129 |
|
L. Thompson Bowles M.D., Ph.D. |
|
|
28,017 |
|
|
|
3,103 |
|
|
|
|
|
|
|
31,120 |
|
Joseph McNay |
|
|
25,028 |
|
|
|
3,103 |
|
|
|
|
|
|
|
28,131 |
|
Mauro Bove |
|
|
17,303 |
|
|
|
3,103 |
|
|
|
|
|
|
|
20,406 |
|
Richard Hindin (3) |
|
|
21,836 |
|
|
|
|
|
|
|
|
|
|
|
21,836 |
|
|
|
|
(1) |
|
These amounts reflect the aggregate full grant date fair
values (computed in accordance with FASB ASC Topic 718)
of options granted to directors during 2010. Options held
by each Board member as of December 31, 2010, are as follows: |
|
|
|
|
|
Allan Goldstein, Ph.D.
|
|
|
795,442 |
|
|
|
|
|
|
R. Don Elsey
|
|
|
40,000 |
|
|
|
|
|
|
L. Thompson Bowles M.D., Ph.D.
|
|
|
174,843 |
|
|
|
|
|
|
Joseph McNay
|
|
|
248,024 |
|
|
|
|
|
|
Mauro Bove
|
|
|
247,155 |
|
|
|
|
(2) |
|
In addition to being Chairman of our Board of Directors,
Dr. Goldstein also serves as our Chief Scientific
Advisor. In this capacity, Dr. Goldstein received a base
salary of $187,460 for 2010. Under Dr. Goldsteins
employment agreement, in the event that his employment is
terminated by us without cause, as defined in his
employment agreement, or if he voluntarily terminates his
employment within 12 months following a change in
control, as defined in his employment agreement, then in
each case, subject to Dr. Goldsteins entering into and
not revoking a release of claims in a form acceptable to
us, Dr. Goldstein will be entitled to receive a lump sum
severance payment equal to his annual base salary then in
effect, plus any earned bonus as of the date of
termination, in each case less applicable taxes and
withholdings. Dr. Goldstein is not entitled to receive
any continuing health and welfare benefits as part of our
severance obligation to him. If Dr. Goldsteins
employment had been terminated for any of the reasons
described in this paragraph as of December 31, 2010, he
would have been entitled to receive a lump sum payment of
$187,460, less taxes and withholdings. Dr. Goldstein is
eligible to receive options to purchase common stock
under our equity incentive plans. The decision to grant
any such options and the terms of such options are within
the discretion of our board of directors or the
compensation committee. In addition, if Dr. Goldsteins
employment is terminated without cause, or if there is
a change in control event, in each case as defined in
either the applicable benefit plan or in Dr. Goldsteins
employment agreement, then the unvested portion of Dr.
Goldsteins options would accelerate in full. All vested
options are exercisable for a period of time following
any termination of Dr. Goldsteins employment as may be
set forth in the applicable benefit plan or in any option
agreement between Dr. Goldstein and us. |
|
(3) |
|
Mr. Hindins term as a director ended in July 2010. |
49
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows, for the fiscal years ended December 31, 2010 and 2009, compensation
awarded to or paid to, or earned by, our chief executive officer and our two other executive
officers during 2010. For purposes of this prospectus, we refer to these officers as the named
executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
Plan |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
Salary(1) |
|
|
Bonus(2) |
|
|
Awards(3) |
|
|
Compensation(4) |
|
|
Compensation(5) |
|
|
Total |
|
Name and Principal Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
J.J. Finkelstein,
President and |
|
|
2010 |
|
|
|
299,520 |
|
|
|
|
|
|
|
19,396 |
|
|
|
|
|
|
|
18,425 |
|
|
|
337,341 |
|
Chief Executive Officer |
|
|
2009 |
|
|
|
244,608 |
|
|
|
18,720 |
|
|
|
116,198 |
|
|
|
|
|
|
|
13,005 |
|
|
|
392,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Neil Lyons, |
|
|
2010 |
|
|
|
202,537 |
|
|
|
2,000 |
|
|
|
15,284 |
|
|
|
|
|
|
|
6,886 |
|
|
|
226,707 |
|
Chief Financial Officer |
|
|
2009 |
|
|
|
167,093 |
|
|
|
11,140 |
|
|
|
74,395 |
|
|
|
|
|
|
|
4,999 |
|
|
|
257,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David R. Crockford, |
|
|
2010 |
|
|
|
210,223 |
|
|
|
2,000 |
|
|
|
15,284 |
|
|
|
|
|
|
|
10,321 |
|
|
|
237,828 |
|
Vice President,
Clinical and Regulatory
Affairs |
|
|
2009 |
|
|
|
210,223 |
|
|
|
5,781 |
|
|
|
|
|
|
|
|
|
|
|
6,818 |
|
|
|
222,822 |
|
|
|
|
(1) |
|
Reflects base salary before pretax contributions and therefore includes compensation deferred under our 401(k) plan. |
|
(2) |
|
Reflects the discretionary portion of our bonus plan. |
|
(3) |
|
These amounts reflect the aggregate full grant date fair values (computed in accordance with FASB ASC Topic 718) of
options granted to executives during the respective fiscal years. |
|
(4) |
|
Reflects amounts earned under our bonus plan subject to the achievement of corporate performance goals. |
|
(5) |
|
Primarily reflects our match of executive compensation deferrals into our 401(k) plan, along with supplemental life
and disability insurance premiums. None of the individual items exceeded $10,000. |
Employment Agreements; Potential Payments Upon Termination or Change in Control
We are party to written employment agreements with our named executive officers. These
employment agreements contain severance and other provisions that may provide for payments to the
named executive officers following termination of employment with us in specified circumstances.
The following is a summary of the material terms of these employment agreements with our named
executive officers.
J.J. Finkelstein. We entered into an employment agreement with Mr. Finkelstein in January
2002 for him to serve as our president and chief executive officer. Mr. Finkelsteins employment
agreement had an initial three-year term, which is automatically renewed for additional one-year
periods unless either we or Mr. Finkelstein elect not to renew it. This agreement was amended and
restated during 2008 and again in 2009. Mr. Finkelsteins annual base salary is $299,520. Mr.
Finkelsteins salary may not be adjusted downward without his written consent, except in a
circumstance which is part of a general reduction or other concessionary arrangement affecting all
employees or affecting senior executive officers. Mr. Finkelstein is also eligible to receive an
annual bonus in an amount established by the board of directors and is entitled to participate in
and receive all standard employee benefits and to participate in all of our applicable incentive
plans, including stock option, stock, bonus, savings and retirement plans. We also provide him with
$5 million in life and disability insurance.
Mr. Finkelstein is eligible to receive options to purchase common stock under our equity
incentive plans. The decision to grant any such options and the terms of such options are within
the discretion of our board of directors or the compensation committee thereof. All vested options
are exercisable for a period of time following any termination of Mr. Finkelsteins employment as
may be set forth in the applicable benefit plan or in any option agreement between Mr. Finkelstein
and us.
50
In the event that Mr. Finkelsteins employment is terminated by us without cause or by Mr.
Finkelstein for good reason, each as defined in his employment agreement, or if Mr. Finkelstein
voluntarily terminates his employment within 12 months following a change in control, as defined
in his employment agreement, then in each case, subject to Mr. Finkelsteins entering into and not
revoking a release of claims in a form acceptable to us, Mr. Finkelstein will be entitled to
receive (i) a lump sum severance payment equal to his annual base salary then in effect (or if his
base salary is less than the amount in effect as of March 31, 2009, the base salary in effect as of
March 31, 2009), plus (ii) any earned bonus, and (iii) if he timely elects and remains eligible for
continuation of healthcare benefits, that portion of the continued healthcare premiums that we were
paying prior to the date of termination for a period of 12 months, in each case less applicable
taxes and withholdings. If Mr. Finkelsteins employment had been terminated for any of the reasons
described in this paragraph as of December 31, 2010, he would have been entitled to receive a lump
sum payment of $299,520, less taxes and withholdings, plus continuation of healthcare benefits with
a value of $9,204.
In addition, if Mr. Finkelsteins employment is terminated without cause, or if there is a
change in control event, in each case as defined in either the applicable benefit plan or in Mr.
Finkelsteins employment agreement, then the unvested portion of Mr. Finkelsteins options
outstanding as of December 31, 2010 would accelerate in full.
C. Neil Lyons. We entered into an employment agreement with Mr. Lyons in April 2007 for him
to serve as our chief financial officer. Mr. Lyons employment agreement had an initial one-year
term, which is automatically renewed for additional one-year periods unless either we or Mr. Lyons
elect not to renew it. The agreement was amended and restated during 2008 and again in 2009. Under
the employment agreement, as amended to date, Mr. Lyons base salary is $202,537. Mr. Lyons is also
eligible to receive an annual bonus in an amount established by the board of directors and chief
executive officer and is entitled to participate in and receive all standard employee benefits and
to participate in all of our applicable incentive plans, including stock option, stock, bonus,
savings and retirement plans. We also reimburse Mr. Lyons for two-thirds of his annual term life
insurance premium, for term life insurance coverage not to exceed two times his annual base salary.
Mr. Lyons is eligible to receive options to purchase common stock under our equity incentive
plans. The decision to grant any such options and the terms of such options are within the
discretion of our board of directors or the compensation committee thereof. All vested options are
exercisable for a period of time following any termination of Mr. Lyons employment as may be set
forth in the applicable benefit plan or in any option agreement between Mr. Lyons and us.
In the event that Mr. Lyons employment is terminated by us without cause as defined in his
employment agreement, or if Mr. Lyons voluntarily terminates his employment within 12 months
following a change in control, as defined in his employment agreement, then in each case, subject
to Mr. Lyons entering into and not revoking a release of claims in a form acceptable to us, Mr.
Lyons will be entitled to receive (i) severance payments equal to his annual base salary then in
effect, plus (ii) any earned bonus, and (iii) if he timely elects and remains eligible for
continuation of healthcare benefits, that portion of the continued healthcare premiums that we were
paying prior to the date of termination for a period of 12 months, in each case less applicable
taxes and withholdings. If Mr. Lyonss employment had been terminated for any of the reasons
described in this paragraph as of December 31, 2010, he would have been entitled to receive
severance payments of $202,537, less taxes and withholdings, plus continuation of healthcare
benefits with a value of $17,844.
In addition, if Mr. Lyons employment is terminated without cause, or if there is a change
in control event, in each case as defined in either the applicable benefit plan or in Mr. Lyons
employment agreement, then the unvested portion of Mr. Lyons options outstanding as of December
31, 2010 would accelerate in full.
David R. Crockford. We entered into an employment agreement with Mr. Crockford in March 2005
for him to serve as our vice president of clinical and regulatory affairs. Mr. Crockfords
employment agreement had an initial one-year term, which is automatically renewed for additional
one-year periods unless either we or Mr. Crockford elect not to renew it. The agreement was amended
and restated during 2008 and again in 2009. Under the employment agreement, as amended to date, Mr.
Crockfords base salary is $210,223. Mr. Crockford is also eligible to receive an annual bonus in
an amount established by the board of directors and chief executive officer and is entitled to
participate in and receive all standard employee benefits and to participate in all of our
applicable incentive plans, including stock option, stock, bonus, savings and retirement plans. We
also reimburse Mr. Crockford for two-thirds of his annual term life insurance premium, for term
life insurance coverage not to exceed two times his annual base salary.
Mr. Crockford is eligible to receive options to purchase common stock under our equity
incentive plans. The decision to grant any such options and the terms of such options are within
the discretion of our board of directors or the compensation committee thereof. All vested options
are exercisable for a period of time following any termination of Mr. Crockfords employment as may
be set forth in the applicable benefit plan or in any option agreement between Mr. Crockford and
us.
51
In the event that Mr. Crockfords employment is terminated by us without cause as
defined in his employment agreement, or if Mr. Crockford voluntarily terminates his employment
within 12 months following a change in control, as defined in his employment agreement, then in
each case, subject to Mr. Crockfords entering into and not revoking a release of claims in a form
acceptable to us, Mr. Crockford will be entitled to receive (i) severance payments equal to his
annual base salary then in effect, plus (ii) any earned bonus, and (iii) if he timely elects and
remains eligible for continuation of healthcare benefits, that portion of the continued healthcare
premiums that we were paying prior to the date of termination for a period of 12 months, in each
case less applicable taxes and withholdings. If Mr. Crockfords employment had been terminated for
any of the reasons described in this paragraph as of December 31, 2010, he would have been entitled
to receive severance payments of $210,223, less taxes and withholdings, plus continuation of
healthcare benefits with a value of $15,324. In addition, upon a change in control, all of Mr.
Crockfords unvested options will accelerate in full, but there is no such acceleration upon a
termination without cause.
Outstanding Equity Awards at December 31, 2010
The following table shows certain information regarding outstanding equity awards at December
31, 2010 for the named executive officers, all of which were stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Number of Shares |
|
|
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
|
|
|
|
Options (#) |
|
|
Options (#) |
|
|
Exercise Price |
|
|
Option |
|
|
|
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
($) |
|
|
Expiration Date |
|
|
Note |
|
Mr. Finkelstein |
|
|
500,000 |
|
|
|
|
|
|
|
0.33 |
|
|
|
1/1/2012 |
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
3.21 |
|
|
|
4/1/2015 |
|
|
|
|
|
|
|
|
93,750 |
|
|
|
31,250 |
|
|
|
2.34 |
|
|
|
3/15/2014 |
|
|
|
(1 |
) |
|
|
|
62,500 |
|
|
|
62,500 |
|
|
|
1.15 |
|
|
|
4/15/2015 |
|
|
|
(1 |
) |
|
|
|
114,748 |
|
|
|
|
|
|
|
0.57 |
|
|
|
4/10/2019 |
|
|
|
|
|
|
|
|
31,250 |
|
|
|
93,750 |
|
|
|
0.76 |
|
|
|
10/11/2016 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
125,000 |
|
|
|
0.27 |
|
|
|
07/14/2017 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Lyons |
|
|
166,667 |
|
|
|
33,333 |
|
|
|
3.10 |
|
|
|
4/7/2015 |
|
|
|
(2 |
) |
|
|
|
56,250 |
|
|
|
18,750 |
|
|
|
2.34 |
|
|
|
3/15/2014 |
|
|
|
(1 |
) |
|
|
|
37,500 |
|
|
|
37,500 |
|
|
|
1.50 |
|
|
|
6/15/2015 |
|
|
|
(1 |
) |
|
|
|
77,728 |
|
|
|
|
|
|
|
0.57 |
|
|
|
4/10/2019 |
|
|
|
|
|
|
|
|
18,750 |
|
|
|
56,250 |
|
|
|
0.76 |
|
|
|
10/11/2016 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
98,500 |
|
|
|
0.27 |
|
|
|
07/14/2017 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Crockford |
|
|
15,000 |
|
|
|
|
|
|
|
1.07 |
|
|
|
7/1/2013 |
|
|
|
|
|
|
|
|
125,000 |
|
|
|
|
|
|
|
0.86 |
|
|
|
1/1/2014 |
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
3.21 |
|
|
|
4/1/2015 |
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
3.82 |
|
|
|
5/25/2015 |
|
|
|
|
|
|
|
|
37,500 |
|
|
|
12,500 |
|
|
|
2.15 |
|
|
|
1/16/2014 |
|
|
|
(1 |
) |
|
|
|
56,250 |
|
|
|
18,750 |
|
|
|
2.34 |
|
|
|
3/15/2014 |
|
|
|
(1 |
) |
|
|
|
37,500 |
|
|
|
37,500 |
|
|
|
1.15 |
|
|
|
4/15/2015 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
98,500 |
|
|
|
0.27 |
|
|
|
07/14/2017 |
|
|
|
(1 |
) |
|
|
|
(1) |
|
This option vests in equal installments on the first four anniversaries of the grant date. In each case these
options were granted seven years prior to the listed expiration dates. |
|
(2) |
|
This option vests in equal installments on the first six anniversaries of the grant date which was April 7, 2005. |
52
Post-Employment Compensation
We do not maintain any plans providing for payment or other benefits at, following, or in
connection with retirement other than a 401(k) plan made available to all employees. In addition,
we do not maintain any non-qualified deferred compensation plans.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010 about the securities
authorized for issuance to our employees, directors and other eligible participants under our
equity compensation plans, consisting of the Amended and Restated 2000 Stock Option and Incentive
Plan and the 2010 Equity Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
|
Remaining Available for |
|
|
|
Number of Securities to |
|
|
|
|
|
|
Future Issuance Under |
|
|
|
be Issued Upon Exercise |
|
|
Weighted-Average Exercise |
|
|
Equity Compensation Plans |
|
|
|
of Outstanding Options, |
|
|
Price of Outstanding Options, |
|
|
(Excluding Securities |
|
|
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Reflected in Column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity
compensation plans
approved by
security holders |
|
|
5,348,863 |
|
|
$ |
1.37 |
|
|
|
4,327,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,348,863 |
|
|
$ |
1.37 |
|
|
|
4,327,500 |
|
2010 Equity Incentive Plan
In May 2010 our Board adopted, and in July 2010, upon the recommendation of our Board, our
stockholders approved the adoption of, the 2010 Equity Incentive Plan, or 2010 Plan. The following
is a summary of the material terms of the 2010 Plan:
General
The 2010 Plan provides for the grant of incentive stock options, nonstatutory stock options,
restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock
awards and other forms of equity compensation, which we refer to collectively as stock awards.
Additionally, the 2010 Plan provides for the grant of performance cash awards. Incentive stock
options granted under the 2010 Plan are intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code, or the Code. Nonstatutory stock options
granted under the 2010 Plan are not intended to qualify as incentive stock options under the Code.
Incentive stock options may be granted only to our employees or to employees of certain of our
affiliates. All other awards may be granted to our employees, including officers, non-employee
directors, and consultants. See Federal Income Tax Information below for a discussion of the tax
treatment of awards.
Purpose
The Board adopted the 2010 Plan to provide a means by which employees, directors and
consultants of ours and certain of our affiliates may be given an opportunity to purchase our
stock, to assist us in retaining the services of such persons, to secure and retain the services of
persons capable of filling such positions and to provide incentives for such persons to exert
53
maximum efforts for our success and for the success of our affiliates.
Shares Available for Awards Under the 2010 Plan
The total number of shares of our common stock reserved for issuance under the 2010 Plan is
5,000,000 shares.
If a stock award granted under the 2010 Plan expires or otherwise terminates without being
exercised in full, or is settled in cash, the shares of our common stock not acquired pursuant to
the stock award will again become available for issuance under the 2010 Plan. Additionally, the
following types of shares will be available for the grant of new stock awards under the 2010 Plan:
(i) shares that are forfeited to or repurchased by us prior to becoming fully vested; (ii) shares
withheld to satisfy income and employment withholding taxes; and (iii) shares tendered to us to pay
the exercise price of an option.
Eligibility
All of our employees, directors and consultants, and those of our affiliates, are eligible to
participate in the 2010 Plan and may receive all types of awards other than incentive stock
options. Incentive stock options may be granted only to our employees and to employees of certain
of our affiliates.
Administration
The Board administers the 2010 Plan. Subject to the provisions of the 2010 Plan, the Board has
the power to construe and interpret the 2010 Plan and to determine the persons to whom and the
dates on which awards will be granted, the number of shares of our common stock subject to each
award, the time or times during the term of each award within which all or a portion of such award
may be exercised, the exercise price, the type of consideration and other terms of the award.
The Board has the power to delegate its authority to administer the 2010 Plan to a committee
consisting solely of two or more non-employee directors within the meaning of Rule 16b-3 of the
Exchange Act, and solely of two or more outside directors within the meaning of Section 162(m) of
the Code. The Board has delegated administration of the 2010 Plan to the Compensation Committee.
Except as explicitly stated otherwise, with respect to the 2010 Plan, the Board refers to any
committee the Board appoints (including the Compensation Committee) as well as to the Board itself.
Repricing; Cancellation and Re-Grant of Stock Awards
Under the 2010 Plan, the Board does not have the authority to reprice any outstanding equity
awards by reducing the exercise price of the stock award or to cancel any outstanding stock awards
in exchange for cash or other stock awards without obtaining the approval of our stockholders
within 12 months prior to the repricing or cancellation and re-grant event.
Options
Options may be granted pursuant to stock option agreements. The 2010 Plan permits the grant of
options that qualify as incentive stock options and nonstatutory stock options. Individual stock
option agreements may be more restrictive as to any or all of the permissible terms described in
this section.
Exercise Price; Consideration. The exercise price of incentive stock options may not be less
than 100% of the fair market value of the stock subject to the option on the date of the grant and,
in some cases (see Limitations below), may not be less than 110% of such fair market value. The
exercise price of nonstatutory stock options may not be less than 100% of the fair market value of
the stock on the date of grant.
The Board will determine the acceptable forms of consideration for the purchase of common
stock issued upon the exercise of a stock option, which may include cash or check, a
broker-assisted cashless exercise, the tender of common stock previously owned by the participant,
a net exercise of the option if it is a nonstatutory stock option, and other legal consideration
approved by the Board.
Option Exercise. Options granted under the 2010 Plan may become exercisable in cumulative
increments, or vest, at the rate specified in the option agreement as determined by the Board.
Shares covered by different options granted under the 2010 Plan may be subject to different vesting
schedules as the Board may determine. Vesting can be time-based or performance-based or can be a
hybrid of performance-based and time-based vesting. The Board also has flexibility to provide for
accelerated vesting of options and other equity awards as it deems appropriate.
Term. The maximum term of options granted under the 2010 Plan is ten years, except that in
certain cases (see Limitations below) the maximum term is five years. Unless the terms of a
participants stock option agreement provide
54
otherwise, if a participants service relationship with us, or any of our affiliates, ceases
for any reason other than a termination for cause or a termination because of disability or death,
the participant may exercise the vested portion of any option for a period of three months
following termination of service. If a participants service relationship with us, or any of our
affiliates, ceases due to disability or death or a participant dies within a specified period
following termination of service, the participant or a beneficiary may exercise the vested portion
of any option for a period of 12 months in the event of disability and 18 months in the event of
death. Under the 2010 Plan, the option term may be further extended in the event that exercise of
the option following termination of service is prohibited by applicable securities laws, or the
sale of any common stock received upon exercise of the option would violate our insider trading
policy. In no event, however, may an option be exercised beyond the expiration of its term. In the
event of a termination of a participants service for cause, as defined in the 2010 Plan, the
option will terminate on the termination date and the participant may not exercise the option
following such termination.
Limitations. The aggregate fair market value, determined at the time of grant, of shares of
our common stock with respect to incentive options that are exercisable for the first time by a
participant during any calendar year under all of our stock plans may not exceed $100,000. The
options or portions of options that exceed this limit are treated as nonstatutory stock options. No
incentive stock option may be granted to any person who, at the time of the grant, owns or is
deemed to own stock possessing more than 10% of our total combined voting power or that of any
affiliate unless:
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the option exercise price is at least 110% of the fair market value of the stock subject
to the option on the date of grant; and |
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the term of the incentive stock option does not exceed five years from the date of grant. |
The aggregate maximum number of shares of our common stock that may be issued in respect of
incentive stock options is 5,000,000.
In addition, no person may be granted stock awards covering more than 1,000,000 shares of our
common stock under the 2010 Plan during any calendar year pursuant to stock options, stock
appreciation rights and other equity awards whose value is determined by reference to an increase
over an exercise or strike price of at least 100% of the fair market value on the date the stock
award is granted.
Restricted Stock Awards
A restricted stock award is the grant of shares of our common stock to a participant that may,
but need not, be subject to forfeiture or to a share repurchase option in our favor in accordance
with a vesting scheduled determined by the Board. For example, some or all of the shares of common
stock granted pursuant to a restricted stock award may be repurchased by us if a participants
service with us or with any of our affiliates terminates before a specified date (that is, before
the restricted stock award is fully vested). Restricted stock awards are granted pursuant to
restricted stock award agreements. Restricted stock awards may be granted in consideration for
cash, past or future services rendered to us or an affiliate or any other form of legal
consideration.
Restricted Stock Unit Awards
A restricted stock unit award is a promise by us to issue shares of our common stock, or to
pay cash equal to the value of shares of our common stock, equivalent to the number of units
covered by the award at the time of vesting of the units or thereafter. Restricted stock unit
awards are granted pursuant to restricted stock unit award agreements. Restricted stock unit awards
may be granted in consideration for any form of legal consideration. A restricted stock unit award
entitles the recipient to receive cash, stock, a combination of cash and stock as deemed
appropriate by the Board or any other form of consideration set forth in the restricted stock unit
award agreement at a specified date (typically, upon vesting of the restricted stock units).
Additionally, dividend equivalents may be credited in respect of shares covered by a restricted
stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock
units that have not vested will be forfeited upon the termination of the participants service for
any reason.
Stock Appreciation Rights
A stock appreciation right entitles the participant to a payment equal in value to the
appreciation in the value of the underlying shares of our common stock for a predetermined number
of shares over a specified period. Stock appreciation rights are granted pursuant to stock
appreciation right agreements. Each stock appreciation right is denominated in common stock share
equivalents. The board determines the strike price of each stock appreciation right, which may not
be less than 100% of the fair market value of our common stock on the date of grant. A stock
appreciation right entitles the recipient to
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receive cash, stock, a combination of cash and stock as determined by the Board or any other
form of consideration set forth in the stock appreciation right agreement upon exercise. Upon the
exercise of a stock appreciation right, we will pay the participant an amount equal to the product
of (a) the excess of the per share fair market value of our common stock on the date of exercise
over the strike price, multiplied by (b) the number of shares of common stock with respect to which
the stock appreciation right is exercised. A stock appreciation right vests at the rate specified
in the stock appreciation right agreement as determined by the Board. Stock appreciation rights are
subject to the same conditions upon termination of a participants service and the same
restrictions on transfer as stock options under the 2010 Plan.
Performance Awards
The 2010 Plan permits the grant of performance-based stock and cash awards that may qualify as
performance-based compensation that is not subject to the $1,000,000 limitation on the income tax
deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the
Code. To assure that the compensation attributable to performance-based awards will so qualify, the
Compensation Committee can structure such awards so that the stock or cash will be issued or paid
pursuant to such award only following the achievement of certain pre-established performance goals
during a performance period designed by the Compensation Committee. The maximum amount covered by a
performance award that may be granted to any individual in a calendar year (whether the grant,
vesting or exercise is contingent upon the attainment during a performance period of the
performance goals) may not exceed 1,000,000 shares of our common stock in the case of performance
stock awards, or $500,000 in the case of performance cash awards.
In granting a performance award, the Compensation Committee will set a period of time (a
performance period) over which the attainment of one or more goals (performance goals) will be
measured for the purpose of determining whether the award recipient has a vested right in or to
such award. Within the time period prescribed by Section 162(m) of the Code, at a time when the
achievement of the performance goals remains substantially uncertain (typically before the 90th day
of a performance period or the date on which 25% percent of the performance period has elapsed),
the Compensation Committee will establish the performance goals, based upon one or more criteria
(performance criteria) enumerated in the 2010 Plan and described below. As soon as
administratively practicable following the end of the performance period, the Compensation
Committee will certify in writing whether the performance goals have been satisfied.
The Compensation Committee may establish performance goals by selecting from one or more of
the following performance criteria: (1) earnings (including earnings per share and net earnings);
(2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes,
depreciation and amortization; (4) total stockholder return; (5) return on equity or average
stockholders equity; (6) return on assets, investment, or capital employed; (7) stock price; (8)
margin (including gross margin); (9) income (before or after taxes); (10) operating income; (11)
operating income after taxes; (12) pre-tax profit; (13) operating cash flow; (14) sales or revenue
targets; (15) increases in revenue or product revenue; (16) expenses and cost reduction goals; (17)
improvement in or attainment of working capital levels; (18) economic value added (or an equivalent
metric); (19) market share; (20) cash flow; (21) cash flow per share; (22) share price performance;
(23) debt reduction; (24) implementation or completion of projects or processes; (25) customer
satisfaction; (26) stockholders equity; (27) capital expenditures; (28) debt levels; (29)
operating profit or net operating profit; (30) workforce diversity; (31) growth of net income or
operating income; (32) billings; (33) achievement of clinical trial milestones, such as patient
enrollment or successful completion of the trial; (34) execution of a new license agreement; (35)
receipt of a milestone payment under a license agreement; or (36) to the extent that an award is
not intended to comply with Section 162(m) of the Code, other measures of performance selected by
the Board or the Compensation Committee.
The Compensation Committee may establish performance goals on a company-wide basis, with
respect to one or more business units, divisions, affiliates, or business segments, and in either
absolute terms or relative to the performance of one or more comparable companies or the
performance of one or more relevant indices. Unless specified otherwise (a) in the award agreement
at the time the award is granted or (b) in such other document setting forth the performance goals
at the time the goals are established, the Compensation Committee will appropriately make
adjustments in the method of calculating the attainment of the performance goals as follows: (1) to
exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects, as
applicable, for non-U.S. dollar denominated goals; (3) to exclude the effects of changes to
generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments
to corporate tax rates; and (5) to exclude the effects of any extraordinary items as determined
under generally accepted accounting principles.
Compensation attributable to performance-based awards under the 2010 Plan will qualify as
performance-based compensation, provided that: (i) the award is granted by a compensation committee
comprised solely of outside directors, (ii) the award is granted (or exercisable) only upon the
achievement of an objective performance goal established in writing by the compensation committee
while the outcome is substantially uncertain, and (iii) the compensation committee certifies in
writing prior to the granting, payment or exercisability of the award that the performance goal has
been satisfied.
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Withholding Obligations
Unless prohibited in an individual award agreement, we may satisfy any federal, state or local
tax withholding obligation relating to an award by causing the recipient to tender a cash payment,
by withholding shares of common stock from the shares otherwise issuable, by withholding cash from
an award settled in cash, by withholding payment from amounts otherwise payable, or by such other
method as specified in the award agreement or by a combination of these means.
Changes to Capital Structure
In the event that there is a specified type of change in our capital structure, such as a
stock split, the Board will make appropriate adjustments to (a) the class and maximum number of
shares reserved under the 2010 Plan, (b) the class and maximum number of shares of our common stock
that may be issued upon the exercise of incentive stock options, (c) the class and maximum number
of shares of our common stock subject to equity awards that can be granted in a calendar year (as
established under the 2010 Plan pursuant to Section 162(m) of the Code), and (d) the class, number
of securities and the exercise price or strike price, if applicable, of all outstanding equity
awards.
Corporate Transactions
In the event of certain significant corporate transactions, the following will occur with
respect to outstanding stock awards under the 2010 Plan:
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The Board will arrange for assumption, continuation, or substitution
of a stock award by a surviving or acquiring entity (or its parent
company) and assign any reacquisition or repurchase rights held by us
in respect of common stock issued pursuant to awards to our successor
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With respect to stock awards that have not been assumed, continued or
substituted, the vesting of such stock awards will be accelerated in
full to a date prior to the effective date of the corporate
transaction and any reacquisition or repurchase right held by us in
respect of common stock issuable pursuant to such stock awards will
lapse, and such stock awards will terminate if not exercised (if
applicable) at or prior to the time of the corporate transaction. |
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With respect to stock awards that have not been assumed, continued or
substituted, such outstanding stock awards will terminate if not
exercised at or prior to the time of the corporate transaction, and
the Board may, in its discretion, make a payment, in such form as the
Board may determine, equal in value to the excess, if any, of (a) the
value of the property the holder would have received upon the exercise
of the stock award, over (b) any exercise price payable by such holder
in connection with such exercise. |
The Board need not take the same action with respect to all stock awards or portions of stock
awards or with respect to all participants. The Board may take different actions with respect to
the vested and unvested portions of a stock award.
For purposes of the 2010 Plan, a corporate transaction includes the consummation of any one or
more of the following events: (i) a sale of all or substantially all of our consolidated assets;
(ii) a sale of at least 50% of our outstanding securities; (iii) a merger or consolidation in which
we are not the surviving corporation; or (iv) a merger or consolidation in which we are the
surviving corporation but shares of our outstanding common stock are converted into other property
by virtue of the transaction.
Change in Control
As of the effective time of a change in control, the vesting of all outstanding stock awards
(and the exercisability of options and stock appreciation rights) will be accelerated in full and
any reacquisition or repurchase rights held by us with respect to outstanding stock awards will
lapse.
For purposes of the 2010 Plan, a change in control includes any one or more of the following
events: (a) a person or group becomes the owner of more than 50% of the combined voting power of
our outstanding securities; (b) a consummated merger or consolidation in which our stockholders
immediately prior to the transaction do not own more than 50% of the combined voting power of the
surviving entity or its parent company in substantially the same proportions as their ownership in
us immediately prior to the transaction; (c) a consummated sale, lease, exclusive license or
disposition of all or substantially all of our consolidated assets to an entity more than 50% of
the combined voting power of which is not owned by our stockholders in substantially the same
proportions as their ownership in us immediately prior to the transaction; or (d) certain changes in the composition of the Board. A change in control excludes: (i) the sale of
securities to an investor or
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group for the primary purpose of obtaining financing through our
issuance of securities (including offering stock to the general public through a registration
statement filed with the SEC); (ii) a change in the level of ownership held by a person or group
beyond the designated threshold in section (a) above as a result of our repurchase or other
acquisition of our voting securities; and (iii) a transaction for the purpose of changing our
domicile.
Plan Amendments
The Board will have the authority to amend or terminate the 2010 Plan. However, no amendment
or termination of the plan will adversely affect any rights under awards already granted to a
participant unless agreed to by the affected participant. We will obtain stockholder approval of
any amendment to the 2010 Plan as required by applicable law.
Plan Termination
Unless sooner terminated by the Board, the 2010 Plan will automatically terminate on July 13,
2020, the day before the tenth anniversary of the date the 2010 Plan was adopted by our
stockholders.
Amended and Restated 2000 Stock Option and Incentive Plan
The Amended and Restated 2000 Stock Option and Incentive Plan, or 2000 Plan, provided for
grants of both incentive stock options and non-qualified stock options, as such terms are defined
below, to participants. The 2000 Plan expired in December 2010, and no further grants may be made
under the 2000 Plan. Options granted pursuant to the 2000 Plan remain outstanding in accordance
with their terms. Participants in the 2000 Plan included our employees, directors, consultants and
advisors and those of our affiliates.
The 2000 Plan generally provides that upon an optionholders termination of service for any
reason other than for cause or due to death or disability, the optionholders options, to the
extent vested and exercisable, can be exercised up until the earlier to occur of (i) three months
following the termination of service or (ii) the expiration of the term of the option. Unless
otherwise determined by the Compensation Committee, upon termination of service of an optionholder
due to death or disability, the optionholders options, to the extent vested and exercisable, can
be exercised up until the earlier to occur of (i) one year following the termination of service on
account of death or disability or (ii) the expiration of the term of the option. Upon termination
of service of an optionholder for cause (as defined by the 2000 Plan), all of the optionholders
unexercised options shall immediately be forfeited.
The 2000 Plan provides that in certain events (including certain mergers or consolidations
involving our company), optionholders may have the right to elect to receive cash upon exercise of
any option equal to the fair market value of the underlying stock less the exercise price of such
option times the number of shares with respect to which the options are option exercised. The
Compensation Committee in its discretion will determine whether such amounts are to be paid in
cash, property or some combination. The 2000 Plan also provides that upon the occurrence of certain
events that are treated as a change in control, all outstanding options generally will become
fully vested and exercisable (unless otherwise provided in an optionholders award agreement).
Options granted under the 2000 Plan are restricted as to transferability. Generally, options
only may be transferred by will or the laws of descent and distribution; however, non-qualified
stock options also may be transferred by gift under certain circumstances and pursuant to certain
domestic relations orders. Optionholders may be required under the 2000 Plan to make certain
investment representations in connection with the exercise of options to enable us to comply with
federal and state securities laws. We may refuse delivery of shares under the 2000 Plan if the
requested representations are not made by an optionholder or if the shares have not been registered
by us on a stock exchange. At the time of exercise of options under the 2000 Plan, optionholders
may be required to pay any taxes associated with such exercise of the option that we are required
to withhold. The 2000 Plan permits us to retain or sell shares that an optionholder otherwise would
receive upon exercise of the option to cover the tax amounts required to be withheld.
Federal Income Tax Information
The information set forth below is only a summary and does not purport to be complete. The
information is based upon current federal income tax rules and therefore is subject to change when
those rules change. Because the tax consequences to any participant may depend on his or her
particular situation, each participant should consult the participants tax adviser regarding the
federal, state, local, and other tax consequences of the grant or exercise of an award or the
disposition of stock acquired as a result of an award. The 2000 Plan and 2010 Plan are not
qualified under the provisions of Section 401(a) of the Code and are not subject to any of the
provisions of the Employee Retirement Income Security Act of 1974. Our ability to
realize the benefit of any tax deductions described below depends on our generation of taxable
income as well as the
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requirement of reasonableness, the provisions of Section 162(m) of the Code,
and the satisfaction of our tax reporting obligations.
Nonstatutory Stock Options
Generally, there is no taxation upon the grant of a nonstatutory stock option where the option
is granted with an exercise price equal to the fair market value of the underlying stock on the
grant date. On exercise, a participant will recognize ordinary income equal to the excess, if any,
of the fair market value on the date of exercise of the option over the exercise price. If the
participant is employed by us, that income will be subject to withholding tax. The participants
tax basis in those shares will be equal to their fair market value on the date of exercise of the
option, and the participants capital gain holding period for those shares will begin on that date.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction
equal to the taxable ordinary income realized by the participant.
Incentive Stock Options
Our equity incentive plans provide for the grant of stock options that qualify as incentive
stock options, as defined in Section 422 of the Code. Under the Code, a participant generally is
not subject to ordinary income tax upon the grant or exercise of an incentive stock option. If the
participant holds a share of our common stock received on exercise of an incentive stock option for
more than two years from the date the stock option was granted and more than one year from the date
the stock option was exercised, which is referred to as the required holding period, the
difference, if any, between the amount realized on a sale or other taxable disposition of that
share and the participants tax basis in that share will be long-term capital gain or loss.
If, however, a participant disposes of a share acquired on exercise of an incentive stock
option before the end of the required holding period, which is referred to as a disqualifying
disposition, the participant generally will recognize ordinary income in the year of the
disqualifying disposition equal to the excess, if any, of the fair market value of the share on the
date the incentive stock option was exercised over the exercise price. However, if the sales
proceeds are less than the fair market value of the share on the date of exercise of the stock
option, the amount of ordinary income recognized by the participant will not exceed the gain, if
any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair
market value of the share on the date of exercise of the stock option, that excess will be
short-term or long-term capital gain, depending on whether the holding period for the share exceeds
one year.
For purposes of the alternative minimum tax, the amount by which the fair market value of a
share of stock acquired on exercise of an incentive stock option exceeds the exercise price of that
stock option generally will be an adjustment included in the participants alternative minimum
taxable income for the year in which the stock option is exercised. If, however, there is a
disqualifying disposition of the share in the year in which the stock option is exercised, there
will be no adjustment for alternative minimum tax purposes with respect to that share. In computing
alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive
stock option is increased by the amount of the adjustment taken into account with respect to that
share for alternative minimum tax purposes in the year the stock option is exercised.
We are not allowed an income tax deduction with respect to the grant or exercise of an
incentive stock option or the disposition of a share acquired on exercise of an incentive stock
option after the required holding period. If there is a disqualifying disposition of a share,
however, we are allowed a deduction in an amount equal to the ordinary income includible in income
by the participant, subject to Section 162(m) of the Code, and provided that amount constitutes an
ordinary and necessary business expense for us and is reasonable in amount, and either the employee
includes that amount in income or we timely satisfy our reporting requirements with respect to that
amount.
Restricted Stock Awards
Generally, the recipient of a restricted stock award will recognize ordinary compensation
income at the time the stock is received equal to the excess, if any, of the fair market value of
the stock received over any amount paid by the recipient in exchange for the stock. If, however,
the stock is not vested when it is received (for example, if the employee is required to work for a
period of time in order to have the right to sell the stock), the recipient generally will not
recognize income until the stock becomes vested, at which time the recipient will recognize
ordinary compensation income equal to the excess, if any, of the fair market value of the stock on
the date it vests over any amount paid by the recipient in exchange for the stock. A recipient may,
however, file an election with the Internal Revenue Service, within 30 days of his or her receipt
of the stock award, to recognize ordinary compensation income as of the date the recipient receives the
award equal to the excess, if any,
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of the fair market value of the stock on the date the award is
granted over any amount paid by the recipient in exchange for the stock.
The recipients tax basis for the determination of gain or loss upon the subsequent
disposition of shares acquired from stock awards will be the amount paid for such shares plus any
ordinary income recognized either when the stock is received or when the stock becomes vested.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction
equal to the taxable ordinary income realized by the recipient of the stock award.
Stock Appreciation Rights
If a stock appreciation right is granted under the 2010 Plan with a strike price equal to the
fair market value of the underlying stock on the date of grant and the recipient may receive only
the appreciation inherent in the stock appreciation right in shares of our common stock, the
recipient will recognize ordinary compensation income equal to the fair market value of the stock
received upon exercise of the stock appreciation right. If the recipient may receive the
appreciation inherent in the stock appreciation right in cash or other property and the stock
appreciation right has been structured to conform with the requirements of Section 409A of the
Code, then the cash will be taxable as ordinary compensation income to the recipient at the time
that the cash is received.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code,
and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax
deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation
right.
Restricted Stock Units
Generally, the recipient of a restricted stock unit that is structured to conform to the
requirements of Section 409A of the Code or an exception to Section 409A of the Code will recognize
ordinary compensation income at the time the stock is received equal to the excess, if any, of the
fair market value of the shares of our common stock received over any amount paid by the recipient
in exchange for such shares. To conform to the requirements of Section 409A of the Code, the shares
of our common stock subject to a restricted stock unit award may generally be delivered only upon
one of the following events: a fixed calendar date (or dates), separation from service, death,
disability or a change in control. If delivery occurs on another date, unless the restricted stock
units otherwise comply with or qualify for an exception to the requirements of Section 409A of the
Code, in addition to the tax treatment described above, the recipient will owe an additional 20%
federal tax plus interest on any taxes owed.
The recipients tax basis for the determination of gain or loss upon the subsequent
disposition of shares acquired from restricted stock units, will be the amount paid for such shares
plus any ordinary income recognized when the stock is received.
Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction
equal to the taxable ordinary income realized by the recipient of the stock award.
Section 162 Limitations
Compensation of persons who are our covered employees is subject to the tax deduction limits
of Section 162(m) of the Code. Awards that qualify as performance-based compensation are exempt
from Section 162(m), thereby permitting us to claim the full federal tax deduction otherwise
allowed for such compensation. The 2010 Plan is intended to enable the Board or the Compensation
Committee to make awards, including cash performance awards, that will be exempt from the deduction
limits of Section 162(m). Under Section 162(m), compensation attributable to stock options and
stock appreciation rights will qualify as performance-based compensation if (a) such awards are
approved by a compensation committee composed solely of outside directors, (b) the plan contains
a per-employee limitation on the number of shares for which such awards may be granted during a
specified period, (c) the per-employee limitation is approved by the shareholders, and (d) the
exercise or strike price of the award is no less than the fair market value of the stock on the
date of grant. Compensation attributable to restricted stock awards, restricted stock unit awards,
performance awards and other stock-based awards will qualify as performance-based compensation,
provided that (i) the award is approved by a compensation committee composed solely of outside
directors, (ii) the award is granted, becomes vested or is settled, as applicable, only
upon the achievement of an objective performance goal established in writing by the
compensation committee while the
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outcome is substantially uncertain, (iii) a committee of outside
directors certifies in writing prior to the granting (or vesting or settlement) of the award that
the performance goal has been satisfied, and (iv) prior to the granting (or vesting or settlement)
of the award, the shareholders have approved the material terms of the award (including the class
of employees eligible for such award, the business criteria on which the performance goal is based,
and the maximum amount, or formula used to calculate the maximum amount, payable upon attainment of
the performance goal).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a summary of transactions, and series of related transactions,
since January 1, 2008 to which we have been or will be a participant, in which the amount involved
exceeded or will exceed one percent of the average of our total assets at year end for the last two
completed fiscal years and in which any of our executive officers, directors or beneficial holders
of more than five percent of our capital stock had or will have a direct or indirect material
interest, or any immediate family member of, or person sharing the household with, any of these
individuals, had or will have a direct or indirect material interest, other than executive and
director compensation arrangements, including the employment, termination of employment and change
of control arrangements, which are described in the section of this prospectus entitled Executive
Compensation.
Since January 1, 2008, we have entered into six financing transactions in which Sigma-Tau and
its affiliates have participated, as described below. Mauro Bove, one of our directors, is an
officer of Sigma-Tau. Each of these transactions was approved by our Board of Directors and our
audit committee, following disclosure of Mr. Boves potential interests in these transactions.
On February 29, 2008, we issued 2,500,000 shares of common stock to each of
Chaumiere-Consultadoria e Servicos SDC Unipessoal LDA, or Chaumiere, which was an indirect
wholly-owned subsidiary of an entity owned by Paolo Cavazza and members of his family, who own 38%
of Sigma-Tau, and Inverlochy-Consultadoria e Servicos (S.U.) LDA, or Inverlochy, an entity wholly
owned by Claudio Cavazza, who directly and indirectly owns 57% of Sigma-Tau, at a purchase price of
$1.00 per share in a private placement. The purchase agreements provided that the purchasers may
not transfer the shares through December 31, 2010, except for transfers to affiliates, that we,
rather than the purchasers, had all voting rights in respect of the shares until December 31, 2010,
and that we had the right to repurchase the shares at price of up to $2.50 per share until December
31, 2010, which right has expired. We also issued warrants to each of Chaumiere and Inverlochy to
purchase 500,000 shares of our common stock at an exercise price of $1.60 per share. The warrants
have fully vested and were originally exercisable until December 31, 2010; however, as described
below, we have recently agreed to amend these warrants to extend their expiration dates to December
31, 2011.
On December 10, 2008, we issued 1,034,482 shares of common stock to each of Chaumiere and
Inverlochy at a purchase price of $1.45 per share in a private placement. The purchase agreements
provide that the purchasers may not transfer the shares through December 31, 2011, except for
transfers to affiliates and that we, rather than the purchasers, have all voting rights in respect
of the shares until December 31, 2011. We also issued warrants to each of Chaumiere and Inverlochy
to purchase 372,552 shares of our common stock at an exercise price of $1.74 per share. The
warrants were vested in full upon issuance and are exercisable until December 31, 2011.
On April 30, 2009, we issued 1,052,631 shares of common stock to Chaumiere at a purchase price
of $0.57 per share in a private placement. The purchase agreement provides that Chaumiere may not
transfer the shares through April 30, 2012 except for transfers to affiliates and that we, rather
than Chaumiere, have all voting rights in respect to the shares through April 30, 2012. We also
issued a warrant to Chaumiere to purchase 263,158 shares of our common stock at an exercise price
of $0.91 per share. The warrant was fully vested upon issuance and is exercisable until April 30,
2012.
On October 15, 2009, we issued 1,219,512 shares of common stock to Chaumiere at a purchase
price of $0.82 per share in a private placement. The purchase agreement provides that Chaumiere may
not transfer the shares through September 30, 2012 except for transfers to affiliates and that we,
rather than Chaumiere, have all voting rights in respect to the shares through September 30, 2012.
We also issued a warrant to Chaumiere to purchase 609,756 shares of our common stock at an exercise
price of $1.12 per share. The warrant was fully vested upon issuance and is exercisable until
September 30, 2014.
On May 21, 2010, we completed a public offering of units, consisting of shares of our common
stock and warrants to purchase common stock. Sinaf S.A., which participated in the offering, is a
direct wholly-owned subsidiary of Aptafin S.p.A., or Aptafin. Aptafin is owned directly by Paolo
Cavazza and members of his family. Sinaf purchased 240,000 units, consisting of 240,000 shares of
common stock and warrants to purchase 96,000 shares of our common stock, for a purchase price of
$0.41 per unit, in the public offering on the same terms and conditions as other investors
participating in the public offering.
On June 29, 2010, Inverlochy merged with and into Taufin International S.A., or Taufin.
Taufin is a direct wholly-owned subsidiary of Taufin SPA. Taufin SPA is owned directly by Claudio
Cavazza. As a result of the merger, Taufin became the direct beneficial owner of the warrants and
shares of common stock owned by Inverlochy immediately prior to the merger and Chaumiere merged
with and into Sinaf, and Sinaf thereby became the direct beneficial owner of the warrants and
shares of Common Stock owned by Chaumiere immediately prior to the merger.
62
On January 7, 2011, we issued 925,926 shares of common stock to Defiante, 1,296,296 shares to
Taufin and 1,296,297 shares to Sinaf, all at a purchase price of $0.27 per share in a private placement. We also
issued warrants to each of Defiante, Taufin and Sinaf to purchase 370,370 shares, 518,518 shares
and 518,519 shares of our common stock, respectively, at an exercise price of $0.38 per share. The
warrants will be exercisable on July 7, 2011 and thereafter until January 7, 2016. We also entered
into an agreement with Defiante, Taufin and Sinaf to amend the terms of certain warrants held by
them. Under the warrant amendment, all outstanding warrants held by Defiante, Taufin and Sinaf
that were issued between March 2006 and December 2008, exercisable for an aggregate of 3,046,453
shares of common stock and with exercise prices between $1.60 per share and $4.06 per share, were
amended to reduce their exercise prices to $0.38 per share and to extend their expiration dates to
December 31, 2011.
Indemnification of Officers and Directors
Our restated certificate of incorporation limits the personal liability of directors for
breach of fiduciary duty to the maximum extent permitted by the General Corporation Law of the
State of Delaware, referred to herein as the DGCL. Our restated certificate of incorporation
provides that no director will have personal liability to us or to our stockholders for monetary
damages for breach of fiduciary duty as a director. However, these provisions do not eliminate or
limit the liability of any of our directors for any of the following:
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any breach of their duty of loyalty to us or our stockholders; |
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acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; |
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voting or assenting to unlawful payments of dividends or other distributions; or |
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any transaction from which the director derived an improper personal benefit. |
Any amendment to or repeal of these provisions will not eliminate or reduce the
effect of these provisions in respect of any act or failure to act, or any cause of action, suit or
claim that would accrue or arise prior to any amendment or repeal or adoption of an inconsistent
provision. If the DGCL is amended to provide for further limitations on the personal liability of
directors of corporations, then the personal liability of our directors will be further limited in
accordance with the DGCL.
Section 145 of the DGCL provides that a Delaware corporation may indemnify any persons who
are, or are threatened to be made, parties 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 such corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of such person as an
officer, director, employee or agent of another corporation or enterprise. Our amended and restated
bylaws include such a provision. The indemnity may include expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the corporations best
interests and, with respect to any criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
Section 145 of the DGCL also provides that a Delaware corporation may indemnify any persons
who are, or are threatened to be made, a party to any threatened, pending or completed action or
suit by or in the right of the corporation by reason of the fact that such person was a director,
officer, employee or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or enterprise. Our
amended and restated bylaws contain such a provision. The indemnity may include expenses (including
attorneys fees) actually and reasonably incurred by such person in connection with the defense or
settlement of such action or suit provided such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the corporations best interests except that no
indemnification is permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the merits or otherwise in
the defense of any action referred to above, the corporation must indemnify him or her against the
expenses that such officer or director has actually and reasonably incurred.
Expenses incurred by any indemnitee in defending or investigating a threatened or pending
action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to
us of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined that such indemnitee is not entitled to be indemnified by us. No
advance will be made by us if a determination is reasonably and promptly made by our board of
directors by a majority vote of a quorum of disinterested directors, or if such a quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, that, based upon the facts known to the board or counsel at the
time such determination is made, such person did not meet the applicable standard of conduct in
order
63
to be indemnified.
At present, there is no pending litigation or proceeding involving any of our directors or
officers as to which indemnification is required or permitted, and we are not aware of any
threatened litigation or proceeding that may result in a claim for indemnification.
We have an insurance policy covering our officers and directors with respect to certain
liabilities, including liabilities arising under the Securities Act or otherwise.
64
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock as of
January 7, 2011 by:
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each person, or group of affiliated persons, who is known by us to
beneficially own more than 5% of our common stock; |
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each of our named executive officers; |
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each of our directors; and |
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all of our executive officers and directors as a group. |
The percentage ownership information shown in the table is based upon 79,860,282 shares
of common stock outstanding as of January 7, 2011.
We have determined beneficial ownership in accordance with the rules of the SEC. These rules
generally attribute beneficial ownership of securities to persons who possess sole or shared voting
power or investment power with respect to those securities. In addition, the rules include shares
of common stock issuable pursuant to the exercise of stock options or warrants that are either
immediately exercisable or exercisable on or before March 8, 2011, which is 60 days after January
7, 2011. These shares are deemed to be outstanding and beneficially owned by the person holding
those options or warrants for the purpose of computing the percentage ownership of that person, but
they are not treated as outstanding for the purpose of computing the percentage ownership of any
other person. Unless otherwise indicated, the persons or entities identified in this table have
sole voting and investment power with respect to all shares shown as beneficially owned by them,
subject to applicable community property laws.
Except as otherwise noted below, the address for persons listed in the table is c/o RegeneRx
Biopharmaceuticals, Inc., 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850.
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Number of |
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Percentage of |
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|
Shares |
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|
Shares |
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Beneficially |
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Beneficially |
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Name of Beneficial Owner |
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Owned |
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Owned |
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5% Stockholders: |
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Entities affiliated with Sigma-Tau
Finanziaria, S.p.A. Via Sudafrica,
20, Rome, Italy 00144 |
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33,997,378 |
(1) |
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40.5 |
% |
Named Executive Officers and Directors: |
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J.J. Finkelstein |
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2,330,886 |
(2) |
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2.9 |
% |
Allan L. Goldstein |
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1,921,288 |
(3) |
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2.4 |
% |
R. Don Elsey |
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* |
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Joseph C. McNay |
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1,544,635 |
(4) |
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1.9 |
% |
Mauro Bove |
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204,655 |
(5) |
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* |
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L. Thompson Bowles |
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132,343 |
(6) |
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* |
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C. Neil Lyons |
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386,893 |
(7) |
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* |
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David R. Crockford |
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408,750 |
(8) |
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* |
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All current directors and executive
officers as a group (8 persons) |
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6,929,450 |
(9) |
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8.4 |
% |
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* |
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Represents beneficial ownership of less than 1%. |
65
|
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(1) |
|
Consists of 984,615 shares of common stock held of record held by Sigma-Tau Finanziaria, S.p.A. (Sigma-Tau); 12,937,111
shares of common stock held of record and 589,481 shares of common stock issuable upon exercise of warrants held by
Defiante Farmaceutica S.A. (Defiante), a subsidiary of Sigma-Tau, that are exercisable within 60 days of January 7,
2011; 6,348,878 shares of common stock held of record and 1,228,486 shares of common stock issuable upon exercise of
warrants held by Taufin International S.A. (Taufin), an entity wholly owned by Taufin SPA, which is owned directly by
Claudio Cavazza, who directly and indirectly owns 57% of Sigma-Tau, that are exercisable within 60 days of January 7,
2011; and 9,711,407 shares of common stock held of record and 2,197,400 shares of common stock issuable upon exercise of
warrants held by Sinaf S.A. (Sinaf), an indirect wholly-owned subsidiary of Aptafin S.p.A., which is owned by Paolo
Cavazza and members of his family, that are exercisable within 60 days of January 7, 2011. Paolo Cavazza directly and
indirectly owns 38% of Sigma-Tau. |
|
(2) |
|
Consists of 1,377,638 shares of common stock held of record by Mr. Finkelstein and 51,000 shares of common stock held of
record by Mr. Finkelsteins daughter over which Mr. Finkelstein shares voting and dispositive power. Also includes
902,248 shares of common stock issuable upon exercise of options exercisable within 60 days of January 7, 2011. |
|
(3) |
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Consists of 1,336,846 shares of common stock held of record by Dr. Goldstein and 584,442 shares of common stock issuable
upon exercise of options exercisable within 60 days of January 7, 2011. |
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(4) |
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Consists of 1,339,111 shares of common stock held of record by Mr. McNay and 205,524 shares of common stock issuable upon
exercise of options exercisable within 60 days of January 7, 2011. |
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(5) |
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Consists of shares of common stock issuable upon exercise of options exercisable within 60 days of January 7, 2011. Mr.
Bove is an officer of Sigma-Tau, but he has no beneficial ownership over the reported securities as he has no voting or
dispositive power with respect to the securities held by Sigma-Tau
and its affiliates described in Note 1 above. |
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(6) |
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Consists of shares of common stock issuable upon exercise of options exercisable within 60 days of January 7, 2011. |
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(7) |
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Consists of 30,000 shares of common stock held of record by Mr. Lyons and 356,893 shares of common stock issuable upon
exercise of options exercisable within 60 days of January 7, 2011. |
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(8) |
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Consists of shares of common stock issuable upon exercise of options exercisable within 60 days of January 7, 2011. |
|
(9) |
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Consists of 4,134,595 shares of common stock held of
record and 2,794,855 shares of common stock issuable upon
exercise of options exercisable within 60 days of January
7, 2011. |
66
THE LINCOLN PARK TRANSACTION
General
On January 4, 2011, we entered into the Purchase Agreement, which provides that, upon the
terms and subject to the conditions and limitations set forth therein, Lincoln Park is committed to
purchase up to an aggregate of $11,000,000 of our shares of common stock over the term of the
Purchase Agreement.
As of January 7, 2011, there were 79,860,282 shares outstanding, of which 45,743,676 shares
were held by non-affiliates (including the 958,333 shares already issued to Lincoln Park under the
Purchase Agreement and 1,851,852 shares issued to Lincoln Park outside of the Purchase Agreement).
If all of the 15,000,000 shares offered by Lincoln Park were issued and outstanding as of the date
hereof, such shares would represent 15.8% of the total common stock outstanding, or 24.7% of the
non-affiliates shares outstanding. The number of shares ultimately offered for sale by Lincoln
Park is dependent upon the number of shares that we sell to Lincoln Park under the Purchase
Agreement.
Pursuant to the Purchase Agreement, we filed a registration statement, of which this
prospectus is a part, with regard to the sale by Lincoln Park of the common stock issuable under
the Purchase Agreement. We do not have the right to commence any sales of our shares to Lincoln
Park until the SEC has declared the registration statement effective. Thereafter, over
approximately 30 months, we have the right but not the obligation to direct Lincoln Park to
purchase up to 200,000 shares of common stock every third business day at a purchase price
calculated by reference to the prevailing market price of our common stock without any fixed
discount, subject to the floor price of $0.15 per share. There are no trading volume requirements
or restrictions under the Purchase Agreement, and we will control the timing and amount of any
sales of our common stock to Lincoln Park. Lincoln Park has no right to require any sales by us,
but is obligated to make purchases from us as we direct in accordance with the Purchase Agreement.
We can also accelerate the amount of common stock to be purchased under certain circumstances.
There are no limitations on use of proceeds, financial or business covenants, restrictions on
future funding, rights of first refusal, participation rights, penalties or liquidated damages in
the Purchase Agreement. The Purchase Agreement may be terminated by us at any time, at our
discretion, without any penalty or cost to us.
Purchase of Shares Under The Purchase Agreement
Under the Purchase Agreement, on any trading day selected by us, we may sell to Lincoln Park
up to 200,000 shares of our common stock by delivering a purchase notice to Lincoln Park. The
Purchase Price of such shares is equal to the lesser of: (i) the lowest sale price of our common
stock on the purchase date; or (ii) the arithmetic average of the three lowest closing sale prices
for our common stock during the twelve consecutive trading days ending on the trading day
immediately preceding the purchase date. In addition, we may accelerate the amounts of purchases by
an additional 200,000 shares of our common stock in the event the closing price of our stock is not
below $0.35 per share on such day. The Purchase Price of such accelerated amounts will be the
lesser of (i) the lowest sale price of our common stock on the purchase date and (ii) the lowest
purchase price (as described above) during the previous 10 business days prior to the purchase
date. The Purchase Price will be adjusted for any reorganization, recapitalization, non-cash
dividend, stock split, or other similar transaction occurring during the trading day(s) used to
compute the Purchase Price.
In consideration for entering into the Purchase Agreement, we issued to Lincoln Park 958,333
restricted shares of common stock (not included in this offering) as initial commitment shares and
are required to issue up to 958,333 shares of common stock (included in this offering) as
additional commitment shares on a pro rata basis as we require Lincoln Park to purchase shares
under the Purchase Agreement over the term.
If we elect to issue more than the 15,000,000 shares offered under this prospectus, which we
have the right but not the obligation to do, we must first register under the Securities Act any
additional shares we may elect to sell to Lincoln Park before we can sell such additional shares,
which could cause substantial dilution to our stockholders.
Lincoln
Park may not assign or transfer its rights and obligations under the
Purchase Agreement.
Minimum Purchase Price
Under the Purchase Agreement, we have set a floor price of $0.15 per share. Lincoln Park will
not have the right nor the obligation to purchase any shares of our common stock in the event that
the purchase price per share would be less than the floor price.
Events of Default
The Purchase Agreement contains a number of events constituting an Event of Default,
including:
67
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while any registration statement is required to be maintained effective pursuant to the terms of the
registration rights agreement between us and Lincoln Park, the effectiveness of such registration
statement lapses for any reason (including, without limitation, the issuance of a stop order) or is
unavailable for sale of our shares of common stock in accordance with the terms of the registration
rights agreement, and such lapse or unavailability continues for a period of twenty consecutive
business days or for more than an aggregate of sixty business days in any 365-day period; |
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the suspension from trading or failure of our common stock to be listed on our principal market for a
period of three consecutive business days; |
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the delisting of our common stock from our principal market, provided our common stock is not
immediately thereafter trading on the OTC Bulletin Board, the NASDAQ Global Market, the NASDAQ Global
Select Market, the New York Stock Exchange or the NASDAQ Capital Market; |
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our transfer agents failure to issue to Lincoln Park shares of our common stock which Lincoln Park is
entitled to receive under the Purchase Agreement within five business days after an applicable
purchase date; |
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any breach by us of the representations or warranties or covenants contained in the Purchase Agreement
or any related agreements which could have a material adverse effect on us subject to a cure period of
five business days; |
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if we become insolvent or are generally unable to pay our debts as they become due; or |
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any participation or threatened participation in insolvency or bankruptcy proceedings by or against us. |
Our Termination Rights
The Purchase Agreement may be terminated by us at any time, at our discretion, without any
cost to us.
No Short-Selling or Hedging by Lincoln Park
Lincoln Park has agreed that neither it nor any of its affiliates shall engage in any direct
or indirect short-selling or hedging of our common stock during any time prior to the termination
of the Purchase Agreement.
Effect of Performance of the Purchase Agreement on Our Stockholders
All 15,000,000 shares of common stock that are registered in this offering which may be sold
by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period of up to 30 months
from the date of this prospectus. The sale by Lincoln Park of a significant amount of shares
registered in this offering at any given time could cause the market price of our common stock to
decline and to be highly volatile. Lincoln Park may ultimately acquire all, some or none of the
shares of common stock not yet issued but registered in this offering. After it has acquired such
shares, it may sell all, some or none of such shares. Therefore, sales to Lincoln Park by us under
the Purchase Agreement may result in substantial dilution to the interests of other holders of our
common stock. However, we have the right to control the timing and amount of any sales of our
shares to Lincoln Park and the Purchase Agreement may be terminated by us at any time at our
discretion without any cost to us.
In connection with entering into the Purchase Agreement, we authorized the sale to Lincoln
Park of up to $11,000,000 of our common stock exclusive of the 958,333 commitment shares issued,
but not included in this offering, and the 958,333 additional commitment shares that may be issued
and are part of this offering. The number of shares ultimately offered for sale by Lincoln Park
under this prospectus is dependent upon the number of shares purchased by Lincoln Park under the
Purchase Agreement. In the event we elect to issue more than the 15,000,000 shares offered hereby,
we will be required to file a new registration statement and have it declared effective by the SEC.
The following table sets forth the amount of proceeds we would receive from Lincoln Park from the
sale of shares at varying purchase prices:
68
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|
Additional Proceeds from the Sale |
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of |
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|
|
Percentage of Outstanding |
|
Registered Shares |
|
Assumed Average |
|
Number of Registered |
|
Shares After Giving Effect to |
|
to Lincoln Park Under the |
|
Purchase Price |
|
Shares to be Issued if |
|
the |
|
Purchase Agreement |
|
($) |
|
Full Purchase (1)(2) |
|
Issuance to Lincoln Park(3) |
|
($) |
|
$0.15(4) |
|
15,000,000 |
|
15.8 |
% |
2,220,976 |
|
$0.22(5) |
|
15,000,000 |
|
15.8 |
% |
3,237,940 |
|
$0.50 |
|
15,000,000 |
|
15.8 |
% |
7,186,933 |
|
$1.00 |
|
11,958,333 |
|
13.0 |
% |
11,000,000 |
|
$1.50 |
|
8,291,666 |
|
9.4 |
% |
11,000,000 |
|
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(1) |
|
Although the Purchase Agreement provides that we may sell up to
$11,000,000 of our common stock to Lincoln Park, we are only
registering 15,000,000 shares to be purchased thereunder, which
may or may not cover all such shares purchased by them under the
Purchase Agreement, depending on the purchase price per share. As
a result, we have included in this column only those shares which
are registered in this offering. |
|
(2) |
|
The number of registered shares to be issued includes a number of
shares to be purchased at the applicable price plus the applicable
number of pro rata additional commitment shares to be issued to
Lincoln Park as a result of such purchase (but not the 958,333
initial commitment shares), although no additional proceeds will
be attributable to such additional commitment shares. |
|
(3) |
|
The denominator is based on 79,860,282 shares outstanding, and
includes the 2,810,185 shares already owned by Lincoln Park not
included in this offering, and the number of shares set forth in
the adjacent column which includes the commitment fee issued pro
rata up to the $11,000,000 of our stock if purchased by Lincoln
Park. The numerator is based on the number of shares issuable
under the Purchase Agreement at the corresponding assumed purchase
price set forth in the adjacent column. |
|
(4) |
|
Under the Purchase Agreement, we may not sell and Lincoln Park
cannot purchase any shares in the event the price of our stock is
below $0.15 per share. |
|
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(5) |
|
The closing price of our common stock on February 4, 2011. |
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69
SELLING STOCKHOLDER
The shares of common stock being offered by the selling stockholder are those to be issued to
Lincoln Park under the Purchase Agreement. We are registering the shares of common stock in order
to permit Lincoln Park to offer the shares for resale from time to time. Lincoln Park is not a
licensed broker-dealer or an affiliate of a licensed broker-dealer. Neither Lincoln Park nor any of
its affiliates has held a position or office, or had any other material relationship, with us
within the past three years.
We do not know when or in what amounts Lincoln Park may offer shares for sale. Lincoln Park
may elect not to sell any or all of the shares offered by this prospectus. Because Lincoln Park
may offer all or some of the shares, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the shares, we cannot estimate the number of the
shares that will be held by Lincoln Park after completion of the offering. However, for purposes
of this table, we have assumed that, after completion of the offering, all of the shares covered by
this prospectus will be sold by Lincoln Park.
The following table presents information regarding Lincoln Park. The information concerning
beneficial ownership has been taken from our stock transfer records and information provided by
Lincoln Park. Beneficial ownership has been calculated in accordance with the rules of the SEC,
which generally attribute beneficial ownership of securities to persons who possess sole or shared
voting power or investment power with respect to those securities and include shares of common
stock issuable pursuant to the exercise of stock options or warrants that are either immediately
exercisable or exercisable within 60 days. The warrants held by Lincoln Park are not exercisable
within 60 days of the date of this prospectus and, therefore, the shares issuable upon exercise of
those warrants have not been included in the beneficial ownership calculations.
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Shares to be |
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Sold |
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in the Offering |
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Assuming |
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|
|
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|
|
Percentage of |
|
RegeneRx Issues |
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Percentage of |
|
|
|
Shares Beneficially |
|
Outstanding Shares |
|
|
Maximum No. |
|
Outstanding Shares |
|
|
|
Owned Before |
|
|
Beneficially Owned |
|
|
of Shares |
|
Beneficially Owned |
|
Selling Stockholder |
|
Offering |
|
|
Before Offering |
|
|
in the Offering |
|
After Offering |
|
Lincoln Park Capital Fund, LLC (1)
|
|
|
2,810,185 |
|
|
|
3.5 |
% |
|
15,000,000 |
(3)
|
|
3.0 |
% |
|
|
|
(1) |
|
Josh Scheinfeld and Jonathan Cope, the principals of Lincoln Park, are deemed to be beneficial owners of all of the shares of common stock owned by
Lincoln Park. Messrs. Scheinfeld and Cope have shared voting and disposition power over the shares being offered under this prospectus. |
|
(2) |
|
2,810,185 shares of our common stock are already owned by Lincoln Park, which shares include (i) 958,333 shares of restricted common stock and (ii)
1,851,852 shares acquired by Lincoln Park in connection with the January 2011 registered direct offering of our securities. We may at our discretion
elect to issue to Lincoln Park up to an additional 15,000,000 shares of our common stock under the Purchase Agreement, subject to the terms and
provisions of such agreement, but Lincoln Park does not beneficially own any such shares that may be issued by us at our sole discretion and such
shares are not included in determining the percentage of shares beneficially owned before the offering. |
|
(3) |
|
Although the Purchase Agreement provides what we may sell up to $11,000,000 of our common stock to Lincoln Park, we are only registering 15,000,000
shares issuable under the Purchase Agreement on this registration statement. If we elect to issue more than the 15,000,000 shares offered by this
prospectus, which we have the right but not the obligation to do, we must first register under the Securities Act any additional shares we may elect
to sell to Lincoln Park before we can sell such additional shares. |
70
DESCRIPTION OF SECURITIES
As of the date of this prospectus, our certificate of incorporation authorizes us to
issue 200,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of
preferred stock, par value $0.001 per share. As of January 7, 2011, 79,860,282 shares of common
stock were outstanding and no shares of preferred stock were outstanding.
As of January 7, 2011, we also had outstanding:
|
|
|
options to purchase 5,348,863 shares of our common
stock at a weighted average exercise price of $1.37
per share; and |
|
|
|
|
warrants to purchase an aggregate of 16,136,900
shares of our common stock at a weighted average
exercise price of $0.89 per share. |
The following summary description of our capital stock is based on the provisions of
our certificate of incorporation, including the certificate of designation for our Series A
Participating Cumulative Preferred Stock described below, as well as our bylaws, our stockholder
rights plan and the applicable provisions of the Delaware General Corporation Law. This information
is qualified entirely by reference to the applicable provisions of our restated certificate of
incorporation, as amended to date, our bylaws, as amended to date, our stockholder rights plan and
the Delaware General Corporation Law. For information on how to obtain copies of our certificate of
incorporation, bylaws and stockholder rights plan, which are exhibits to the registration statement
of which this prospectus is a part, see Where You Can Find Additional Information.
Common Stock
Voting Rights. Each holder of our common stock is entitled to one vote for each share on all
matters submitted to a vote of the stockholders, including the election of directors. Our
certificate of incorporation and bylaws do not provide for cumulative voting rights. Because of
this, the holders of a majority of the shares of common stock entitled to vote in any election of
directors can elect all of the directors standing for election, if they should so choose.
Dividends. Subject to preferences that may be applicable to any then outstanding preferred
stock, holders of common stock are entitled to receive dividends, if any, as may be declared from
time to time by our board of directors out of legally available funds.
Liquidation. In the event of our liquidation, dissolution or winding up, holders of common
stock will be entitled to share ratably in the net assets legally available for distribution to
stockholders after the payment of all of our debts and other liabilities and the satisfaction of
any liquidation preference granted to the holders of any then outstanding shares of preferred
stock.
Rights and Preferences. Holders of common stock have no preemptive, conversion, subscription
or other rights, and there are no redemption or sinking fund provisions applicable to the common
stock. The rights, preferences and privileges of the holders of common stock are subject to and may
be adversely affected by, the rights of the holders of shares of any series of preferred stock that
we may designate in the future.
Fully Paid and Nonassessable. All of our outstanding shares of common stock are, and the
shares of common stock to be issued in this offering will be, fully paid and nonassessable.
Certain Repurchase Rights and Voting Restrictions.
On October 15, 2009, we issued 1,219,512 shares of common stock and a warrant to purchase an
additional 609,756 shares of common stock to Sigma-Tau. The purchaser agreed to vote the shares
purchased in the transaction, and any additional shares issued pursuant to the exercise of the
warrant issued in the transaction, at the direction of our Board until September 30, 2012.
On April 30, 2009, we issued 1,052,631 shares of common stock and a warrant to purchase an
additional 263,158 shares of common stock to Sigma-Tau. The purchaser agreed to vote the shares
purchased in the transaction, and any additional shares issued pursuant to the exercise of the
warrant issued in the transaction, at the direction of our Board until April 30, 2012.
On December 10, 2008, we issued an aggregate of 2,068,964 shares of common stock and warrants
to purchase an additional 745,104 shares of common stock to Sigma-Tau. The purchasers agreed to
vote the shares purchased in the
71
transaction, and any additional shares issued pursuant to the exercise of the warrants issued
in the transaction, at the direction of our Board until December 31, 2011.
Preferred Stock
Under our certificate of incorporation, our board of directors has the authority, without
further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or
more series, to establish from time to time the number of shares to be included in each such
series, to fix the rights, preferences and privileges of the shares of each wholly unissued series
and any qualifications, limitations or restrictions thereon and to increase or decrease the number
of shares of any such series, but not below the number of shares of such series then outstanding.
Our board of directors has designated 200,000 of the 1,000,000 authorized shares of preferred stock
as Series A Participating Cumulative Preferred Stock, none of which shares are outstanding but
which could be issued under the terms of the stockholder rights plan.
Our board of directors may authorize the issuance of preferred stock with voting or conversion
rights that could adversely affect the voting power or other rights of the holders of the common
stock. The issuance of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control of our company and may adversely affect the market
price of the common stock and the voting and other rights of the holders of common stock.
Stockholder Rights Plan. Our Board adopted a Rights Agreement, dated April 29, 1994, as
amended, often referred to as a poison pill, as a tool to prevent an unsolicited takeover. In
general, under our rights agreement, our Board has the discretion to issue certain rights to
purchase our capital stock when a person acquires in excess of 25% of our outstanding common
shares. Our Board has exempted purchases by Sigma-Tau to date and purchases that may be made by
Lincoln Park under the Purchase Agreement from the operation of our stockholder rights plan. Our
stockholder rights plan may make it more difficult for stockholders to take corporate actions and
may have the effect of delaying or preventing a change in control, even if such actions or change
in control would be in your best interests.
Delaware Anti-takeover Law and Certain Provisions of Our Amended and Restated Certificate of
Incorporation and Bylaws
Delaware law. We are subject to Section 203 of the Delaware General Corporation Law. Section
203 generally prohibits a public Delaware corporation from engaging in a business combination with
an interested stockholder for a period of three years after the date of the transaction in which
the person became an interested stockholder, unless:
|
|
|
prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder; |
|
|
|
|
the interested stockholder owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced,
excluding for this purpose shares owned by persons who are directors
and also officers and shares owned by employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or |
|
|
|
|
on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2 / 3 % of the outstanding
voting stock that is not owned by the interested
stockholder. |
Section 203 defines a business combination to include:
|
|
|
any merger or consolidation involving the corporation and the interested stockholder; |
|
|
|
|
any sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; |
|
|
|
|
subject to exceptions, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested stockholder; |
|
|
|
|
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock or any class or series of the corporation
beneficially owned by the interested stockholder; and |
72
|
|
|
the receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation. |
In general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity
or person affiliated with or controlling or controlled by the entity or person.
Certificate of Incorporation and Bylaws. Provisions of our restated certificate of
incorporation and amended and restated bylaws may delay or discourage transactions involving an
actual or potential change in our control or change in our management, including transactions in
which stockholders might otherwise receive a premium for their shares, or transactions that our
stockholders might otherwise deem to be in their best interests. Therefore, these provisions could
adversely affect the price of our common stock.
Among other things, our restated certificate of incorporation and amended and restated bylaws:
|
|
|
permit our board of directors to issue up to
1,000,000 shares of preferred stock, with any rights,
preferences and privileges as they may designate,
including the right to approve an acquisition or
other change in our control; |
|
|
|
|
provide that the authorized number of directors,
which may not be less than three nor more than seven,
may be changed only by resolution of the board of
directors; |
|
|
|
|
provide that stockholders seeking to nominate
candidates for election as directors at a meeting of
stockholders must provide notice in writing in a
timely manner, and also specify requirements as to
the form and content of a stockholders notice; |
|
|
|
|
do not provide for cumulative voting rights,
therefore allowing the holders of a majority of the
shares of common stock entitled to vote in any
election of directors to elect all of the directors
standing for election, if they should so choose; and |
|
|
|
|
provide that special meetings of our stockholders may
be called only by the chairman of the board, our
president or by the board of directors. |
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust
Company. The transfer agent and registrars address is 6201 15th Street, Brooklyn, NY 11219.
OTC Bulletin Board Quotation
Our common stock is quoted on the Bulletin Board under the trading symbol RGRX.
73
PLAN OF DISTRIBUTION
The common stock offered by this prospectus is being offered by Lincoln Park, the selling
stockholder. The common stock may be sold or distributed from time to time by the selling
stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may
act solely as agents at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale
of the common stock offered by this prospectus may be effected in one or more of the following
methods:
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|
|
ordinary brokers transactions; |
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|
|
transactions involving cross or block trades; |
|
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|
|
through brokers, dealers, or underwriters who may act solely as agents; |
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|
|
at the market into an existing market for the common stock; |
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|
|
in other ways not involving market makers or established business markets, including
direct sales to purchasers or sales effected through agents; |
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|
in privately negotiated transactions; or |
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|
|
any combination of the foregoing. |
In order to comply with the securities laws of certain states, if applicable, the shares may
be sold only through registered or licensed brokers or dealers. In addition, in certain states,
the shares may not be sold unless they have been registered or qualified for sale in the state or
an exemption from the registration or qualification requirement is available and complied with.
Brokers, dealers, underwriters, or agents participating in the distribution of the shares as
agents may receive compensation in the form of commissions, discounts, or concessions from the
selling shareholder and/or purchasers of the common stock for whom the broker-dealers may act as
agent. The compensation paid to a particular broker-dealer may be less than or in excess of
customary commissions.
Lincoln Park is an underwriter within the meaning of the Securities Act.
Neither we nor Lincoln Park can presently estimate the amount of compensation that any agent
will receive. We know of no existing arrangements between Lincoln Park, any other stockholder,
broker, dealer, underwriter, or agent relating to the sale or distribution of the shares offered by
this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if
required, will be distributed that will set forth the names of any agents, underwriters, or dealers
and any compensation from the selling stockholder, and any other required information.
We will pay all of the expenses incident to the registration, offering, and sale of the shares
to the public other than commissions or discounts of underwriters, broker-dealers, or agents. We
have also agreed to indemnify Lincoln Park and related persons against specified liabilities,
including liabilities under the Securities Act.
Lincoln Park and its affiliates have agreed not to engage in any direct or indirect short
selling or hedging of our common stock during the term of the Purchase Agreement.
We have advised Lincoln Park that while it is engaged in a distribution of the shares included
in this prospectus it is required to comply with Regulation M promulgated under the Exchange Act.
With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers,
and any broker-dealer or other person who participates in the distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete. Regulation M also prohibits
any bids or purchases made in order to stabilize the price of a security in connection with the
distribution of that security. All of the foregoing may affect the marketability of the shares
offered hereby this prospectus.
This offering will terminate on the date that all shares offered by this prospectus have been
sold by Lincoln Park or may be resold by Lincoln Park without restriction under Rule 144(b)(1)(i)
under the Securities Act.
74
LEGAL MATTERS
The validity of the securities being offered by this prospectus has been passed upon
for us by Cooley LLP, Reston, Virginia.
EXPERTS
Reznick Group P.C., independent registered public accounting firm, has audited our
financial statements at December 31, 2009 and 2008, and for each of the two years in the period
ended December 31, 2009, as set forth in their report, which includes an explanatory paragraph
relating to our ability to continue as a going concern. We have included our financial statements
in this prospectus and elsewhere in the registration statement of which it is a part in reliance on
Reznick Groups report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities
Act, with respect to the securities being offered by this prospectus. This prospectus does not
contain all of the information in the registration statement and its exhibits. For further
information with respect to RegeneRx and the securities offered by this prospectus, we refer you to
the registration statement and its exhibits. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily complete, and in
each instance, we refer you to the copy of the contract or other document filed as an exhibit to
the registration statement. Each of these statements is qualified in all respects by this
reference.
We are subject to the information reporting requirements of the Exchange Act, and we file
reports, proxy statements and other information with the SEC. You can read our SEC filings,
including the registration statement, over the Internet at the SECs website at www.sec.gov . You
may also read and copy any document we file with the SEC at its public reference facilities at 100
F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed
rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference facilities.
We also maintain a website at www.regenerx.com, at which you may access these materials free
of charge as soon as reasonably practicable after they are electronically filed with, or furnished
to, the SEC. The information contained in, or that can be accessed through, our website is not part
of, and is not incorporated into, this prospectus.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act 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 SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable.
75
RegeneRx Biopharmaceuticals, Inc.
Index to Financial Statements
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Page |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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F-18 |
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F-19 |
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F-20 |
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F-21 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
RegeneRx Biopharmaceuticals, Inc.
We have audited the accompanying balance sheets of RegeneRx Biopharmaceuticals, Inc. (the
Company) as of December 31, 2009 and 2008, and the related statements of operations, changes in
stockholders equity, and cash flows for each of the years in the two-year period ended December
31, 2009. The Companys management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. 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
Companys 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of RegeneRx Biopharmaceuticals, Inc. as of December 31,
2009 and 2008, and the results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 2009 in conformity with accounting principles generally accepted
in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As more fully described in Note 1 to the financial statements, the
Company has experienced negative cash flows from operations since inception and is dependent upon
future financing in order to meet its planned operating activities. These conditions raise
substantial doubt about the Companys ability to continue as a going concern. Managements plans
regarding these matters are described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ REZNICK GROUP, P.C.
Vienna, Virginia
March 31, 2010
F-2
RegeneRx Biopharmaceuticals, Inc.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,355,768 |
|
|
$ |
5,655,367 |
|
Prepaid expenses and other current assets |
|
|
196,546 |
|
|
|
236,477 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
4,552,314 |
|
|
|
5,891,844 |
|
Property and equipment, net of accumulated
depreciation of $98,171 and $81,623 |
|
|
8,492 |
|
|
|
25,039 |
|
Other assets |
|
|
22,948 |
|
|
|
5,693 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,583,754 |
|
|
$ |
5,922,576 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
140,206 |
|
|
$ |
70,554 |
|
Accrued expenses |
|
|
740,198 |
|
|
|
1,255,358 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
880,404 |
|
|
|
1,325,912 |
|
|
|
|
|
|
|
|
Commitments |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value per share,
1,000,000 shares authorized; no shares issued |
|
|
|
|
|
|
|
|
Common stock, $.001 par value per share,
100,000,000 shares authorized; 60,406,828 and
53,622,491 issued and outstanding |
|
|
60,407 |
|
|
|
53,623 |
|
Additional paid-in capital |
|
|
88,144,347 |
|
|
|
82,550,585 |
|
Accumulated deficit |
|
|
(84,501,404 |
) |
|
|
(78,007,544 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
3,703,350 |
|
|
|
4,596,664 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
4,583,754 |
|
|
$ |
5,922,576 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
RegeneRx Biopharmaceuticals, Inc.
Statements of Operations
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|
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|
|
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|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
Sponsored research revenue |
|
$ |
|
|
|
$ |
168,412 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Research and development |
|
|
3,724,514 |
|
|
|
7,149,808 |
|
General and administrative |
|
|
2,781,790 |
|
|
|
3,805,346 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6,506,304 |
|
|
|
10,955,154 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,506,304 |
) |
|
|
(10,786,742 |
) |
|
|
|
|
|
|
|
Interest income |
|
|
12,444 |
|
|
|
149,777 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,493,860 |
) |
|
$ |
(10,636,965 |
) |
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
|
$ |
(0.12 |
) |
|
$ |
(0.21 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
55,680,525 |
|
|
|
50,967,617 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
RegeneRx Biopharmaceuticals, Inc.
Statements of Changes in Stockholders Equity
Years ended December 31, 2009 and 2008
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Deficit |
|
|
Income/(loss) |
|
|
Equity |
|
Balance, December 31, 2007 |
|
|
46,553,527 |
|
|
$ |
46,554 |
|
|
$ |
73,513,292 |
|
|
$ |
(67,405,579 |
) |
|
$ |
(1,543 |
) |
|
$ |
6,152,724 |
|
Cumulative effect of a change
in accounting principle ASC
Topic 730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
|
35,000 |
|
Issuance of common stock, net
of offering costs of $52,240 |
|
|
7,068,964 |
|
|
|
7,069 |
|
|
|
7,940,691 |
|
|
|
|
|
|
|
|
|
|
|
7,947,760 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
1,096,602 |
|
|
|
|
|
|
|
|
|
|
|
1,096,602 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,636,965 |
) |
|
|
|
|
|
|
(10,636,965 |
) |
Unrealized gain on available
for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,543 |
|
|
|
1,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,635,422 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
53,622,491 |
|
|
|
53,623 |
|
|
|
82,550,585 |
|
|
|
(78,007,544 |
) |
|
$ |
|
|
|
$ |
4,596,664 |
|
Issuance of common stock, net
of offering costs of $447,933 |
|
|
6,784,337 |
|
|
|
6,784 |
|
|
|
4,845,282 |
|
|
|
|
|
|
|
|
|
|
|
4,852,066 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
748,480 |
|
|
|
|
|
|
|
|
|
|
|
748,480 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,493,860 |
) |
|
|
|
|
|
|
(6,493,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
60,406,828 |
|
|
$ |
60,407 |
|
|
$ |
88,144,347 |
|
|
$ |
(84,501,404 |
) |
|
$ |
|
|
|
$ |
3,703,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
RegeneRx Biopharmaceuticals, Inc.
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,493,860 |
) |
|
$ |
(10,636,965 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
16,547 |
|
|
|
19,396 |
|
Non-cash share-based compensation |
|
|
748,480 |
|
|
|
1,096,602 |
|
Gain on settlement of accrued expenses |
|
|
(100,000 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
26,951 |
|
Prepaid expenses and other current assets |
|
|
39,931 |
|
|
|
66,767 |
|
Other assets |
|
|
(17,255 |
) |
|
|
|
|
Accounts payable |
|
|
69,652 |
|
|
|
(203,007 |
) |
Accrued expenses |
|
|
(415,160 |
) |
|
|
(940,150 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(6,151,665 |
) |
|
|
(10,570,406 |
) |
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Sales/maturities of short-term investments |
|
|
|
|
|
|
4,581,135 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
|
4,581,135 |
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
4,852,066 |
|
|
|
7,947,760 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
4,852,066 |
|
|
|
7,947,760 |
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(1,299,599 |
) |
|
|
1,958,489 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
5,655,367 |
|
|
|
3,696,878 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
4,355,768 |
|
|
$ |
5,655,367 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-6
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
1. ORGANIZATION AND BUSINESS
Organization and Nature of Operations. RegeneRx Biopharmaceuticals, Inc. (the Company,
We, Us, Our), a Delaware corporation, was incorporated in 1982. We are focused on the
discovery and development of novel molecules to accelerate tissue and organ repair. Our operations
are confined to one business segment: the development and marketing of product candidates based on
Thymosin Beta 4 (Tß4), an amino acid peptide.
Management Plans to Address Operating Conditions. We have incurred net losses of $6.5
million and $10.6 million for the years ended December 31, 2009 and 2008, respectively. Since
inception, and through December 31, 2009, we have an accumulated deficit of $84.5 million and we
had cash and cash equivalents of $4.4 million as of December 31, 2009. Based on our operating plan,
we believe that our cash and cash equivalents will fund our operations into the third quarter of
2010.
We anticipate incurring additional losses in the future as we continue to explore the
potential clinical benefits of Tß4-based product candidates over multiple indications. We will need
substantial additional funds in order to initiate any further preclinical studies or clinical
trials, and to fund our operations beyond the third quarter of 2010. Accordingly, we will have a
need for financing and are in the process of exploring various alternatives, including, without
limitation, a public or private placement of our securities, debt financing or corporate
collaboration and licensing arrangements or the sale of our company or certain of our intellectual
property rights.
These factors raise substantial doubt about our ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that we will continue as a going
concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of
our liabilities in the normal course of business.
Although we intend to continue to seek additional financing or a strategic partner, we
may not be able to complete a financing or corporate transaction, either on favorable terms or at
all. If we are unable to complete a financing or strategic transaction, we may not be able to
continue as a going concern after our funds have been exhausted, and we could be required to
significantly curtail or cease operations, file for bankruptcy or liquidate and dissolve. There can
be no assurance that we will be able to obtain any sources of funding. The financial statements do
not include any adjustments relating to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should we be forced to take any
such actions.
In addition to our current operational requirements, we expect to continue to expend
substantial funds to complete our planned product development efforts. Additionally, we continually
refine our operating strategy and evaluate alternative clinical uses of Tß4. However, substantial
additional resources will be needed before we will be able to achieve sustained profitability.
Consequently, we continually evaluate alternative sources of financing such as the sharing of
development costs through strategic collaboration agreements. There can be no assurance that our
financing efforts will be successful, and if we are not able to obtain sufficient levels of
financing, we would delay certain clinical and/or research activities, and our financial condition
would be materially and adversely affected. Even if we are able to obtain sufficient funding, other
factors including competition, dependence on third parties, uncertainty regarding patents,
protection of proprietary rights, manufacturing of peptides and technology obsolescence could have
a significant impact on us and our operations.
To achieve profitability we must successfully conduct pre-clinical studies and clinical
trials, obtain required regulatory approvals and successfully manufacture and market those
pharmaceuticals we wish to commercialize. The time required to reach profitability is highly
uncertain, and there can be no assurance that we will be able to achieve sustained profitability,
if at all.
F-7
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United Stated of America (U.S. GAAP) requires management to
make certain estimates and assumptions that affect the reported earnings, financial position and
various disclosures. Critical accounting policies involved in applying our accounting policies are
those that require management to make assumptions about matters that are highly uncertain at the
time the accounting estimate was made and those for which different estimates reasonably could have
been used for the current period. Critical accounting estimates are also those which are reasonably
likely to change from period to period, and would have a material impact on the presentation of our
financial condition, changes in financial condition or results of operations. Our most critical
accounting estimates relate to accounting policies for clinical trial accruals and share-based
arrangements. Management bases its estimates on historical experience and on various other
assumptions that it believes are reasonable under the circumstances. Actual results could differ
from these estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash and highly-liquid
investments with original maturities of three months or less when acquired and are stated at cost
that approximates their fair market value.
Concentration of Credit Risk. Financial instruments, which potentially subject the
Company to concentrations of credit risk, consist primarily of cash, and cash equivalents. We limit
our exposure to credit loss by placing our cash and cash equivalents with high quality financial
institutions and, in accordance with our investment policy, in securities that are rated investment
grade.
Property and Equipment. Property and equipment consists of office furniture and
equipment, and is stated at cost and depreciated over the estimated useful lives of the assets
(generally two to five years) using the straight-line method. Expenditures for maintenance and
repairs which do not significantly prolong the useful lives of the assets are charged to expense as
incurred. Depreciation expense was $16,547 and $19,396 for the years ended December 31, 2009 and
2008, respectively.
Impairment of Long-lived Assets. When we record long-lived assets our policy is to
regularly perform reviews to determine if and when the carrying value of our long-lived assets
becomes impaired. During the two years ended December 31, 2009 we did not report qualifying
long-lived assets and therefore no impairment losses were recorded.
Sponsored Research Revenues. We account for non-refundable grants as Sponsored research
revenues in the accompanying statements of operations. Revenues are recognized when the associated
research has been performed and the related underlying costs are incurred.
Research and Development. Research and development (R&D) costs are expensed as
incurred and include all of the wholly-allocable costs associated with our various clinical
programs passed through to us by our outsourced vendors. Those costs include: manufacturing Tß4;
formulation of Tß4 into the various product candidates; stability for both Tß4 and the various
formulations; pre-clinical toxicology; safety and pharmacokinetic studies; clinical trial
management; medical oversight; laboratory evaluations; statistical data analysis; regulatory
compliance; quality assurance; and other related activities. R&D includes cash and non-cash
compensation, employee benefits, travel and other miscellaneous costs of our internal R&D
personnel, seven persons in total, who are wholly dedicated to R&D efforts. R&D also includes a
pro-ration of our common infrastructure costs for office space and communications.
On January 1, 2008, pursuant to Accounting Standards Codification (ASC) 730-20
(formerly EITF Issue No. 07-3, Accounting for Advance Payments for Goods or Services to Be Used in
Future Research and Development Activities), Research and Development Costs, we changed our
accounting for non-refundable advance payments to acquire goods or pay for services that will be
consumed or performed in a future period in conducting research and development activities on
behalf of the entity. Advance payments are recorded as an asset when the advance payments are made.
Capitalized amounts are recognized as expense when the research and development activities are
performed; that is, when the goods without alternative future use are acquired or the service is
rendered. We determined that approximately $35,000 in qualifying transactions required
capitalization as of January 1, 2008, and accordingly recognized a cumulative-effect adjustment to
our accumulated deficit as of that date.
F-8
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
Cost of Preclinical Studies and Clinical Trials. We accrue estimated costs for
preclinical studies based on estimates of work performed. We estimate expenses incurred for
clinical trials that are in process based on patient enrollment and based on clinical data
collection and management. Costs based on clinical data collection and management are recognized
based on estimates of unbilled goods and services received in the reporting period. We monitor the
progress of the trials and their related activities and adjust the accruals accordingly.
Adjustments to accruals are charged to expense in the period in which the facts that give rise to
the adjustment become known. In the event of early termination of a clinical trial, we would accrue
an amount based on estimates of the remaining non-cancelable obligations associated with winding
down the clinical trial.
Patent Costs. Costs related to filing and pursuing patent applications are recognized as
general and administrative expenses as incurred since recoverability of such expenditures is
uncertain.
Income Taxes. Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. We recognize the effect of income tax
positions only if those positions are more likely than not of being sustained. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. The Companys policy for recording interest and penalties associated with audits is that
penalties and interest expense are recorded in Income taxes in the Companys statements of
operations.
The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making that assessment. We recorded a full valuation
allowance against all estimated net deferred tax assets at December 31, 2009 and 2008. We have
significant net operating loss carryforwards to potentially reduce future federal and state taxable
income, and research and experimentation tax credit carryforwards available to potentially offset
future federal and state income taxes. Use of our net operating loss and research and
experimentation credit carryforwards may be limited due to changes in our ownership as defined
within Section 382 of the Internal Revenue Code.
Net Loss Per Common Share. Net loss per common share for the years ended December 31,
2009 and 2008, respectively, is based on the weighted-average number of shares of common stock
outstanding during the periods. Basic and diluted loss per share are identical for all periods
presented as potentially dilutive securities have been excluded from the calculation of the diluted
net loss per common share because the inclusion of such securities would be antidilutive. The
potentially dilutive securities include 12,847,963 shares and 9,366,590 shares in 2009 and 2008,
respectively, reserved for the exercise of outstanding options and warrants.
Share-Based Compensation. We measure share-based compensation expense based on the grant date
fair value of the awards which is then recognized over the period which service is required to be
provided. We estimate the grant date fair value using the Black-Scholes option-pricing model
(Black-Scholes). We recognized $748,480 and $1,096,602 in share-based compensation expense for
the years ended December 31, 2009 and 2008, respectively.
Fair Value of Financial Instruments. The carrying amounts of our financial instruments, as
reflected in the accompanying balance sheets, approximate fair value. Financial instruments consist
of cash and cash equivalents, and accounts payable.
Recent Accounting Pronouncements. In February 2010, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU 2010 09) to address potential practice
issues associated with FASB ASC 855 (formerly SFAS 165), Subsequent Events. The ASU was effective
upon issuance and eliminated the requirement for entities that file or furnish financial statements
with the SEC to disclose the date through which subsequent events have been evaluated in originally
issued and reissued financial statements. Other entities would continue to be required to disclose
the date through which subsequent events have been evaluated; however, disclosures about the date
would be required only in financial statements revised because of an error correction or
retrospective application of U.S. GAAP. Our adoption of this standard changed our presentation of
subsequent events when preparing our financial statements.
F-9
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
In September 2009, the FASB ratified ASU 2009-13 (formerly EITF 08-1), Revenue
Recognition (ASC 605): Multiple-Deliverable Revenue Arrangements, the final consensus reached by
the Emerging Issues Task Force that revised the authoritative guidance for revenue arrangements
with multiple deliverables. The guidance addresses how to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting and how the arrangement
consideration should be allocated among the separate units of accounting. The guidance will be
effective for our fiscal year beginning January 1, 2011 with early adoption permitted. The guidance
may be applied retrospectively or prospectively for new or materially modified arrangements. We
currently do not have any multiple-deliverable revenue arrangements, accordingly, the adoption of
the guidance will not have an impact on our financial statements.
In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures
(ASC 820) Measuring Liabilities at Fair Value (ASU 2009-05). ASU 2009-05 provides clarification
that in circumstances in which a quoted price in an active market for the identical liability is
not available, a reporting entity is required to measure fair value using a valuation technique
that uses the quoted price of the identical liability when traded as an asset or the quoted prices
for similar liabilities or similar liabilities when traded as assets. The guidance provided is
effective for the first reporting period (including interim periods) beginning after issuance. Our
adoption of ASU 2009-05 did not impact our financial position or results of operations.
In June 2009, the FASB issued ASC 105 (formerly SFAS 168), The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles (ASC 105). ASC 105 is
now the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernment
entities. It also modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and
non-authoritative. ASC 105 is effective for financial statements issued for interim and annual
periods ended after September 15, 2009. The adoption of this standard in 2009 changed how we
reference various elements of U.S. GAAP when preparing our financial statement disclosures, but did
not have an impact on our financial position or results of operations.
Other new pronouncements issued but not effective until after December 31, 2009 are not
expected to have a significant effect on our financial position or results of operations.
Reclassifications. Certain account balances as of and for the year ended December 31,
2008 were reclassified to conform to current year presentation.
3. FAIR VALUE MEASUREMENTS
We adopted a new accounting standard that defines fair value and establishes a framework
for fair value measurements effective January 1, 2008 for financial assets and liabilities and
effective January 1, 2009 for non-financial assets and liabilities. This standard establishes a
three-level hierarchy for fair value measurements. The hierarchy is based upon the transparency of
inputs and the valuation of an asset or a liability as of the measurement date. The three levels of
inputs are as follows:
|
|
|
Level 1 Quoted prices in active markets for identical assets and liabilities. |
|
|
|
|
Level 2 Observable inputs other than quoted prices in active markets for
identical assets and liabilities. |
|
|
|
|
Level 3 Unobservable inputs. |
At December 31, 2009 and 2008, we held no qualifying liabilities, and our only qualifying
assets that required measurement under the foregoing fair value hierarchy were money market funds
and U.S. Treasury Bills included in Cash and Cash Equivalents valued at $4.4 million and $5.7
million, respectively, using Level 1 inputs.
F-10
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
4. LICENSES, INTELLECTUAL PROPERTY, AND RELATED PARTY TRANSACTIONS
We have an exclusive, worldwide licensing agreement with the National Institutes of
Health (NIH) for all claims to Tß4 within their broadly-defined patent application. In exchange
for this exclusive worldwide license, we must make certain royalty and milestone payments to the
NIH. Through December 31, 2009 we have complied with these requirements. No assurance can be given
as to whether or when a patent will be issued, or as to any claims that may be included or excluded
within the patent. We have also filed numerous additional patent applications covering various
compositions, uses, formulations and other components of Tß4, as well as to novel peptides
resulting from our research efforts. Some of these patents have issued, while many patent
applications are still pending. Minimum annual maintenance fees for each of the years ended
December 31, 2009 and 2008 were $25,000.
We have entered into a License and Supply Agreement (the Agreement) with Defiante
Farmaceutica, S.A. (Defiante) a Portuguese company that is a wholly owned subsidiary of
Sigma-Tau, S.p.A., an international pharmaceutical company and an affiliate of Sigma-Tau
Finanziaria S.p.A., who together with its affiliates comprise our largest stockholder group (the
Sigma-Tau Group). This Agreement grants to Defiante the exclusive right to use Tß4 to conduct
research and development activities in Europe. Under the Agreement, we will receive fees and
royalty payments based on a percentage of specified sales of Tß4-related products by Defiante. The
term of the Agreement continues until the later of the expiration of any patents developed under
the Agreement, the expiration of marketing rights, or December 31, 2016.
In furtherance of the licensed rights, Sigma-Tau Group funded and managed the
RegeneRx-sponsored Phase II dermal wound healing clinical trials in venous stasis ulcers conducted
in Italy and Poland that concluded in the first quarter of 2009.
5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Accrued expenses are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Accrued clinical research |
|
$ |
496,997 |
|
|
$ |
944,283 |
|
Accrued professional fees |
|
|
122,590 |
|
|
|
155,000 |
|
Accrued vacation |
|
|
35,300 |
|
|
|
61,714 |
|
Accrued license fees |
|
|
30,000 |
|
|
|
|
|
Accrued compensation |
|
|
28,995 |
|
|
|
84,361 |
|
Other |
|
|
26,316 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
$ |
740,198 |
|
|
$ |
1,255,358 |
|
|
|
|
|
|
|
|
6. EMPLOYEE BENEFIT PLANS
We have a defined contribution retirement plan that complies with Section 401(k) of the
Internal Revenue Code (the Code). All employees of the Company are eligible to participate in the
plan. The Company matches 100% of each participants voluntary contributions, subject to a maximum
Company contribution of 4% of the participants compensation. The Companys matching portion
totaled $18,269 and $51,494 for the years ended December 31, 2009 and 2008, respectively. In order
to conserve cash, the Company discontinued the matching contribution effective June 5, 2009 and
reinstated it on March 1, 2010.
F-11
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
7. STOCKHOLDERS EQUITY
Shareholders Rights Plan. Our Board of Directors adopted a Rights Agreement, dated April
29, 1994, as amended, that is intended to discourage an unsolicited change in control of the
Company. In general, if an entity acquires more than a 25% ownership interest in the Company
without the endorsement of our Board of Directors, then our current stockholders (other than the
acquiring entity) will be issued a significant number of new shares, the effect of which would
dilute the ownership of the acquiring entity and could delay or prevent the change in control.
Registration Rights Agreements. In connection with the sale of certain equity
instruments, we have entered into Registration Rights Agreements. Generally, these Agreements
required us to file registration statements with the Securities and Exchange Commission to register
common shares to permit re-sale of common shares previously sold under an exemption from
registration or to register common shares that may be issued on exercise of outstanding warrants.
The Registration Rights Agreements usually require us to pay penalties for any failure or
time delay in filing or maintaining the effectiveness of the required registration statements.
These penalties are usually expressed as a fixed percentage, per month, of the original amount we
received on issuance of the common shares, options or warrants. While to date we have not incurred
any penalties under these agreements, if a penalty is determined to be probable we would recognize
the amount as a contingent liability and not as a derivative instrument.
Common Stock. In February 2008, the Company sold 5,000,000 shares of its common stock at a
price of $1.00 per share, raising net proceeds of $4,947,760 (the February 2008 Private
Placement) from Sigma-Tau Group. In connection with the February 2008 Private Placement, the
Company also issued warrants to the investors. The warrants are exercisable for an aggregate of
1,000,000 shares of common stock at an exercise price of $1.60 per share. The warrants, which have
a term of three years and an exercise price of $1.60 per share, were valued using the Black-Scholes
option-pricing model as of the closing date and accounted for in permanent equity. The estimated
fair market value of the warrants at the date of issuance was $0.3 million.
Under the terms of the February 2008 Private Placement, the Company may, in its sole
discretion, repurchase the shares at any time between January 1, 2010 and December 31, 2010, for
$2.50 per share. The Companys repurchase right terminates after December 31, 2010. In addition,
the investors have agreed to vote the shares, and any additional shares issued pursuant to the
exercise of the warrants, as recommended by the Companys Board of Directors until December 31,
2010.
In December 2008, the Company sold 2,068,964 shares of its common stock at a price of
$1.45 per share, raising net proceeds of $3,000,000 (the December 2008 Private Placement) from
Sigma-Tau Group. In connection with the December 2008 Private Placement, the Company also issued
warrants to the investors. The warrants are exercisable for an aggregate of 745,104 shares of
common stock at an exercise price of $1.74 per share. The warrants, which have a term of three
years and an exercise price of $1.74 per share, were valued using the Black-Scholes option-pricing
model as of the closing date and accounted for in permanent equity. The estimated fair market value
of the warrants at the date of issuance was $0.4 million.
Under the terms of the December 2008 Private Placement, the investors have agreed to vote the
shares, and any additional shares issued pursuant to the exercise of the warrants, as recommended
by the Companys Board of Directors until December 31, 2011.
On April 30, 2009 we issued 1,052,631 shares of common stock at a price of $0.57 per
share, and warrants to purchase 263,158 shares of our common stock at $0.91 per share, to Sigma-Tau
Group for gross proceeds of $600,000. The warrants, which have a term of three years and an
exercise price of $0.91 per share, were valued using the Black-Scholes option-pricing model as of
the closing date and accounted for in permanent equity. The estimated fair market value of the
warrants at the date of issuance was $0.1 million.
F-12
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
On October 5, 2009, we issued 4,512,194 shares of common stock and warrants to purchase
2,256,097 shares of our common stock in a registered direct offering to new institutional
investors, for proceeds of approximately $3.3 million, net of approximately $400,000 of offering
costs. The warrants, which have a term of five years and an exercise price of $1.12 per share, were
valued using the Black-Scholes option-pricing model as of the closing date and accounted for in
permanent equity. The estimated fair market value of the warrants at the date of issuance was $1.0
million.
On October 15, 2009, we issued 1,219,512 shares of common stock and warrants to purchase
609,756 shares of our common stock to Sigma-Tau Group for gross proceeds of $1.0 million. The
warrants, which become exercisable on April 15, 2010 and have a term through September 30, 2014,
and an exercise price of $1.12 per share, were valued using the Black-Scholes option-pricing model
as of the closing date and accounted for in permanent equity. The estimated fair market value of
the warrants at the date of issuance was $0.2 million.
Share-Based Compensation. We recognized $748,480 and $1,096,602 in stock-based
compensation expense for the years ended December 31, 2009 and 2008, respectively. Given our
current estimates of future forfeitures, we expect to recognize the compensation cost related to
non-vested options as of December 31, 2009 of $723,000 over the weighted average remaining
recognition period of 1.1 years.
2000 Stock Option and Incentive Plan, as amended. Our Board of Directors (the Board)
and stockholders have approved the 2000 Stock Option and Incentive Plan under which the Board may
grant options to purchase shares of our common stock. Options may only be granted to our directors,
officers, employees, consultants or advisors, and no single participant can receive more than
450,000 shares in any one year. The exercise price and term of any grant are determined by the
Board at the time of grant but the exercise price may not be less than the fair market value of our
common stock on the date of the grant, and the term of the option shall not exceed ten years. As of
December 31, 2009, there were 6,500,000 shares reserved for issuance under the plan, of which
4,914,112 were outstanding and 1,550,888 were available for issuance.
The following summarizes share-based compensation expense for the years ended December 31,
2009 and 2008, which was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Research and development |
|
$ |
369,814 |
|
|
$ |
440,850 |
|
General and administrative |
|
|
378,666 |
|
|
|
655,752 |
|
|
|
|
|
|
|
|
|
|
$ |
748,480 |
|
|
$ |
1,096,602 |
|
|
|
|
|
|
|
|
F-13
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
The following summarizes stock option activity for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Available for |
|
|
Number of |
|
|
Exercise Price |
|
|
Exercise |
|
|
|
Grant |
|
|
Shares |
|
|
Range |
|
|
Price |
|
December 31, 2007 |
|
|
620,000 |
|
|
|
3,545,000 |
|
|
$ |
0.28 - $3.82 |
|
|
$ |
1.80 |
|
Grants |
|
|
(572,500 |
) |
|
|
572,500 |
|
|
|
1.14 - 1.50 |
|
|
|
1.23 |
|
Exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newly authorized |
|
|
2,300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
2,347,500 |
|
|
|
4,117,500 |
|
|
|
0.28 - 3.82 |
|
|
|
1.72 |
|
Grants |
|
|
(1,192,939 |
) |
|
|
1,192,939 |
|
|
|
0.57 - 0.76 |
|
|
|
0.64 |
|
Exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellations |
|
|
396,327 |
|
|
|
(396,327 |
) |
|
|
0.57 - 2.59 |
|
|
|
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
1,550,888 |
|
|
|
4,914,112 |
|
|
$ |
0.28 - $3.82 |
|
|
$ |
1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes information about stock options outstanding at December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
|
Exercisable Options |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
Number of |
|
|
Remaining |
|
|
Average |
|
|
Number of |
|
|
Remaining |
|
|
Average |
|
|
|
Shares |
|
|
Contractual |
|
|
Exercise |
|
|
Shares |
|
|
Contractual |
|
|
Exercise |
|
Range of Exercise Prices |
|
Outstanding |
|
|
Life (in Years) |
|
|
Price |
|
|
Exercisable |
|
|
Life (in Years) |
|
|
Price |
|
$0.28-$0.86 |
|
|
2,151,612 |
|
|
|
4.5 |
|
|
$ |
0.50 |
|
|
|
1,724,112 |
|
|
|
4.0 |
|
|
$ |
0.43 |
|
$1.07-$1.93 |
|
|
827,500 |
|
|
|
5.0 |
|
|
$ |
1.31 |
|
|
|
435,625 |
|
|
|
4.6 |
|
|
$ |
1.40 |
|
$2.02-$2.68 |
|
|
860,000 |
|
|
|
4.3 |
|
|
$ |
2.26 |
|
|
|
323,750 |
|
|
|
4.4 |
|
|
$ |
2.31 |
|
$3.00-$3.82 |
|
|
1,075,000 |
|
|
|
5.4 |
|
|
$ |
3.19 |
|
|
|
950,832 |
|
|
|
5.4 |
|
|
$ |
3.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,914,112 |
|
|
|
|
|
|
|
|
|
|
|
3,434,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of
in-the-money options,
using the December 31,
2009 closing price of
$0.55 |
|
$ |
254,450 |
|
|
|
|
|
|
|
|
|
|
$ |
254,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
Determining the Fair Value of Options. We use the Black-Scholes valuation model to
estimate the fair value of options granted. Black-Scholes considers a number of factors, including
the market price and volatility of our common stock. We used the following forward-looking range of
assumptions to value each stock option granted to employees, directors and consultants during the
years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
Risk free rate of return |
|
|
1.9 - 2.3 |
% |
|
|
0.8 - 3.7 |
% |
|
|
|
|
|
|
|
|
|
Expected life in years |
|
|
4.75 - 5.38 |
|
|
|
1.00 - 4.75 |
|
Volatility |
|
|
71 - 72 |
% |
|
|
68 - 82 |
% |
Forfeitures |
|
|
2.61 |
% |
|
|
|
|
Our dividend yield assumption is based on the fact that we have never paid cash dividends
and do not anticipate paying cash dividends in the foreseeable future. Our risk-free interest rate
assumption is based on yields of U.S. Treasury notes in effect at the date of grant. Our expected
life represents the period of time that options granted are expected to be outstanding and is
calculated in accordance with the Securities and Exchange Commission (SEC) guidance provided in
the SECs Staff Accounting Bulletin 107 (SAB 107), using a simplified method. The Company has
used the simplified method and will continue to use the simplified method as it does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate an
expected term. Our volatility assumption is based on reviews of the historical volatility of our
common stock. We estimate forfeiture rates at the time of grant and adjust these estimates, if
necessary, periodically based on the extent to which future actual forfeitures differ, or are
expected to differ, from such estimates. Accordingly, we have estimated forfeiture percentages for
the unvested portion of previously granted awards that remain outstanding at the date of adoption
and for awards granted subsequent to the date of adoption. Forfeitures are estimated based on the
demographics of current option holders and standard probabilities of employee turnover. Using
Black-Scholes and these factors, the weighted average fair value of stock options granted to
employees and directors was $0.39 for the year ended December 31, 2009 and $0.73 for the year ended
December 31, 2008.
We do not record tax-related effects on stock-based compensation given our historical and
anticipated operating experience and offsetting changes in our valuation allowance which fully
reserves against potential deferred tax assets.
Warrants to Purchase Common Stock.
The following table summarizes our warrant activity for 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Exercise Price |
|
|
Exercise |
|
|
|
Shares |
|
|
Range |
|
|
Price |
|
December 31, 2007 |
|
|
3,522,544 |
|
|
$ |
2.75 - $4.06 |
|
|
$ |
3.26 |
|
Grants |
|
|
1,745,104 |
|
|
|
1.60 - 1.74 |
|
|
|
1.66 |
|
Exercises |
|
|
|
|
|
|
|
|
|
|
|
|
Cancellations |
|
|
(18,558 |
) |
|
|
4.05 - 4.06 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
5,249,090 |
|
|
|
1.60 - 4.06 |
|
|
|
2.80 |
|
Grants |
|
|
3,129,011 |
|
|
|
0.91 - 1.12 |
|
|
|
1.10 |
|
Exercises |
|
|
|
|
|
|
|
|
|
|
|
|
Cancellations |
|
|
(444,250 |
) |
|
|
4.06 |
|
|
|
4.06 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
7,933,851 |
|
|
$ |
0.91 - $4.06 |
|
|
$ |
2.01 |
|
|
|
|
|
|
|
|
|
|
|
F-15
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
8. INCOME TAXES
Significant components of the Companys deferred tax assets at December 31, 2009 and 2008
and related valuation reserves are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
16,988,000 |
|
|
$ |
18,370,000 |
|
Research and development tax credit carryforward |
|
|
1,710,000 |
|
|
|
1,628,000 |
|
Charitable contribution carryforward |
|
|
37,000 |
|
|
|
39,000 |
|
Accrued vacation |
|
|
8,000 |
|
|
|
12,000 |
|
Accrued expenses |
|
|
163,000 |
|
|
|
150,000 |
|
Amortization |
|
|
5,000 |
|
|
|
6,000 |
|
Depreciation |
|
|
1,000 |
|
|
|
|
|
Stock option expense |
|
|
975,000 |
|
|
|
919,000 |
|
|
|
|
|
|
|
|
|
|
|
19,887,000 |
|
|
|
21,124,000 |
|
Less valuation allowance |
|
|
(19,887,000 |
) |
|
|
(21,123,000 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
|
|
|
|
1,000 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
Net deferred tax amounts |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
A full valuation allowance has been provided at December 31, 2009 and 2008 to reserve for
deferred tax assets, as it appears more likely than not that net deferred tax assets will not be
realized.
At December 31, 2009, we had net operating loss carryforwards for income tax purposes of
approximately $43.1 million, which are available to offset future federal and state taxable income,
if any, and, research and development tax credit carryforwards of approximately $1.7 million. The
carryforwards, if not utilized, will expire in increments through 2029.
The Code imposes substantial restrictions on the utilization of net operating losses and
tax credits in the event of a corporations ownership change, as defined in Section 382 of the
Code. During 2009, the Company completed a preliminary study to compute any limits on the net
operating losses and credit carryforwards for purposes of Section 382. It was determined that the
Company experienced a cumulative change in ownership, as defined by the regulations, in 2002. This
change in ownership triggers an annual limitation on the Companys ability to utilize certain U.S.
federal and state net operating loss carryforwards and research tax credit carryforwards, resulting
in the potential loss of approximately $9.8 million of net operating loss carryforwards and $0.2
million in research credit carryforwards. The Company has reduced the deferred tax assets
associated with these carryforwards in its balance sheet at December 31, 2009 and 2008.
F-16
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements (Continued)
The provision for income taxes on earnings subject to income taxes differs from the statutory
Federal rate at December 31, 2009 and 2008, due to the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Tax benefit at statutory rate |
|
$ |
(2,213,000 |
) |
|
$ |
(3,617,000 |
) |
State taxes |
|
|
(354,000 |
) |
|
|
(579,000 |
) |
Permanent M-1s |
|
|
339,000 |
|
|
|
563,000 |
|
Limited/expired net operating loss carryforwards |
|
|
3,546,000 |
|
|
|
6,150,000 |
|
Limited/expired research and development tax credit carryforward |
|
|
120,000 |
|
|
|
284,000 |
|
Research and development tax credit carryforward |
|
|
(202,000 |
) |
|
|
(504,000 |
) |
Change in effective tax rate |
|
|
|
|
|
|
(455,000 |
) |
Change in valuation allowance |
|
|
(1,236,000 |
) |
|
|
(1,842,000 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
As discussed in Note 2, we recognize the effect of income tax positions only if those
positions more likely than not of being sustained. At December 31, 2009, and December 31, 2008 we
had no gross unrecognized tax benefits. We do not expect any significant changes in unrecognized
tax benefits over the next 12 months. In addition, we did not recognize any interest or penalties
related to uncertain tax positions at December 31, 2009 and 2008.
9. COMMITMENTS
Lease. Our rent expense, related solely to office space, for 2009 and 2008 was $91,183
and $100,196, respectively. We are committed under an office space lease that expires on January
31, 2013 that requires the following approximate annual lease payments: $63,000, $94,000, $98,000
and $8,000 for the years ending December 31, 2010, through 2013, respectively.
Employment Continuity Agreements. We have entered into employment contracts with our
executive officers which provide for severance if the executive is dismissed without cause or under
certain circumstances after a change of control in our ownership. At December 31, 2009 these
obligations, if triggered, could amount to a maximum of approximately $900,000 in the aggregate.
F-17
RegeneRx Biopharmaceuticals, Inc.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,975,947 |
|
|
$ |
4,355,768 |
|
Accounts receivable |
|
|
15,603 |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
582,225 |
|
|
|
196,546 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
5,573,775 |
|
|
|
4,552,314 |
|
Fixed assets, net of accumulated depreciation of $105,655 and $98,171 |
|
|
24,640 |
|
|
|
8,492 |
|
Other non-current assets |
|
|
17,255 |
|
|
|
22,948 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,615,670 |
|
|
$ |
4,583,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
605,138 |
|
|
$ |
140,206 |
|
Accrued expenses |
|
|
544,732 |
|
|
|
740,198 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,149,870 |
|
|
|
880,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value per share, 1,000,000
authorized; no shares issued |
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share, 200,000,000 shares
authorized, 73,531,578 issued and outstanding as of September
30, 2010; 100,000,000 authorized, 60,406,828 issued and
outstanding as of December 31, 2009 |
|
|
73,531 |
|
|
|
60,407 |
|
Additional paid-in capital |
|
|
92,997,669 |
|
|
|
88,144,347 |
|
Accumulated deficit |
|
|
(88,605,400 |
) |
|
|
(84,501,404 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
4,465,800 |
|
|
|
3,703,350 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
5,615,670 |
|
|
$ |
4,583,754 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-18
RegeneRx Biopharmaceuticals, Inc.
Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
Sponsored research revenues |
|
$ |
53,819 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
1,819,036 |
|
|
|
3,064,248 |
|
General and administrative |
|
|
2,345,619 |
|
|
|
2,161,539 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,164,655 |
|
|
|
5,225,787 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(4,110,836 |
) |
|
|
(5,225,787 |
) |
|
|
|
|
|
|
|
Interest income |
|
|
6,840 |
|
|
|
10,304 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,103,996 |
) |
|
$ |
(5,215,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
|
$ |
(0.06 |
) |
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
66,729,519 |
|
|
|
54,216,430 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-19
RegeneRx Biopharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,103,996 |
) |
|
$ |
(5,215,483 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,484 |
|
|
|
12,578 |
|
Non-cash share-based compensation |
|
|
361,195 |
|
|
|
607,440 |
|
Gain on settlement of accrued liabilities |
|
|
(141,016 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(15,603 |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
(385,679 |
) |
|
|
(29,592 |
) |
Other non-current assets |
|
|
5,693 |
|
|
|
|
|
Accounts payable |
|
|
464,932 |
|
|
|
(13,804 |
) |
Accrued expenses |
|
|
(54,450 |
) |
|
|
(481,319 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(3,861,440 |
) |
|
|
(5,120,180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
|
(23,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(23,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
|
4,505,251 |
|
|
|
573,683 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
4,505,251 |
|
|
|
573,683 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
620,179 |
|
|
|
(4,546,497 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
4,355,768 |
|
|
|
5,655,367 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
4,975,947 |
|
|
$ |
1,108,870 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-20
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
1. ORGANIZATION, BUSINESS OVERVIEW AND BASIS OF PRESENTATION
Organization and Nature of Operations.
RegeneRx Biopharmaceuticals, Inc. (the Company, We, Us, Our), a Delaware corporation, was
incorporated in 1982. We are focused on the development of a novel therapeutic peptide, Thymosin
Beta 4 (Tß4), for tissue and organ protection, repair and regeneration. Our operations are
confined to one business segment: the development and marketing of product candidates based on
Tß4.
Management Plans to Address Operating Conditions.
We incurred net losses of $6.5 million for the year ended December 31, 2009 and $4.1 million for
the nine months ended September 30, 2010. Since inception, and through September 30, 2010, we
have an accumulated deficit of $88.6 million and we had cash and cash equivalents of $5.0 million
as of September 30, 2010. Based on our operating plan and a recently awarded $733,438 cash grant
more fully described below, we believe that our cash and cash equivalents as of September 30,
2010 will fund our operations into the second quarter of 2011, without additional capital. We
anticipate incurring substantial future losses as we continue development of Tß4-based product
candidates, and will therefore need substantial additional capital resources.
During the quarter ended June 30, 2010, we sold an aggregate of 13,124,750 shares of our common
stock and warrants to purchase an additional 5,249,900 shares of our common stock in a public
offering for net proceeds of approximately $4.5 million. In May 2010, we were awarded a grant
from the National Institutes of Health under which we may receive up to $3.0 million for
development expenses that we may incur over a three-year period, as more fully described in Note
5 below. In October 2010, we were awarded a cash grant totaling $733,438 under Section 48D of the
Internal Revenue Code, as more fully described in Note 8 below, in support of our research and
development initiatives for our product candidates.
We will explore other funding alternatives, such as additional government funding, public or
private placements of our securities, debt financing, corporate collaborations and licensing
arrangements or the sale of our company or certain of our intellectual property rights. If we are
unable to obtain additional financing, we may not be able to continue as a going concern after
our funds have been exhausted, and we could be required to significantly curtail or cease
operations, file for bankruptcy or liquidate and dissolve.
These factors raise substantial doubt about our ability to continue as a going concern as of the
date of the accompanying financial statements. The accompanying financial statements have been
prepared assuming that we will continue as a going concern. This basis of accounting contemplates
the recovery of our assets and the satisfaction of our liabilities in the normal course of
business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be
necessary should we be forced to take any such actions.
Even if we are able to obtain sufficient funding, other factors including competition, dependence
on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing
of peptides and technology obsolescence could have a significant impact on us and our operations.
F-21
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
To achieve profitability we, or a strategic partner, must successfully conduct pre-clinical
studies and clinical trials, obtain required regulatory approvals and successfully manufacture
and market those pharmaceutical products we wish to commercialize. The time required to reach
profitability is highly uncertain and there can be no assurance that we will be able to achieve
sustained profitability, if at all.
Basis of Presentation.
The accompanying unaudited interim financial statements reflect, in the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary for a fair
presentation of our financial position, results of operations and cash flows for each period
presented. These statements have been prepared without audit in accordance with U.S. generally
accepted accounting principles (GAAP) and with the rules and regulations of the Securities and
Exchange Commission (SEC) for interim financial statements. Accordingly, they do not include
all of the information and footnotes required by GAAP. The accounting policies underlying our
unaudited interim financial statements are consistent with those underlying our audited annual
financial statements. These unaudited interim financial statements should be read in conjunction
with the audited annual financial statements as of and for the year ended December 31, 2009, and
related notes thereto, included in our Annual Report on Form 10-K for the year ended December 31,
2009 (the Annual Report).
The accompanying December 31, 2009 financial information was derived from our audited financial
statements. Operating results for the nine-month period ended September 30, 2010 are not
necessarily indicative of the results to be expected for the year ending December 31, 2010 or any
other future period.
Subsequent events have been evaluated through the filing date of these unaudited financial
statements.
Use of Estimates.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
Sponsored Research Revenues.
We account for non-refundable grants as Sponsored research revenues in the accompanying
statements of operations. Revenues are recognized when the associated research has been performed
and the related underlying costs are incurred.
New Accounting Pronouncements.
In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2010-17, Revenue RecognitionMilestone Method, which provides guidance on
defining a milestone and determining when it may be appropriate to apply the milestone method of
revenue recognition for research or development transactions. Research or development
arrangements frequently include payment provisions whereby all or a portion of the consideration
is contingent upon milestone events such as successful completion of phases in a study or
achieving a specific result from the research or development efforts. The amendments in this ASU
provide guidance on the criteria that should be met for determining whether the milestone method
of revenue recognition is appropriate. The ASU is effective for fiscal years and interim periods
within those years beginning on or after June 15, 2010, with early adoption permitted. We are
currently evaluating the impact, if any, of the application of this ASU on our financial
condition and results of operations.
F-22
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.
This legislation includes an exemption for companies with less than $75 million in market
capitalization from the requirement set forth in Section 404(b) of the Sarbanes-Oxley Act of 2002
to include an external auditors report on the effectiveness of a registrants internal control
over financial reporting. As a result of the new legislation, our independent registered public
accounting firm will not be required to issue an attestation report with respect to our internal
control over financial reporting. However, we will continue to be subject to the requirement of
Section 404 of the Sarbanes-Oxley Act of 2002 for our management to make an annual assessment of
the effectiveness of our internal control over financial reporting.
2. NET LOSS PER COMMON SHARE
Net loss per common share for the nine-month period ended September 30, 2010 and 2009,
respectively, is based on the weighted-average number of shares of common stock outstanding
during the periods. Basic and diluted loss per share are identical for all periods presented, as
potentially dilutive securities have been excluded from the calculation of the diluted net loss
per common share because the inclusion of such securities would be antidilutive. The potentially
dilutive securities include 19,545,363 shares and 9,998,860 shares for the nine months ended
September 30, 2010 and 2009, respectively, reserved for the exercise of outstanding options and
warrants.
3. STOCK-BASED COMPENSATION
We recognized $361,195 and $607,440 in stock-based compensation expense for the nine months
ended September 30, 2010 and 2009, respectively. Given our current estimates of future
forfeitures, we expect to recognize the compensation cost related to non-vested options as of
September 30, 2010 of $447,364 over the weighted average remaining recognition period of 1.2
years.
We estimate the value of our stock option awards on the date of grant using the Black-Scholes
option pricing model. We used the following forward-looking range of assumptions to value each
stock option granted to employees and directors during the nine months ended September 30, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Risk-free rate of return |
|
|
1.6 |
% |
|
|
1.9 |
% |
Expected life in years |
|
|
4.75 |
|
|
|
5.38 |
|
Volatility |
|
|
70 |
% |
|
|
72 |
% |
Forfeiture rate |
|
|
2.6 |
% |
|
|
2.6 |
% |
F-23
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
4. FAIR VALUE MEASUREMENTS
We have adopted authoritative guidance that defines fair value and establishes a framework
for fair value measurements. This authoritative guidance established a three-level hierarchy for
fair value measurements. The hierarchy is based upon the transparency of inputs and the valuation
of an asset or a liability as of the measurement date. The three levels of inputs are as follows:
|
|
Level 1 Quoted prices in active markets for identical assets and liabilities. |
|
|
|
Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities. |
|
|
|
Level 3 Unobservable inputs. |
At September 30, 2010, we held no qualifying liabilities, and our only qualifying assets that
required measurement under the foregoing fair value hierarchy were money market accounts, insured
bank deposits and U.S. Treasury Bills, included in Cash and Cash Equivalents valued at $5.0
million using Level 1 inputs.
5. NIH GRANT
On May 13, 2010, we were awarded a grant from the National Institutes of Healths National
Heart, Lung and Blood Institute to support and accelerate the clinical development of our product
candidate RGN-352, an injectable formulation of Tß4 for patients who have suffered an acute
myocardial infarction, commonly known as a heart attack. The award was issued under the American
Reinvestment and Recovery Act of 2009. Subject to our compliance with the terms and conditions of
the award, we are eligible to receive up to $3.0 million over a three-year period in cost
reimbursements for direct costs incurred for the purposes set forth in the grant, as well as
allocable indirect costs. We recorded sponsored research revenue of $53,819 for the nine months
ended September 30, 2010 from this grant.
6. PUBLIC OFFERING
During the quarter ended June 30, 2010, we sold an aggregate of 13,124,750 shares of our
common stock and warrants to purchase an additional 5,249,900 shares of our common stock for net
proceeds of approximately $4.5 million. These securities were sold as units, with each unit
consisting of one share of common stock and a warrant to purchase 0.4 shares of our common stock.
Each unit was sold at a public offering price of $0.41.
Each warrant has a term of five years and represents the right to purchase one share of common
stock at an exercise price of $0.56 per share. In the event the closing sale price of our common
stock is at least $1.78 per share for any 20 trading days within a period of 30 consecutive
trading days, we may call these warrants for redemption, at a redemption price of $0.01 per
warrant, by providing at least 30 days notice to each warrant holder. The warrants were valued
using the Black-Scholes option-pricing model as of the closing date and accounted for in
permanent equity. The estimated fair value of the warrants at the date of issuance was
approximately $725,000.
In addition, the representative of the underwriters in the public offering was granted a warrant
to purchase 805,000 shares of our common stock at an exercise price of $0.45 per share. This
warrant is exercisable beginning on November 17, 2010 and continuing until May 17, 2015. The
representatives warrant also provides for one demand registration until May 17, 2015. The
representatives warrant was also valued using the Black-Scholes option-pricing model as of the
closing date and accounted for as a cost of the offering. The estimated fair value of the
representatives warrant at the date of issuance was approximately $112,000.
The public offering was made pursuant to a registration statement on Form S-1 (Registration No.
333-166146), which was declared effective by the SEC on May 17, 2010, and a final prospectus
filed with the SEC on May 18, 2010.
F-24
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
7. 2010 EQUITY INCENTIVE PLAN
On July 14, 2010, at the Companys Annual Meeting of Stockholders, the Companys
stockholders approved the 2010 Equity Incentive Plan (the 2010 Plan). The terms of the 2010
Plan provide for the discretionary grant of incentive stock options, nonstatutory stock options,
stock appreciation rights, restricted stock awards, restricted stock unit awards, performance
stock awards, other stock awards and performance cash awards to our employees, directors and
consultants. At inception of the 2010 Plan, 5,000,000 shares of the Companys common stock were
reserved for future issuance.
We previously adopted an equity incentive plan, known as the Amended and Restated 2000 Stock
Option and Incentive Plan (the 2000 Plan). The 2000 Plan has a term of ten years that will
expire in December 2010. Upon the adoption of the 2010 Plan, we anticipate that no further awards
will be granted under the 2000 Plan prior to its expiration, but all outstanding option awards
granted under the 2000 Plan will continue to be subject to the terms and conditions as set forth
in the agreements evidencing such option awards and the terms of the 2000 Plan. Shares remaining
available for issuance under the share reserve of the 2000 Plan will not be subject to future
awards under the 2010 Plan, and shares subject to outstanding awards under the 2000 Plan that are
terminated or forfeited in the future will not be subject to future awards under the 2010 Plan.
8. SUBSEQUENT EVENT
On October 29, 2010, we were notified by the Internal Revenue Service that we have been
certified to receive a total cash grant of $733,438 related to the previously filed applications
under the Qualifying Therapeutic Discovery Projects (Section 48D of the Internal Revenue Code).
This amount will be recognized as revenue and is expected to be received in 2010.
F-25
15,000,000 Shares
Common Stock
PROSPECTUS
, 2011
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, 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 |
|
$ |
383 |
|
Printing and engraving expenses |
|
$ |
15,000 |
|
Legal fees and expenses |
|
$ |
75,000 |
|
Accounting fees and expenses |
|
$ |
20,000 |
|
Transfer agent and registrar fees and expenses |
|
$ |
5,000 |
|
Miscellaneous expenses |
|
$ |
10,000 |
|
|
|
|
|
Total |
|
$ |
125,383 |
|
|
|
|
|
Item 14. Indemnification of Directors and Officers.
We are incorporated under the laws of the State of Delaware. Section 102(b)(7) of the Delaware
General Corporation Law, or DGCL, permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duties as a director, except for
liability for any:
|
|
|
transaction from which the director derives an improper personal benefit; |
|
|
|
|
act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
|
|
|
|
unlawful payment of dividends or redemption of shares; or |
|
|
|
|
breach of a directors duty of loyalty to the corporation or its stockholders. |
Our restated certificate of incorporation includes such a provision.
Section 145 of the DGCL provides that a Delaware corporation may indemnify any persons
who are, or are threatened to be made, parties 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 such corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of such person as an
officer, director, employee or agent of another corporation or enterprise. Our amended and restated
bylaws include such a provision. The indemnity may include expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the corporations best
interests and, with respect to any criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
Section 145 of the DGCL also provides that a Delaware corporation may indemnify any
persons who are, or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another corporation or enterprise.
Our amended and restated bylaws contain such a provision. The indemnity may include expenses
(including attorneys fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit provided such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the corporations best interests
except that no indemnification is permitted without judicial approval if the officer or director is
adjudged to be liable to the corporation. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation must indemnify him or
her against the expenses that such officer or director has actually and reasonably incurred.
Expenses incurred by any indemnitee in defending or investigating a threatened or pending
action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to
us of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it
shall ultimately be determined that such indemnitee is not entitled to be indemnified by us. No
advance will be made by us if a determination is reasonably and promptly made by our board of
directors by a majority vote of a quorum of disinterested directors, or if such a quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, that, based upon the facts known to the board or counsel at the
time such determination is made, such person did not meet the applicable standard of conduct in
order to be indemnified.
At present, there is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is required or permitted, and we are not aware of any
threatened litigation or proceeding that may result in a claim for indemnification.
We have an insurance policy covering our officers and directors with respect to certain
liabilities, including liabilities arising under the Securities Act or otherwise.
Under the Purchase Agreement, we have agreed to indemnify Lincoln Park from and against claims
and expenses in connection with the Purchase Agreement as a result of, or arising out of, or
relating to our misrepresentation or breach of representations, warranties or covenants made by us,
and claims brought or made against Lincoln Park and arising out of or resulting from the Purchase
Agreement other than with respect to liabilities that directly and primarily result from the gross
negligence or willful misconduct of Lincoln Park.
We have agreed to indemnify Lincoln Park and certain other persons against certain liabilities
in connection with the offering of shares of common stock covered by this registration statement,
including liabilities arising under the Securities Act or, if such indemnity is unavailable, to
contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to
indemnify us against liabilities under the Securities Act that may arise from certain written
information furnished to us by Lincoln Park specifically for use in this prospectus or, if such
indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Item 15. Recent Sales of Unregistered Securities.
The following list sets forth information regarding all unregistered securities sold by
us since January 1, 2008 through the date of this registration statement.
1) In February 2008, we issued and sold 5,000,000 shares of common stock at a price of
$1.00 per share, and warrants to purchase an aggregate of 1,000,000 shares of common stock at an
exercise price of $1.60 per share, to two accredited investors for aggregate consideration of
approximately $5.0 million.
2) In December 2008, we issued and sold 2,068,964 shares of common stock at a price of
$1.45 per share, and warrants to purchase an aggregate of 745,104 shares of common stock at an
exercise price of $1.74 per share, to two accredited investors for aggregate consideration of
approximately $3.0 million.
3) On April 30, 2009 we issued and sold 1,052,631 shares of common stock at a price of
$0.57 per share, and warrants to purchase an aggregate of 263,158 shares of common stock at an
exercise price of $0.91 per share, to one accredited investor for aggregate consideration of
$600,000.
4) On October 5, 2009, we issued and sold 4,512,194 shares of common stock at a price of
$0.82 per share, and warrants to purchase an aggregate of 2,256,097 shares of common stock at an
exercise price of $1.12 per share, to three accredited investors for aggregate consideration of
$3.7 million.
5) On October 15, 2009, we issued and sold 1,219,512 shares of common stock at a price of
$0.82 per share, and warrants to purchase an aggregate of 609,756 shares of common stock at an
exercise price of $1.12 per share, to one accredited investor for aggregate consideration of $1.0
million.
6) On January 4, 2011, we issued and sold 958,333 shares of common stock to Lincoln Park. The
consideration for this issuance was Lincoln Parks commitment to purchase shares under the Purchase
Agreement.
7) On January 7, 2011, we issued and sold an aggregate of 3,518,519 shares of common stock at
a price per share of $0.27, and warrants to purchase an aggregate of 1,407,407 shares of common
stock at an exercise price of $0.38 per share,
II-2
to three accredited investors for aggregate
consideration of $950,000.
The offers, sales and issuances of the securities described in paragraphs (1) through (7)
were exempt from registration under the Securities Act under Section 4(2) of the Securities Act and
Regulation D promulgated thereunder as transactions by an issuer not involving a public offering.
The recipients of securities in each of these transactions acquired the securities for investment
only and not with a view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in these transactions. Each of the recipients of
securities in these transactions was an accredited investor as defined in Rule 501 promulgated
under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
3.1(1) |
|
Restated Certificate of Incorporation. |
|
3.2(1) |
|
Certificate of Amendment of Restated Certificate of Incorporation. |
|
3.3(1) |
|
Certificate of Amendment of Restated Certificate of Incorporation. |
|
3.4(2) |
|
Certificate of Amendment of Restated Certificate of Incorporation. |
|
3.5(1) |
|
Certificate of Designation of Series A Participating Cumulative Preferred Stock. |
|
3.6(3) |
|
Amended and Restated Bylaws adopted July 26, 2006. |
|
3.7(4) |
|
Amendment to Amended and Restated Bylaws. |
|
4.1(1) |
|
Specimen Common Stock Certificate. |
|
4.2(1) |
|
Specimen Rights Certificate. |
|
4.3(1) |
|
Rights Agreement, dated April 29, 1994, between the Company and American Stock
Transfer & Trust Company, as Rights Agent. |
|
4.4(1) |
|
Amendment No. 1 to Rights Agreement, dated March 4, 2004, between the Company
and American Stock Transfer & Trust Company, as Rights Agent. |
|
4.5(5) |
|
Form of Warrant Agreement. |
|
4.6(6) |
|
Form of Warrant Certificate. |
|
4.7(5) |
|
Form of Representatives Warrant. |
|
4.8(7) |
|
Warrant issued to Lincoln Park. |
|
4.9(7) |
|
Form of Warrant issued to the Sigma-Tau Purchasers. |
|
4.10(7) |
|
Omnibus Warrant Amendment Agreement, dated as of January 5, 2011, by and among
the Company and the Sigma-Tau Purchasers. |
|
|
5.1# |
|
Opinion of Cooley LLP. |
|
|
10.1+(8) |
|
Amended and Restated 2000 Stock Option Incentive Plan, as amended. |
|
10.2*(9) |
|
Patent License Agreement Exclusive, dated January 24, 2001, between the
Company and the U.S. Public Health Service. |
|
10.3+(10) |
|
Form of Stock Option Grant Notice and Stock Option Agreement under the 2010
Equity Incentive Plan. |
|
10.4*(11) |
|
Thymosin Beta 4 License and Supply Agreement, dated January 21, 2004, between
the Company and Defiante Farmaceutica S.A. |
|
10.5(12) |
|
Lease by and between RegeneRx Biopharmaceuticals, Inc. and The Realty
Associates Fund V, L.P., dated December 10, 2009. |
|
10.6+(13) |
|
Second Amended and Restated Employment Agreement, dated March 11, 2009, between
the Company and Allan L. Goldstein, as amended. |
|
10.6+(14) |
|
Second Amended and Restated Employment Agreement, dated March 12, 2009, between
the Company and J.J. Finkelstein, as amended. |
|
10.7+(14) |
|
Second Amended and Restated Employment Agreement, dated March 31, 2009, between
the Company and C. Neil Lyons, as amended. |
|
10.8+(14) |
|
Second Amended and Restated Employment Agreement, dated March 31, 2009, between
the Company and David Crockford. |
|
10.9+ (10) |
|
2010 Equity Incentive Plan. |
II-3
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
10.10(15) |
|
Stock Purchase Agreement, dated as of June 23, 2005. |
|
10.11(16) |
|
Form of Warrant to Purchase Common Stock, dated March 17, 2006. |
|
10.12(17) |
|
Form of Warrant to Purchase Common Stock, dated December 18, 2006. |
|
10.13(17) |
|
Registration Rights Agreement, dated as of December 15, 2006. |
|
10.14(18) |
|
Securities Purchase Agreement, dated as of February 27, 2008. |
|
10.15(18) |
|
Form of Warrant to Purchase Common Stock, dated February 29, 2008. |
|
10.16(19) |
|
Securities Purchase Agreement, dated as of December 10, 2008. |
|
10.17(19) |
|
Form of Warrant to Purchase Common Stock, dated December 10, 2008. |
|
10.18(20) |
|
Securities Purchase Agreement, dated as of April 13, 2009. |
|
10.19(20) |
|
Form of Warrant to Purchase Common Stock, dated April 30, 2009. |
|
10.20(21) |
|
Securities Purchase Agreement, dated as of September 30, 2009. |
|
10.21(21) |
|
Form of Warrant to Purchase Common Stock, dated October 5, 2009. |
|
10.22(22) |
|
Securities Purchase Agreement, dated as of September 30, 2009. |
|
10.23(22) |
|
Form of Warrant to Purchase Common Stock, dated October 15, 2009. |
|
10.24(7) |
|
Securities Purchase Agreement, dated as of January 5, 2011, by and between
the Company and Lincoln Park |
|
10.25(7) |
|
Purchase Agreement, dated as of January 4, 2011, by and between the Company
and Lincoln Park |
|
10.26(7) |
|
Registration Rights Agreement, dated as of January 4, 2011, by and between
the Company and Lincoln Park |
|
10.27(7) |
|
Securities Purchase Agreement, dated as of January 5, 2011, by and between
the Company and Defiante Farmaceutica S.A. |
|
10.28(7) |
|
Securities Purchase Agreement, dated as of January 5, 2011, by and between
the Company and Taufin International S.A. |
|
10.29(7) |
|
Securities Purchase Agreement, dated as of January 5, 2011, by and between
the Company and Sinaf S.A. |
|
23.1 |
|
Consent of Reznick Group, P.C., independent registered public accounting firm. |
|
|
23.2# |
|
Consent of
Cooley LLP (included in Exhibit 5.1). |
|
|
|
24.1# |
|
Power of Attorney (Reference is made to page II-7 of the Registration
Statement on Form S-1 (File No. 333-171982) filed with the
Securities and Exchange Commission on January 31, 2011). |
|
|
|
|
(1) |
|
Filed as an exhibit to the registrants
Registration Statement on Form S-1 (File No.
333-166146) filed with the Securities and Exchange
Commission on April 16, 2010 and incorporated herein
by reference. |
|
(2) |
|
Filed as an exhibit to the registrants
Registration Statement on Form S-8 (File No.
333-168252) filed with the Securities and Exchange
Commission on July 21, 2010 and incorporated herein by
reference. |
|
(3) |
|
Filed as an exhibit to the registrants Quarterly
Report on Form 10-Q for the quarter ended June 30,
2006 filed with the Securities and Exchange Commission
on August 14, 2006 and incorporated herein by
reference. |
|
(4) |
|
Filed as an exhibit to the registrants
Registration Statement on Form S-8 (File No.
333-152250) filed with the Securities and Exchange
Commission on July 10, 2008 and incorporated herein by
reference. |
|
(5) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on May 21, 2010 and incorporated
herein by reference. |
|
(6) |
|
Filed as an exhibit to the registrants Amendment
No. 1 to Registration Statement on Form S-1 (File No.
333-166146) filed with the Securities and Exchange
Commission on May 17, 2010 and incorporated herein by
reference. |
|
(7) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on January 7, 2011 and
incorporated herein by reference. |
|
(8) |
|
Filed as Annex A to the registrants definitive
proxy statement on Schedule 14A filed with the
Securities and Exchange Commission on May 9, 2008 and
incorporated herein by reference. |
II-4
|
|
|
(9) |
|
Filed as an exhibit to the registrants Annual
Report on Form 10-KSB for the year ended December 31,
2000 (File No. 1-15070) filed with the Securities and
Exchange Commission on April 2, 2001 and incorporated
herein by reference. |
|
(10) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on July 20, 2010 and incorporated
herein by reference. |
|
(11) |
|
Filed as an exhibit to the registrants
Registration Statement on Form SB-2 (File No.
333-113417) filed with the Securities and Exchange
Commission on March 9, 2004 and incorporated herein by
reference. |
|
(12) |
|
Filed as an exhibit to the registrants Annual
Report on Form 10-K for the year ended December 31,
2009 filed with the Securities and Exchange Commission
on March 31, 2010 and incorporated herein by
reference. |
|
(13) |
|
Filed as an exhibit to Amendment No. 1 the
registrants Annual Report on Form 10-K/A for the year
ended December 31, 2008 filed with the Securities and
Exchange Commission on April 30, 2009 and incorporated
herein by reference. |
|
(14) |
|
Filed as an exhibit to the registrants Annual
Report on Form 10-K for the year ended December 31,
2008 filed with the Securities and Exchange Commission
on April 15, 2009 and incorporated herein by
reference. |
|
(15) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on June 23, 2005 and incorporated
herein by reference. |
|
(16) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on March 7, 2006 and incorporated
herein by reference. |
|
(17) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on December 18, 2006 and
incorporated herein by reference. |
|
(18) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on February 27, 2008 and
incorporated herein by reference. |
|
(19) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on December 12, 2008 and
incorporated herein by reference. |
|
(20) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on April 16, 2009 and incorporated
herein by reference. |
|
(21) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on September 30, 2009 and
incorporated herein by reference. |
|
(22) |
|
Filed as an exhibit to the registrants Current
Report on Form 8-K filed with the Securities and
Exchange Commission on October 5, 2009 and
incorporated herein by reference. |
|
+ |
|
Indicates management contract or compensatory plan. |
|
* |
|
The registrant has been granted confidential
treatment with respect to certain portions of this
exhibit (indicated by asterisks), which have been filed
separately with the Securities and Exchange Commission. |
|
|
# |
|
Previously filed. |
|
(b) Financial Statement Schedules
No financial statement schedules are provided because the information called for is not
required or is shown either in the financial statements or the notes thereto.
II-5
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 of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent 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 of 1933,
each such post-effective amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its securities provided by or
on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
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
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Rockville, State of Maryland, on the
7th day of February, 2011.
|
|
|
|
|
|
REGENERX BIOPHARMACEUTICALS, INC.
|
|
|
By: |
/s/ J.J. Finkelstein
|
|
|
|
J.J. Finkelstein |
|
|
|
President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ J.J. Finkelstein
J.J. Finkelstein
|
|
President and Chief Executive
Officer and Director (Principal
Executive Officer)
|
|
February 7, 2011 |
|
|
|
|
|
/s/ C. Neil Lyons
C. Neil Lyons
|
|
Chief Financial Officer
(Principal Accounting and
Financial Officer) |
|
February 7, 2011 |
|
|
|
|
|
|
|
Chairman of the Board of Directors |
|
February 7, 2011 |
|
|
|
|
|
|
|
Director |
|
February 7, 2011 |
|
|
|
|
|
|
|
Director |
|
February 7, 2011 |
|
|
|
|
|
|
|
Director |
|
February 7, 2011 |
|
|
|
|
|
|
|
Director |
|
February 7, 2011 |
|
|
|
|
|
|
* |
By: |
/s/ C. Neil Lyons
|
|
|
|
C. Neil Lyons |
|
|
|
Attorney-in-fact |
|
II-7